This article was kindly provided by 


Everyone, from five-year-olds to grandmothers, wants a simple-one sentence explanation of what Bitcoin is. There’s good news and bad news.

The bad news is, a truly accurate, simple, one-sentence explanation can’t possibly cover everything you need to know. The good news is, understanding Bitcoin isn’t so difficult if you break things down into bite-sized pieces.

Bitcoin can be hard to explain for two reasons:

  1. There are many complex mathematical and computational concepts at work.

  2. These concepts are typically described using words that sound so alien, you could make a whole new dictionary out of them (and we did!).

So to start, let’s break Bitcoin down into just a few words:

Digital money.

By comparison, our current monetary system exists both digitally and physically. For example, credit cards are a form of digital payment because funds are deducted from electronic bank accounts. On the other hand, cash is a form of physical payment because when you hand someone cash, value has literally changed hands. 

Bitcoin is a payment system that exists only digitally and works differently than the systems we are used to. It turns out using Bitcoin has some substantial benefits. Let's take a look:

  • Bitcoin is a global payment system. Are you trying to send money to Aunt Jane in Russia? To an astronaut on the ISS? Don't sweat it, you can still use Bitcoin. Sending money to your next door neighbor is the same as sending it halfway around the world.

  • Bitcoin removes third parties (like banks and credit card companies) from transactions. No one but you can control your funds.

  • Bitcoin was designed to have low transaction fees and quick transaction times.

  • The Bitcoin network is pseudonymous. It does not use names to identify accounts instead, they are identified by random strings of numbers and letters.

At this point you might be thinking, 'that's great, but how does it work?'

Bitcoin can provide so many benefits because it created a new technology in order to work, called blockchain, which is explained in the next guide. 

There are other digital currencies besides Bitcoin, collectively called cryptocurrencies. Many rely on blockchain technology to function as well. Some other cryptocurrencies (or "cryptos") you may’ve heard of are Ethereum, Litecoin, or Ripple. 

If you want to understand the importance of cryptocurrency, its place in our society, and why its value has exploded, understanding Bitcoin is the natural starting point, because it was the first crypto.

So let’s dive in! First, we’ll go through the creation story of Bitcoin, and then explain how its underlying technology, blockchain, works.

Brief History 

A distrust of the global banking system was, in part, what inspired Satoshi Nakamoto to create a digital currency in the first place. At first glance, our monetary systems seem fine and dandy. We can’t deny, credit and debit cards are fast and easy. But let’s take a closer look:

To use a credit or debit card to make digital payments, we need a bank or third party to manage everyone's accounts. As a result, our society has greatly expanded the roles of banks and credit card companies in our financial systems.

And let's not forget that credit and debit cards make global transactions a total pain! If you want to send money to Aunt Jessica halfway across the world, it’s often expensive and slow.

Computer scientists decided to solve this issue by creating global, digital currency that would not rely on central banks or governments.

After much deliberation (and many failed attempts by other cryptographers and computer scientists), Satoshi Nakamoto released the Bitcoin protocol, introducing the world to the first ever distributed currency.

P.S. While we're on the subject of protocols... the Bitcoin Protocol is a set of rules that govern the Bitcoin network. The Bitcoin (capital B) network uses a cryptocurrency called bitcoin (lower-case b). You spend bitcoins. The rules governing the whole ecosystem are explained in the Bitcoin Protocol.

How it works

Bitcoin is completely distributed, which means that it doesn’t require a third party (such as a bank) to operate. A record, or ledger, of all transactions and account holdings is kept on thousands of individually owned computers around the world, which constantly check each other for fraudulent activity. This effectively decentralizes (in this case, we mean that power is removed from a single authority technologically, the network is distributed, not decentralized) the network and ensures fair play.

Transactions are verified by people who donate their computer power towards keeping the whole system running. These people, called miners, are rewarded with newly created bitcoins for their work. The rate at which bitcoins are created slows down over time, such that there will only ever be 21 million of them.

What does Bitcoin allow us to do?

By utilizing a distributed protocol, we can send money cheaply and quickly anywhere in the world. As long as you have Wi-Fi, you can use Bitcoin no matter which country you’re in, what time it is, and regardless of how much you want to send.

Since Bitcoin’s inception, many other cryptocurrencies (‘cryptos’) have been created, each operating in a slightly different way. You may have heard of some popular ones: Ethereum, Ripple, Litecoin, etc.

The internet allows us to send information quickly, easily, and ubiquitously; cryptocurrencies allow us to send value quickly, easily, and ubiquitously.


Did this answer your question?