Bitcoin Explained Simply: A Practical Example

Bitcoin is one of those words that everyone has heard, but few truly understand. People talk about cryptocurrencies, blockchain, digital miners… and suddenly, the conversation feels like rocket science.

But what if there was a more straightforward way to understand it?

Forget technical terms for a moment, and let's focus on a story that will help us grasp how Bitcoin works without any headaches.

A Village, A Ledger, and Many Coins

Imagine a small village without banks or credit cards. Instead, the neighbours have created a simple system: all transactions are recorded in a large communal ledger.

But here's the twist: several scribes are scattered throughout the village instead of a single scribe keeping the records. Every time someone makes a transaction, all of them must write it down in their books and agree on which record is correct. This way, the system doesn't depend on a single person, making it much harder for anyone to cheat.

Let's see how this works in practice.

• Sandra, a farmer, wants to buy apples from Jorge's shop. To pay him, she hands over 10 gold coins. The scribes in the village write in their ledgers: "Sandra gives 10 gold coins to Jorge." (Any resemblance to reality is purely coincidental??).
• Later, Jorge decides to buy flowers from María's stall with part of the money he received. The scribes record: "Jorge gives five gold coins to María."
• Finally, María needs eggs for her business and decides to buy them from Sandra. The scribes again write in their books: "María gives 3 gold coins to Sandra."

Each transaction is recorded in all the ledgers simultaneously. If someone tries to cheat the system by writing a false transaction, the other scribes will detect it and reject the forgery.

?This way, no one can claim to have more money than they actually do, and no one can spend the same coin twice.?

What Does This Have to Do with Bitcoin?

Bitcoin works very similarly to this communal ledger, but in a digital version and without physical scribes. Instead of one person keeping the records, thousands of computers worldwide verify and store the data, ensuring the system remains secure and transparent.

Every time someone sends bitcoins to another person, the transaction is recorded in a shared database that everyone can access. This massive transaction log is called the blockchain. Instead of being stored in just one place, it is distributed across many computers, making it impossible for anyone to alter it at will.

Going back to our village example, the gold coins represent bitcoins. The transaction is publicly recorded each time someone makes a payment, just like in the communal ledger. However, instead of a single scribe overseeing the process, a network of computers must agree before confirming that everything is correct.

Before a transaction is considered valid, multiple computers must verify that the sender has the bitcoins they claim to have. This mechanism prevents anyone from trying to spend the same money twice and ensures that all transactions are legitimate. Additionally, once a transaction is recorded on the blockchain, it cannot be modified or erased.

All of this happens without the need for banks, intermediaries, or institutions overseeing the operations. Instead, the network itself ensures that the rules are followed. Thanks to this, anyone can participate without permission, but we'll save that discussion for another day.

For now, let's focus on one key takeaway: blockchain isn't just for Bitcoin. Its ability to securely and transparently store information makes it useful in many industries, from finance and logistics to medical records and even electronic voting.

?? Keen on learning more about blockchain? Stay tuned! More exciting content is coming.

Talk soon!

J.