How Bitcoin works

Suppose we are in my house and you see that I have a beautiful toy dinosaur. You love it, you ask me to give it to youI say yes and I give it to you.

Now that plastic tyrannosaurus rex it’s yours. As simple as that. We do not need no intermediary or notary that certifies what happened between the two.

Wouldn’t a world without intermediaries be wonderful?

Spoiler: Yes.

Once I gave you the dinosaur, I can’t give it to anyone else. It was the only one I had and I completely lost control over it. It’s not mine anymore. now it’s yours.

So I can’t do anything else with the dino, but you can. you can do what you want: keep it, give it to someone or send it to space on a SpaceX rocket.

It’s that simple exchange of objects in the physical world.

This is how it works when you buy in the greengrocery and in the kiosk, or when you give a chocolate.

Pretty simple, right?

Now let’s complicate it a bit…

Suppose further that I have a digital dinosaur on my computer and you also ask me to give it to you.

That digital dinosaur doesn’t work the same than the plastic one. We have no way of knowing if it is unique because, in fact, I can copy it as many times as I want, distribute it online and reach half the planet.

Now we have a problem.

A problem well complex which computer scientists dubbed the “double spending problem”. And that until very recently it was not resolved.

maybe we can use some kind of record for this pixelated dinosaur. As a digital ledger, with a account holder of who has what.

There you can write Who does each digital dinosaur belong to?. For example, Sebastian has a tyrannosaurus rex, Bruno an iguanodon and Marina a stegosaurus.

In addition to scoring every time a dinosaur changes hands, the person in charge should save the book to your computer and would also be in charge of keep it up to date.

So we would have a accurate record of all the extant dinosaurs and of each dino-transaction.

Good! It seems that this ledger would solve the problem for us…

Would it fix it?

Unfortunately it is not that easy. Still several things can happen… some quite cloudy.

Suppose for the case that the person responsible for the annotations wants to make some triceratops for free and modify the registry. Goodbye ledger, it was a pleasure…

On the other hand, we put in an intermediary again and this is no longer anything like the exchange of the toy dino. Our utopia of a world without scribes was short-lived.

So, let’s ask ourselves once and for all the fundamental question: Can the simplicity of physical exchange be brought to the digital world?

Okay, if possible, thanks to a development that takes more than a decade: Bitcoin.

How Bitcoin Works (Explained With Dinosaurs)

Let’s try to improve our solution, even if it means making it a little more complex.

this time we believe an accounting book that instead of being in the computer of a single person is in that of many. On hundreds, thousands or millions of computers at once.

Also, this book would be available to anyone. And most importantly, every time a dinosaur transaction is made, all copies of the book would be synced at once.

In this accounting book, digital and public could not cheat because if someone tried to send a dinosaur that they don’t have, their ledger would be out of sync with the rest and the operation would not be valid.

What’s more, each new user adopt the system would make it harder to break. Every time someone joins one more copy of the ledger would be added that the cheater should modify in case of a fake.

Anyone could join to the network, download a copy of this public ledger and help validate transactions of dinosaurs

And to encourage this community validation could be added An incentive, so that every time someone validates a transaction, they earn 5 digital dinosaurs.

Thus the problem of double spending is solved without the need to resort to a single intermediary or person in charge.

The best of all is that this system exists and is known as the “Bitcoin protocol”. It is exactly the system of rules that makes bitcoin work.

Yes in that explanation we exchange dinosaurs for bitcoins we will arrive at a fairly close explanation of how this technology works.

Now let’s review the advantages of having a public ledger:

  • The digital dinosaurs initials are recorded in the accounting book. we know the exact amount that exists and also that these dinos they are limited. we always have full control over the amount.
  • We do not need intermediaries or authorities. Goodbye write us! Now really.
  • When I send you a digital dinosaur, it’s going to be yours and no one else’s. The published accounting book is synchronized and that’s it. Fixed issue. End.

In other words, we make digital dinosaurs work the same way as real dinosaurs.

So we are left with the best of both worlds.

I can send a dinosaur, a thousand or 0.0000001. From Argentina to Hong Kong, China or Africa. No need to go through no central authority and much less by a bank.

Gross.

we could even mount other digital “stuff” on top of these dinosaurs: text, a note, stocks, contracts. The possibilities are enormous.

That’s how cool Bitcoin is.