What is Bitcoin?
When you hear the word "Bitcoin" it's easy to picture it as digital coins on the Internet.
This isn't neccessarily wrong, but this image is completely different to what Bitcoin actually is and how it works. It's more helpful to think of Bitcoin as a piece of technology, instead of a bunch of digital coins.
Bitcoin experts prefer to use the word protocol, but technology is a good word to start with.
So what is this technology?
It's a technology we can use as a way to send money to each other on the Internet.
But for any kind of monetary technology to work, we need to be able to agree on who owns what. If we aren't able to agree, we could just make up how much money we have, and the money would be useless.
Humans can be a bit sneaky when it comes to money, you see.
So to solve this problem we currently use Banks. Banks do lots of things, but their fundamental job is to keep track of how much money each person has. So you could think of as a bank as one big ledger of people's account totals, where they only process a transaction if you've got enough money in your account.
This is exactly what Bitcoin does too. But instead of keeping that ledger in one place, we all share a copy of the Bitcoin ledger.
Ya with me?
The bitcoin ledger.
This shared ledger is what Bitcoin "is". It's a way for everyone to share a copy of a file that contains information on how much money each person has.
We call this file the "blockchain".
It's basically one big list of every bitcoin transaction that has ever been made. New transactions are added to everyone's copy of the blockchain in blocks (i.e. bunches of transactions all in one go). These blocks are then "chained" together so that everyone can update their ledger at the same time. Hence the name blockchain.
So instead of thinking of digital coins, think of Bitcoin as one big shared ledger of transactions, called the blockchain.
This sharing of a file of transactions is what makes Bitcoin such a technological advancement.
How are copies of this blockchain shared?
In the same way we share copies of files using BitTorrent.
Don't act like you don't know.
And how does the blockchain work?
I thought you'd never ask. This is how the blockchain works.
And that's Bitcoin, pretty much.
So we've got ourselves a system where we can all share one big file of transactions, and nobody is able to mess with it.
You could call it a "decentralised bank".