What is Bitcoin | How does bitcoin work | Easy Explanation of Bitcoin | What is Bitcoin in simple term

What is Bitcoin | How does bitcoin work | Easy Explanation of Bitcoin | What is Bitcoin in simple term

What is Bitcoin in simple term :

I'm going to explain bitcoin in a very simple language such that even a high school student can understand easily. Bitcoin is a digital currency and in order to understand that we need to go back to history and think about how the paper currency started. Let's say there is a small village where different people live in a farmer, teacher, doctor and carpenter etc and there is no currency yet and when they want to perform a trade what they would do is they would use something that they are good at producing. For example when carpenter wants let's say 10 kg rice he will go to farmer. Farmer knows how to produce rice so he will buy that rice and in exchange farmer can take a table and a chair from a carpenter because carpenter is good at those things this is called a barter system. There is no currency involved people exchange the goods that they produce. 


There are some issues with barter system such as what if farmer doesn't want table and chair right now maybe he wants it after one year. One possible way of solving this problem is to get more parties involved for example farmer's son is sick and he wants to go to a doctor for his treatment and let's say doctor needs table and a chair so now we can involve doctor in a trade such that carpenter will give table and chair to doctor and doctor will provide services to farmer's son and then farmer will give rice to carpenter. While this system works this is still complicated there is no store of value anywhere. We as humans came up with some medium by which we can exchange the store of value and that medium was gold you might have heard that in ancient time in when there were kings etc they used to use gold coins because gold is a very precious matter and it is very scarce resource as well and for that reason gold is a perfect store for value so now when farmer sells rice to carpenter he will ask for gold coins now those gold coins have a store of value so that after one year let's say he wants to buy table and chair from carpenter he needs to simply give those gold coins. 


While this system works really well and it did work for so many years there were some issues with gold as well for example it's not very easy to carry gold around. There are issues with safety as well let's say you are visiting a very remote town and you need a lot of gold coins for performing trade. Gold is a heavy metal and carrying it is risky as well. So then we came up with a paper currency system where government can issue these currencies which are just a piece of paper. If you think about it there is no real value but people have trust that the value of this piece of paper is let's say one dollar and government is issuing it. So it's not like everyone is printing their own currency now paper currency is very convenient you can carry it in your pocket it is not heavy. So many benefits.


But until some point paper currency was backed by gold but then they removed the gold standard we live in a world of fiat currency nowadays What fiat currency means is governments can print the paper currency out of thin air you look at 2008 recession, COVID recession united states government for example printed more than 4 trillion dollar out of thin air governments have this control over currency printing and they can just do whatever they want which is actually not good for the economy and there is a central control over this whole thing. So let's say if the government is not good they can misuse this currency printing facility. 


The other issue with currency is there are organization like terrorist organization and some unsocial elements who print fake counterfeit currency so now in our village all these people farmer carpenter etcetera were going through some trouble they are they were like we don't like this paper currency system we need a better solution and at that time a wise old man called Gandalf walks into the village and he offers a miracle solution for all your problems he calls it Bitcoin or a virtual money you all know how smart Gandalf is you might must have watched a Lord of the Rings movie and people trust on his wisdom and then they say yeah okay enough that sounds like a good idea why don't you explain how exactly bitcoin works. and gandalf says you all need to give me 500 in exchange I will give you 100 bitcoin which means five dollar per bitcoin.


How does bitcoin work :

Bitcoin is basically a computer file which is stored in a 'digital wallet' app on a smartphone or computer. People can send Bitcoins (or part of one) to your digital wallet, and you can send Bitcoins to other people. Every single transaction is recorded in a public list called the blockchain. This makes it possible to trace the history of Bitcoins to stop people from spending coins they do not own, making copies or undo-ing transactions.


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