What is Bitcoin?

According to Wikipedia, Bitcoin is a worldwide cryptocurrency and digital payment system called the first decentralized digital currency, as the system works without a central repository or single administrator. It was invented by an unknown person or group of people under the name Satoshi Nakamoto …

Ok, you lost me. Can you explain it like I’m five?

Bitcoin is digital. It’s a technology, a currency, and a community. It’s decentralized and is not controlled by the government or by banks. It’s valuable because it’s finite.

How does it work?

Bitcoin works in such a way that it uses a massive peer to peer network called the blockchain which is basically just an online public ledger. This ledger keeps a secure (cryptographic enforced) record of all transactions. Every buy or sell is recorded in this ledger, and groups of these are called blocks.

Why is it valuable?

It’s valuable because Bitcoin is unique. There is a set number of Bitcoins. 21 million. It is mined.

Every four years, the number of bitcoins released relative to the previous cycle gets cut in half, as does the reward to miners for discovering new blocks. (The reward right now is 12.5 bitcoins.)

As a result, the number of bitcoins in circulation will approach 21 million, but never hit it. This means bitcoin never experiences inflation. Unlike US dollars, whose buying power the government can dilute by printing more money, there simply won’t be more bitcoin available in the future.

Wait, go back… you lost me again… what’s a miner?

With paper money, a government decides when to print and distribute money. Bitcoin doesn’t have a central government.

With Bitcoin, miners use special software to solve math problems and are issued a certain number of bitcoins in exchange. This provides a smart way to issue the currency and also creates an incentive for more people to mine.