Everyone talks about Bitcoin and how they are going to get rich with it. But what the fuck is Bitcoin? Who created it? How does it actually work? No one knows! Well, some people do, but most people couldn't explain it if their life depended on it. They use lingo they heard on a YouTube video, change their profile pics to laser eyes and go on TikTok pretending to be the Warren Buffett of crypto - the oracles of Bitcoin if you will.
So, naturally you believe Bitcoin hodlers (yes spelled correctly) are in a cult. Quite frankly, I don't blame you. The Bitcoin conference in Miami last year certainly seemed like a cult event. There's no denying that - seriously, it was insane. There were intelligent speakers sprinkled in that explained Bitcoin well, but for the majority, it was nonsense. So, I completely understand the hesitation.
My goal in this blog is to explain Bitcoin in the simplest terms you have ever read. Make it so easy that you, the reader, can fully understand the complicated cryptocurrency and make a thoughtful, educated decision on your own. Sound good? Ok let's get started.
Before you can understand Bitcoin, you must first become the Bitcoin... Oh wait, we aren't doing the cult thing in this one. Fuck, let me start over.
To understand what Bitcoin is we must first look at why it was created.
On October 31, 2008, Bitcoin was created "with the goal of wrestling control of currency from the financial elites and putting it in the hands of the common man." Your first question is probably - why?Well in 2008, we endured the great financial crisis. The worst case of corruption and greed we had ever witnessed.
If you aren't familiar with the GFC, below is a brief explanation:
Back to Bitcoin. After learning what happened, many people no longer trusted the banks, Wall Street, or the like. Thus, Bitcoin was born.
Ok, great - now we know the why, but who actually created Bitcoin? Easy - Satoshi Nakamoto. Ok, not really so easy. That name is a pseudonym, meaning no one actually knows who Satoshi is. Or even if it's a single person or a group of people. This adds to the allure of Bitcoin and the idea that the crypto is private, secure and anonymous.
We got the why, we got the who (kind of), now on to the most important question. What is Bitcoin? If I wanted to make you suffer I would tell you to go read Satoshi's white paper titled "Bitcoin: A Peer-to-Peer Electronic Cash System". It outlines exactly how the code works and explains the concept in full detail. Unfortunately, unless you are a coder, an engineer or a savant, trying to understand this paper is nearly impossible. It's full of technical terms you've never heard of, code that looks like a foreign language and formulas that definitely aren't taught in standard math classes.
So, as promised, the simple explanation.
Cryptography is the crypto in cryptocurrency. It is an encryption safeguard that makes something nearly impossible to counterfeit or hack. Essentially, it keeps something concealed or secret, unless you have the magic key to unlock the information. More on this in a bit.
Bitcoin is powered by a blockchain technology. A blockchain is a digital ledger that keeps track of every single transaction done in a network.
Imagine if you had a notebook and every time you spent money, you recorded that transaction in this notebook. Every cent, every dollar you have ever spent was recorded in the notebook from the first dollar you ever spent. That's a ledger. Simple as that.
With Bitcoin, the ledger is the blockchain. Any transaction done with Bitcoin is recorded on the blockchain. Anyone can see the transactions and no one can make any changes, that's the beauty of it.
Another term thrown around is decentralization. In today's world, for the most part, banks keep the ledgers for all dollars spent in the world. Let's say you lived in the US and you wanted to send money to your family in Europe. The only way to do this is though a third party, like a bank. And that third party will charge you a fee to send your family money, approximately $45. Not to mention it's going to take 3-5 business days. There's no way around it. Banks have a lot of power and money is centralized through them.
But why do we have to pay them to change numbers on a computer screen? And why does it takes days to happen? We shouldn't have to. And that's where Bitcoin comes in. There is no third party in Bitcoin. You want to send Bitcoin to your family in Europe, you can send it directly to them. No one else needs to be involved. You don't need to pay fees to some bank. And you certainly don't need to wait days for the money to show up in an account. Bitcoin takes minutes.
This is what makes Bitcoin decentralized. There is no third party required; the network handles everything.
I feel like most people can understand and fully grasp the first two terms, but this is where it gets confusing and people start to get lost. Let me just start by saying that no, the term miners is not referring to people in tunnels digging for Bitcoin.
So, who/what are miners? Remember how we talked about banks verifying transactions and maintaining the ledger? In the Bitcoin world, this is what miners do. But, instead of a third party, they are members of the network that verify the transactions and keep the network decentralized.
Ok, how does someone become a miner? Well, have you ever see one of those really fast, fancy computers? That's essentially what a miner uses. It's a computer on steroids. You plug it in, set it up on the network and the computer does the rest of the work. The problem is that the computer uses a lot of energy, which costs money. So, to incentivize miners to maintain the system, they are rewarded Bitcoin for every transaction they verify. The Bitcoin is brand new to the system; it does not come from either party, it is freshly "mined" hence the term miners.
Currently, the reward is 6.25 Bitcoin for every block mined. A new block is added to the chain approximately every 10 minutes.
Another confusing concept is proof-of-work. Essentially, proof-of-work is how the miners verify transactions on the blockchain. The computers need to solve a complex math puzzle. This is where the energy comes in. It takes a lot of power, or work, to complete this puzzle. The first miner to complete the puzzle wins the Bitcoin reward.
To make sure the miners have a level playing field, the puzzles adjust difficulty depending on how many miners are on the network. More miners equal higher difficulty. Less miners, easier difficulty.
If you don't want to go through the hassle of figuring out mining or the intricacies of Bitcoin, I don't blame you. You can simply buy or sell Bitcoin through cryptocurrency exchanges. The most popular is probably Coinbase (feel free to use my link to get $10 in free Bitcoin when you purchase $100 worth), but there are others such as BlockFi, Binance, CashApp, and others. It's a lot easier than figuring out a mining rig.
And keep in mind that you do not need to purchase a full Bitcoin. You can buy fractions of a Bitcoin, as little or as much as you want.
Here is a chart of the price history of Bitcoin and a little background from our Instagram:
In 2021, Bitcoin price hit $69,000. As of today, the price is $41,500 - a significant drop from the highs but still a huge price increase from where it started. It's all about perspective.
That's Bitcoin - explained as simply as I think you will find on the internet. Let me know if you have any questions or anything to add.
Thank you for reading! Be sure to follow us on Instagram for free daily content.
These are the companies we have partnered with this year. They make this blog possible so go check them out!
Coinbase - cryptocurrency exchange - get $10 in free Bitcoin when you buy your first $100
BlockFi - cryptocurrency exchange - get up to 8.6% interest on your crypto
Personal Capital - personal finance platform that helps users take control of their finances by blending world-class technology with human advice. Pair industry-leading financial tools with licensed advisors and full-service planning experts across all 50 states
M1 Finance - the future of finance in a sleek, modern app. Rated #1 for Sophisticated Investors by Investopedia, users can enjoy: free investing, high yield checking, low rate borrowing, automation, and optimization
TrueBill - app that helps people gain awareness about their spending habits and better manage their money. Truebill makes it easier than ever to manage subscriptions, lower your bills, and stay on top of finances & budgeting
Canva - design software that makes design simple, convenient, and reliable. Create what you need in no time! Jam-packed with time-saving tools that make anyone look like a professional designer
Credit Karma - your credit scores should be free. And now they are. Check your scores anytime, anywhere and never pay for it. Save smart with Credit Karma.
Beagle - helps you find your old 401(k)s. Also helps you rollover & consolidate your 401(k)s in to a Beagle account, which gives you access to your retirement money early with no tax or penalties.
I am not a licensed financial advisor or financial professional. This is not investing advice. I am simply sharing my research and opinion based on that research. It is very important that you do your own research and make investments based on your own personal circumstances, preferences, goals and risk tolerance.
This blog contains some affiliate links. If you purchase any service through one of these links, I may earn a small commission at no extra cost to you.