Bitcoin is a currency.
Bitcoin is a digital currency.
Bitcoin is digital gold.
Bitcoin is a cryptocurrency.
Probably without the “crypto” word everything else made a little bit of sense and you lost everything at the word “Crypto”. Lets first take up the currency part.
In India we have Rupees, US has Dollars, UK has Pound Sterlings and each country has their own currency. This currency is a promise by the Government that you can purchase equivalent value of things using this. So the government “creates” currency in a country which we can trade. But before the origins of coins, people would barter things. The things would be currency. Bread for milk, milk for fruits etc. Later on gold, silver or brass became standards for currency
Similarly the Bitcoin is a new type of currency. It is not being issued by any government or a company, but you would have to mine (will explain the mining process later) it. There are companies who mine these bitcoins and bring them into the market.
Can we buy stuff using Bitcoins? Absolutely yes. There are many websites online and offline stores, which accept Bitcoin as a mode of payment. Like any another currency, it can be converted into an equivalent Dollar value.
Things get tricky from here.
We are accustomed to physical money, coins and notes. The currency is something we can hold on to. Even when we deposit money in the bank we have a belief that we can get the physical money back. We are born in era of Debit Cards, Paytm, so carrying cash seems odd to us. Our bank balance is as real as the hard cash for us. But still hard cash is hard cash.
Now all this hard cash can go digital only. You will never have to hold another penny in your hand. You can transact using your mobile or the debit/credit card. Bitcoin inherently is made digital. There is no physical presence. It only exists in the ledgers. Think of it as Paytm Cash or Amazon Cash. 1 unit of Paytm cash is almost equivalent to 1 Rupee. 1 Bitcoin is almost equal to 70,000 Rs. Now instead of buying things in INR or USD, you could buy in Bitcoins all over the world. Like any other currency, Bitcoin also has value that can be measured in Dollars.
Till now we have a digital cash/currency by the name on Bitcoin with us. Traditionally the banks maintain a ledger with record of every penny spent or earned. This leads to a centralised system. A entity at the centre keeps a track of money. Satoshi, the inventor of Bitcoin, envisioned a decentralised system with no server or central authority. The issue one faces is if there is no one to keep check on the Bitcoin generated or spent, people will grow their on Bitcoins and spend them again and again.
Cryptocurrency in basic terms are set of rules that help mask transactions in form of numbers and alphabets and identify the val . Every transaction that will be written in the Bitcoin ledger is approved by the miners. Once it it written in the ledger, it cannot be changed. Lets say Person A spent 2 Bitcoins and send it to a shop owner B. This transaction is confirmed by the miners and get written in the ledger. Now person A cannot spent those 2 Bitcoins again to buy things from Shop Owner C.
These set of rules maintain the ledger and avoid any malicious transactions.
I have tried to explain how Bitcoin is just like our normal currency. We can buy and sell things in Bitcoins and the program behind this is top notch and cannot be fooled easily.
In further blogs, I explain more Bitcoins and How do they Work.