Bitcoin: Explain It To Me Like I’m Five
Bitcoin is digital gold. Bitcoin is peer-to-peer money. Bitcoin is the internet of value. All of these are common descriptions of Bitcoin, but do little explain how Bitcoin works. I am going to try and explain how Bitcoin works like I was explaining it to a five year with a simple example with chat bubbles.
Bob and Alice
Bob wants a donut. Alice sells donuts.
Your Father’s Donut
Bob walks into Alice’s donut shop. Bob gives Alice a gold coin (I know this is a strained analogy, but stay with me) and Alice gives Bob a donut.
Millennial’s Donut
Bob asks his phone for a donut and it suggests Alice’s donut shop. Bob texts Alice:
Alice wants to send Bob a donut, but is worried Bob will not send her the gold coin. Alice invites Ted, her banker, into the chat. Ted types:
Bob understands that Ted is offering to act as a trusted third party; allowing Alice to send Bob a donut without having to trust him. But, Bob doesn’t like paying an extra gold coin and, more importantly, Bob is afraid Ted will tell his wife. Bob’s wife yells at him for eating donuts.
Solving Bob’s Problem
Bob texts his friend Satoshi and asks for help. Satoshi texts Bob:
Bob is confused. He knows people have used rare physical commodities to trade with each other for thousands of years. But, what is a digital commodity and how can it be rare? Before Bob can type his question, Satoshi texts:
Bob does not like math. Bob texts Satoshi:
Satoshi responds:
Bob likes this idea and texts Alice:
Alice responds:
Unsure how to respond, Bob asks Satoshi for the answer. After some thought Satoshi texts Bob:
Bob explains the blockchain to Alice and she responds:
Going Deeper
The above is the basic outline of the Bitcoin protocol. What it does not explain are the cryptographic techniques that make it work. Those include cryptographic hashes and digital signatures. It is not necessary to understand these to understand Bitcoin. But, If you are interested in going deeper, I recommend the Khan Academy course on Bitcoin and Cryptography.
