Money Crypto | 1 min read

How Bitcoin Works: For Beginners

Still confused with how Bitcoin actually works? Have you heard of the Blockchain? Let me break down how Bitcoin works using a simple analogy.

When you describe Bitcoin to some people, the concept can seem like it's out of this world. It's complex in a way but it isn't rocket science. It really is based on math and it's not impossible to learn. Many people had no idea how it worked or what it was. Now you have people investing in all types of cryptocurrencies for a profit all over the world.

Imagine that you are playing a betting game with your friends but no one has any money. So you decide to create a ledger to record the wins and the losses. You obviously can't trust one friend enough to handle it so you decide to each make a ledger.

This way, at the end of each game, everyone with a ledger compares their records to make sure that everything is the same. This eliminates any cheating because everything is in the open; basically defeating the purpose of any cheating.

The ledger is not hidden by everyone underneath a table or anything either. Anyone can view it anytime they want.

To add your bet to the ledger, all you have to do is broadcast to everyone with a ledger what your transaction is. You pay as little or as much as you want to move your bet to the front of the line.

Each friend that keeps a ledger get compensated for their work maintaining the records. This comes in the form of money.

This money comes from a vault with a limited amount of money. The money in the vault was never in the betting pool, but as it gets distributed to your friends it adds more value to the pot.

This analogy is exactly how Bitcoin works but way less complicated.

Bitcoin runs on a global decentralized computer network and each transaction is recorded and compiled into blocks. These blocks are connected to the last blocks on the blockchain (the distributed ledger). The Bitcoin miners are the ledger-keepers, who get rewarded with Bitcoin as they record Bitcoin transactions.

Does this help you understand how Bitcoin works? Let me know in the comments.