When people talk about how bitcoin works, they often forget to mention the most important thing: it's a new form of money. Bitcoin is not just a digital currency; it's also a protocol and an ecosystem. And this ecosystem is growing fast. The goal of this article is to give you an overview of how bitcoin works and what it means for you as a user or developer in the space.
The History of Money
Money is a social construct, meaning it has no inherent value. It only has the value that we give to it. Money is just a way for people to exchange goods and services.
We use money because we need some way of measuring value between ourselves and others so we can trade with them in an economy. This need for measurement of value drives us towards using some commodity or item as our currency, which we call money today.
However, this wasn't always the case! In fact there have been many different forms of currency over time, ranging from shells and beads (think about those "beach" vacations) all the way up through gold coins like ducats or doubloons (think about your grandparents' retirement).
How Does Bitcoin Work?
Bitcoin is a decentralized, peer-to-peer system of currency. When using Bitcoin, there are no banks or middlemen like you see with traditional currencies. Instead, transactions take place on a public ledger between two parties and are verified by "miners."
The blockchain is the technology that makes Bitcoin possible. It's essentially an online database of transactions (also known as "blocks") that allows people to send and receive bitcoins without having to go through a third party like PayPal. Each block contains data about every transaction ever made in the history of Bitcoin; each block also includes information about previous blocks in the chain so that it’s possible to follow all transactions back to their beginnings in 2009 when Satoshi Nakamoto first created it as an open source project on Sourceforge (an online platform where developers can collaborate on software projects).
How Do You Use Bitcoin?
Bitcoin is a digital currency. Like dollars, it's not backed by any government or central bank but rather uses peer-to-peer technology and cryptography to keep transactions secure. You can now send Bitcoin to anyone you want for anything!
The system that makes bitcoin possible, known as blockchain (the "block" refers to the way all transactions are verified), also allows other digital currencies like Ethereum to exist—and some say these cryptocurrencies could reshape how we exchange money for goods and services forever.
New Way of Life
The history of money is a long and winding road. From metal coins minted by the Romans to the cash in your pocket today, the evolution of currency has been punctuated by many innovations that have shaped our world. But now, there’s a new development on the horizon: cryptocurrency like bitcoin. It’s not just another payment method or form of investment security—it represents something new and radical for how we think about money at all levels from individuals up through governments.