Bitcoin Explained and MADE SIMPLE.
47In order to understand how bitcoin works we must first understand how money works. Originally people would trade one commodity for another, for example, some eggs for some milk. The problem was that it was hard to know exactly how much milk to give for a couple of eggs and so bartering was necessary. To overcome this problem people started trading in a common commodity that everyone needed and used, such as salt or gold. but this had the problem that you couldn't carry huge amounts of salt or bars of gold around with you.
To overcome this, banks and governments offered to keep your gold for you and give you some paper bills in return, if you had 100 paper bills worth of gold, you could give one to someone else without having to shave a bit off your gold bar, and if you wanted your bar back you gave 100 paper bills back to the bank. The gold gave the paper its value.
Over time, governments decided that they would vouch for the paper bill's value. and since the government said a piece of paper with $1 on it was worth $1 and always would be, everybody accepted that that piece of paper was worth $1, trusting in the value the government gave it rather than the value gold gave it.
There are 2 main problems with this though-
1. All money is centralized and requires this central power to control and issue it, which creates the possibility of manipulation and corruption.
2. It's unlimited, the government can print as much as it wishes. However, the more bills they print, the less each bill is worth.
Nowadays most transactions are digital and don't use paper bills, this causes another problem, which is controlling whether people have the money to spend or whether they have spent it already, a problem known as "Double spending". This problem is solved by banks and credit card companies keeping a central ledger of every transaction made.
In October 2008, someone published a document online under the alias of Satoshi Nakamoto. This document explained an idea for a digital currency called Bitcoin that needed no middlemen or controlling central power.
Instead of a bank or credit card company keeping a central private ledger to record how much money you have to spend and how much you have spent and so ensuring no double spending is happening.
Bitcoin's ledger is public, every bitcoin user's computer keeps an exact copy of the ledger that is constantly updating and checking transactions.
Whereas with the central ledger, the user is public and the transaction is private,
with Bitcoin the transaction is public but the user remains private.
This anonymity means no central body can control the individual's assets or know what they spend them on.
Bitcoin is a digital currency that has the same value all over the world. Instead of a government saying $1 is worth $1 and thus giving it value, People, give Bitcoin its value, the more people want Bitcoin, the greater the demand and so, the greater its value.
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