Bitcoin Made Simple - Part 2 - What is Bitcoin?
Crypto is a vast field. Lots of topics to cover in this area. To keep it simple, I will start by focusing on the topic of Bitcoin since that is what started it all. Hence, I modified the title to Bitcoin made simple from Crypto made simple.
The first question that you have to address when you start talking about Bitcoin is - What is Bitcoin?
Think of Bitcoin as similar to a file that lives on your computer - in the digital space. A file similar to
the funny video files that you forward on Whatsapp or
the soothing audio files that you play or
the text files where you capture your thoughts.
To be more precise Bitcoin is a sequence of zeros and ones that are stored in a file. These sequence of zeros and ones are associated with a person. We call this sequence of zeros and ones as a token. So, Bitcoin is a digital token. There is no physical coin representing a Bitcoin even though you might see images such as the one below on the internet.
The association of this digital token (Bitcoin) to a person can be changed. The person who is currently associated with the digital token controls the Bitcoin and is said to own the Bitcoin. This person can transfer this association to a different person. Then the new person will control and own the Bitcoin.
Kind of like the dollar bill that you have with you. As long as the dollar bill is with you, the dollar bill is associated with you, and you control the dollar bill. You are considered the owner of this dollar bill. But then you can transfer ownership of the dollar bill to someone else. At that point the dollar bill is associated with the new person and not associated with you. You no longer control or own the dollar bill that you transferred.
But then you might ask - unlike a real dollar bill, it is trivial to copy a file or copy a sequence of zeros or ones. Does this mean that we can easily duplicate these tokens that represent Bitcoin?
A very good question. The answer is that it is not easy to copy these tokens or arbitrarily change the association of Bitcoin to a person. This is due to the use of some cool mathematical properties used to create these tokens.
Given this and other properties, this digital token that we call Bitcoin is expected to become the legal tender or currency of many countries in the future. Legal tender means you can use it for trade (buy/sell) any other item in return for Bitcoin. El Salvador has already made Bitcoin as legal tender. So, you can buy/sell any item or pay your taxes in El Salvador using Bitcoin. In other words, many expect Bitcoin to become money.
That gives rise to the question - what is money? That is to be addressed in my article tomorrow.