Disclaimer: Written for those with little knowledge of or experience with Bitcoin outside of hearing about it on mainstream news…

So what makes Bitcoin a technology at all? There’s a few misconceptions that generally arise when I talk to people about Bitcoin the technology, opposed to directly speaking about the singular implementation of the technology, which we call “Bitcoin.”

Many, if not all those that I speak with can wrestle with the idea of digital money. It makes sense, since in this day and age we can all agree that transactions of “Dollars and Cents” just equate to a computer system moving around “0's and 1's” from bank account to bank account.

Generally speaking, people who have bank accounts can understand that banks don’t transfer money from one account to the next by packaging up an envelope and putting the same cash that you deposited in that bank into the envelope so they can send your selected recipient a huge pile of verified cash money. They just take a bank account number, and “transfer” the digital marker of the amount you’ve selected to another bank account number through a pre-established inner network of other banks that accept and use a common protocol for exchanging money.

It’s just another form of a network. A network that we call “centralized.” And it’s only centralized because the operation and maintenance of it are directly performed by a limited number of participants — the network owners themselves — in this case… the Banks.

The “Bank’s Network”

The Banks exchange money on the same network that was developed over the course of the internet 1.0. In many ways transactions are bulk communicated over several infrastructures, but more importantly, the operation of these infrastructures, extrapolated over many years of hasty and “band-aid” improvements have made them frail and costly to maintain. Enter the “Bank Fee.”

In order to cover the cost of these networks, banks charge fees for each transaction meddling through the environment. Each time the transaction transgresses over another part of the network, it usually can be manipulated by one of a thousand different threat vectors.

The banks have also been the only show in town (backed by the Federal government via the FDIC) for a long time, and hence have made them unwaivering necessities of daily life since the early 1900's.

This fact has also allowed them to charge fees not only to cover their expenses, but also to generate a profit. Since most are, after-all, publically traded companies and have their share holders as their first motivator.

Here’s what some high level network diagrams look like:

In reality, the amount of systems required to maintain these networks is astounding. We’re talking hundreds of thousands of systems and devices that interconnect for the sole purpose of making sure that the banking networks know whose money and how much of it — is in which account and when.

Here’s another diagram aptly called the “Shadow Banking System.” This still doesn’t even come close to exposing the amount of ingress and egress points in the system, or worse — who is the gaurdian of all those input/output points:

Bitcoin is NOT a replacement for the banking system.

Bitcoin itself has, over the course of the past 5 years, struggled to gain traction within the established markets because it’s trying to prove that a specific type of alternative technology can work. Not only that it (Bitcoin) can work by itself, but that it can work within the existing Banking system. This is important for the simple need to control the adoption of a new technology as to not collapse the entire economic market we currently enjoy (or are slaves to). The use of Bitcoin is not the looming death of the current banking system, but Blockchain Technology — is.

Separating Bitcoin from Blockchain

So what is the “Blockchain.” Simply it’s a form of accounting software. Every accounting software ever used, is utilized for the sole purpose of “tracking” transactions to and from one account to another account. This is to “know,” based on a certain degree of certainty, that transactions occurred according to 1) the rules of the system and 2) that no outside manipulation of the original transaction contents were made during transit from one account to the next.

The Blockchain is the ultimate representation of a means to accurately track transactions between a unified group of accounts, people, nodes, networks, systems, … anything.

In a Blockchain network, all transactions occur only at the approval of all other contributors of the network. All transactions are available for review and scrutiny, and transactions cannot occur unless ultimately unrelated, non-similiarly motivated portions of the Blockchain network “agree” the transaction occurs. Thus instead of a few entities “agreeing” on a transactions validity (the “Bank’s network”), many if not all entities that use the network (e.g.. Bitcoin network) must agree on the validity and keep a public record of it.

For this reason, Blockchain technology is synonymous with “Distributed Consensus System” or “distributed network.”

Bitcoin is just ONE such distributed network that is currently running on Blockchain technology. It may have been the first, but it will not be the last — and that’s the point.

Bitcoin is just the messenger in this equation. It’s communicating, to those that will listen, that there is an alternate way to accomplish several very critical components of society. Currency (Bitcoin) is the first “industry” going through the transformation. However, the Blockchain technology extends to many other applications and use cases. Contracts, crowdfunding, government and micro-payments to name a few.

Just as the Internet replaced virtually all other communication networks from the late 1970's and became the most ubiquitous form of communication in the world, as too will be the upheaval of centralized transaction and tracking mechanisms in favor of robust, secure, and decentralized infrastructures that allow for trust and transparency as their first motivator.

So when someone asks about Bitcoin, instead of tackling the notion of explaining what Bitcoin is, instead focus on explaining the change Blockchain brings and all of its uses. Ultimately, supporting Blockchain technology is what will revolutionize the world again, just as the Internet did. So we all need to know what the HELL it is — and start asking what else can we use it for?

EDIT: This is an excellent video rendition of the above

Video Credit: About the creators
The animated video is a non-profit initiative by designers Patrick Loonstra (www.patrickloonstra.nl) and Sebas van den Brink (sebasvandenbrink.nl) and entrepreneurs Lykle de Vries (ThesisOne.com) and Rutger van Zuidam (Senanga.net, IntoBitcoin.com).