It’s really challenging to explain monetary transactions, let alone transactions in the digital world. Nevertheless, it is possible to explain Bitcoin and Blockchain technology in a way that people who are not software engineers or economists can understand.
First thing’s first – Bitcoin is a digital currency, also known as a cryptocurrency and it’s a currency that is used in the digital space, similarly to how the US dollar is a currency in the physical world. All transactions are made over the Internet – Bitcoin doesn’t have a physical form – meaning you can’t touch it. It can be used to pay for good or services (online) or it can be traded for some physical currency (exchanging Bitcoins for US dollars for example). There are even digital wallets in which you can store your coins.
Secondly, transactions are made between two users (peer to peer). This means that there is no central authority ensuring that everything runs smoothly. All “coins” are somewhere on the ledger/network called the Blockchain. Every transaction is recorded on it. When there is no central authority (such as banks or governments) somebody needs to make sure that funds are finding their way, right? So, the ledger is everybody’s! It lives in everybody’s computers. Everybody with enough education, experience and understanding can do this job (they are called the miners). For the trouble, they can get some coins in return (that’s how more coins are made in the network).
Finally, there is a place online that resembles a flea-market or a store. They are called the Exchanges and users go there when they want to buy or trade cryptocurrencies.
It is important to review all the most important qualities of Bitcoin and other cryptocurrencies if you decide to invest in it:
1. Transactions are fast and globally accessible (anyone can do the job of making sure that funds are in the right place).
2. Cryptocurrency exchange (including Bitcoin) is irreversible. After you send a cryptocurrency and the transaction is confirmed, you can’t retrieve it, so always be careful to type in the right recipient address.
3. You’ll always be anonymous (anyone can have their digital wallet and exchange cryptocurrencies).
4. Most importantly, they’re built to be secure and resistant to hacks.