Bitcoin, cryptocurrencies, blockchain, …wait, what?
Several friends have asked me about Bitcoin, blockchain, and so on. I’ve sent them articles, given long-winded explanations over coffee, and taken them through actual transactions using my phone. As the frequency of these sessions has increased, I decided it made sense to spend some time pulling it all together into a series of articles.
My goal with these articles is to give you a simple explanation of the technologies that go into cryptocurrencies so you’ll feel confident enough to decide how much more you want to learn and where to go to learn more. Along the way, I’ll point out the various rabbit holes you can go down. Some of these rabbit holes go very deep and shoot off in many different directions.
Simplified writing on purpose
Since this is an introductory series, I’m going to take some liberties with terminology and explanations. Technically, some of my explanations will be more or less correct, but I’ll leave out the clutter that I think could get in the way of your first pass at learning. As you understand more, you’ll see where I glossed over details in an effort to help you up the learning curve. I hope that you’ll later agree that my approach served its purpose.
A quick summary
Bitcoin and other cryptocurrencies run on purpose-built networks that use the Internet to send and receive coins. The source code of the networks for most cryptocurrencies, including Bitcoin, is published out as open source (anyone can view it, use it, modify it, etc.). In fact, the original designer of Bitcoin, is no longer involved with it. These networks run as peer-to-peer networks where no one is in control or owns it — just like the Internet itself.
Holders of coins can authorize transfers of their coins by using secret keys only they know. Once those coin holders sign over coins to someone else, that transaction record is put into a very long list (a ledger) of every transaction that has ever happened since the particular cryptocurrency network started up.
In the ledger, each transaction is lumped into blocks of other transactions that happened in roughly the same time period (say, every 10 minutes) and then linked together mathematically (hashed) in a way that past transactions cannot be changed. Copies of this complete ledger of transactions are held by network users (including you, if you desire) just like there are innumerable copies of the Oxford English Dictionary spread all over the world. Those copies of the ledger are updated every time new blocks of transactions are linked together.
Once you have coins then you can spend them by authorizing transfers to someone else using your secret key. Your transaction is then posted to the ledger and the process above continues on indefinitely.
This will be a series
Rather than trying to cram everything into one long article, I’ll write a series of articles that build upon each other. I’ll cover a lot of ground with this series, including some of these popular questions folks ask me:
- Do these cryptocurrencies really have value? Why?
- Is this fake money?
- Who runs the networks?
- Are cryptocurrencies bad?
- What can I buy with cryptocurrencies?
- How do I get coins in the first place?
- What is “mining” and do I have to do it?
- How does blockchain fit into all of this?
- How can I keep from losing my coins?
- How exactly can I use cryptocurrencies to buy things or pay people?
- Are bank accounts going away?
- Are credit cards going away?
- Is this a bubble?
Like this post? Signup here to get my latest articles sent straight to your inbox.