Explaining Bitcoin is hard. Because it’s hard to understand it completely. But I gave it a shot. And provided you with some basics. Whether it is a good investment or not, is totally up to you for now. I’m taking my first steps in Bitcoin. But in order to know what I’m investing in, I want to understand it.
A lot of people are dealing with Bitcoins already. So a lot of people have different opinions about it. So let’s keep those out of this article. And focus on the basics, so your 5-year-old can understand it too.
Bitcoin is a digital currency. So instead of handing someone money in real life, you can send it digitally. Because digital is hard to apprehend for most people, you have to understand that this implies some problems. If you have a digital file, and you pass it on to someone else. You still have a copy of that file on your computer. So how do I know, in the case of Bitcoin, that you actually handed me your coins? That’s where a public ledger comes in. In a ledger, you keep a record of all the transactions that happened. And since Bitcoin is a system that is decentralized. There are many ledgers in order to verify a transaction. The ledger is referred to as the blockchain. So if you want to cheat, and just start adding Bitcoins to your balance, it wouldn’t sync up with all the ledgers. Since everybody has a copy of it. Everybody needs to validate your balance and your transactions.
The amount of Bitcoins is stored at an address, also called wallets. The information is theoretically stored anonymously, nobody can actually tell that which Bitcoin address is yours. But since many people are using third party services to create and manage their wallet, those services know which address is connected to your account.
In addition, the whole system is open source. Everyone can look into the source code of Bitcoin and improve on it. That also means the rules of the system are set from the beginning, and even the amount of Bitcoins are limited. Fortunately, you can divide a Bitcoin as much as you want. The downside is that technology changes a lot. So trying to understand how Bitcoin works, is pretty hard.
What the future brings for Bitcoin is everyone’s guess. It recently passed the $7.000 mark, and it either excites you or makes you suspicious. It is described as a pyramid scheme, the gold for millennials, a hyped start-up, and so on. Others say it changed world economics and see it as an investment for the future. Whatever you want to make of it, just be careful to never invest more than you can miss in something you don’t fully understand.
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