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An Elementary Explanation Of How Bitcoin Works
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To most people,Bitcoincan seem like a financial conceptmade in a
parallel universe. Yes, it’s a very complexand complicated concept, but it
doesn’tmean it’s impossible to learn it. When you think about it, many
people started off with no idea about bitcoins and how it worked. But look at
them now, they’re probablyinvesting left and right in various
cryptocurrencies like pros and possiblyprofiting very nicely as well! So, in
this article, we’ll try to simplifyhow Bitcoin works using a betting game
analogy:
Imagine playing a betting game with your friends,but none of you have any
money on hand, so you decide to use a ledgerto record the transactions,
like your winnings and losses.But you don’t want to put your trust on one
friend to record everything, so a lot of you decide to make a ledger
simultaneously.
This way, at the end of each game, those who kept ledgers can compare
their records to see if it all evens out—which means that cheating the
system would be virtually impossible unless everybody else is in cahoots
with you, which ultimately defeats the purpose of cheating in the first place.
The ledgeris not hidden or exclusive to the ledgerkeepers;you can view it
anytime you want. To add your transactions to the ledger, all you have to
do is broadcastyour transactions to the ledgerkeepers,and you pay as
little or as much as you want to make sure they put your name down on
that ledgeras soon as possible.
Your friends who keep the ledgers up to date get compensationfortheir
hard work with a reward in the form of money. This money comes from an
external source—say,a vault with a limited amount of money. The money
in the vault wasn’t part of the money circulating in the betting pool,but it
became so once it was acquired by your ledger-keeperfriends.
This simple analogy is exactly how Bitcoin operates,albeit on a much more
complicated level. Bitcoin runs on a global computernetwork, and each
transaction is compiled into new blocks which are then connected to the
last block on the blockchain. And the bitcoin miners are the ledger-keepers
who work hard to record transactions and mine those precious bitcoins.

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An Elementary Explanation of How Bitcoin Works

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