Bill Poulos is a financial educator, experienced trader, and the president of Profits Run, Inc. Watch as he breaks down Bitcoin and Cryptocurrencies in an easy to understand explanation, even for the novice trader.
Hi, this is Bill Poulos from Profits Run and in this short video you will quickly and easily understand how Bitcoin works. I think you’ll agree that this is the simplest explanation of Bitcoin you’ve ever seen. After you watch this please post a comment below if you liked what you saw.
The concept of Bitcoin can be a little tricky at first so to help you understand let me tell you a short story. Imagine two people on a beautiful beach, let’s call them Sammy and Suzie. Sammy has one coconut and he wants to give it to Suzie who has zero coconuts. After Sammy gives the coconut to Suzie he now has zero coconuts and Suzie has one, which she stores in her lovely green satchel. We know this because we can physically observe the transaction. We could physically touch the coconut if we were standing there on the beach. There’s only one coconut here, not two, not three. You can’t pull coconuts out of thin air.
This type of in-person exchange is something we can all understand, right? Well let’s back up for a minute and ask this question, what happens if Sammy gives Suzie one digital coconut? How does she know she’ll be the only owner of it? How did she know that Sammy didn’t make ten copies of it that he gave to other people? This kind of transaction is more complicated. One solution would be to bring in a third party to keep track of the transaction on a ledger. Let’s call this person, Andy the accountant, he could write down on his ledger that Sammy gave Suzie one digital coconut which is stored in her green satchel. That way someone is keeping track.
Of course, this solution is flawed because Andy could also just create more entries in his ledger thus creating more digital coconuts. There’s no trust in this scenario, so this solution doesn’t work. But, what if there were ten accountants in charge of keeping track of this transit? What if all ten had copies of the exact same ledger? Now we’re getting somewhere, but there’s an even better solution. Instead of just ten accountants standing on the beautiful beach with Sammy and Suzie, what if there were thousands of them spread across the globe? A huge network of people who all have a copy of the same ledger that keeps track of every digital coconut transaction at a simplified level. That is exactly how Bitcoin works.
Let me explain the digital coconut in our example is a Bitcoin and every Bitcoin is unique. The satchel that Suzie used to store digital coconut is called a wallet and every wallet is unique. The accountants spread across the world are called miners. The common shared ledger that all the miners have copies of is called the blockchain because the sequential transactions stored in it are called black’s blockchain. Is actually more than just a simple ledger, as it is the technology that enables Bitcoin to be transferred. It has a set of rules and regulations that all the miners must follow thus it is governed by the peer network of miners.
Another way to think of blockchain is like this – blockchain is to Bitcoin like the internet is to email. So, why would a miner have any interest in participating in a blockchain network? What do they get out of it? Well, one of the ingenious ideas built into the blockchain rules actually awards bitcoins to miners who use their computers to solve very complex mathematical equations. This is the only way that new bitcoins are created.
The process of solving these equations is called mining, thus the reason for the term miners. For the Bitcoin protocol there are a finite number of bitcoins that can ever be mined, about 21 million. The rules increase the complexity of the mathematical problems to be solved, so that it becomes increasingly difficult to mine bitcoins year after year. It’s estimated that all 21 million bitcoins will be mined by the year 2140. After all bitcoins are mined the miners will still have an incentive to maintain the blockchain through transaction fees.
So there you have it! Just remember the story of Sammy and Suzie and the digital coconut and you’ll always understand at a high level how Bitcoin works. If you enjoy this explanation please post a comment below and thanks for watching.