Bitcoin Explained: Just Enough to Impress Your Friends

If you have told your family, friends, or coworkers about cryptocurrency, they have likely wanted Bitcoin explained to them.

Maybe they are skeptical about the whole thing and want to make sure you are not involved with some type of cryptocurrency scam.

But more likely, they have heard about what you are up to and may want to get involved themselves.

bitcoin explained

“What are bitcoins, and how do I get some?”

If you attend a dinner party and a friend or new acquaintance asked you this question, would you be able to provide a credible answer?

Sure, it’s nice to sound like you know what you’re talking about. It should be more than that. If you truly understand something, you should be able to teach others. Not only that but sometimes the best way to learn is by teaching others.

Want to make sure you are prepared to explain the Bitcoin basics? Or do you want to make sure you’ve had Bitcoin explained properly to yourself? Let’s take a look at some big ideas.


Bitcoin explained

Bitcoin is a digital currency launched in 2009. It can be used as a payment method without requiring any third-party to handle the transaction. Because there is no single financial institution or government organization that controls or regulates Bitcoin, it is said to be “decentralized.” This shared ownership, by everyone who owns part of the currency, helps to prevent abuse and fraud.

The inventor of Bitcoin is Satoshi Nakamoto. It is believed that Nakamoto is actually an alibi for the true Bitcoin creator, another individual or a group of programmers who worked on the project and wished to remain anonymous.

How are Bitcoins generated?

There is a limited supply of Bitcoins that will ever be produced. Nakamoto set this supply limit at 21 million. This artificial scarcity protects against inflation. Bitcoins are gradually generated over an extended period of time. This process is known as Bitcoin mining.

Bitcoin mining uses a proof-of-work system. Bitcoin miners are rewarded with bitcoins for solving complex math problems using computer software. These problems are resource-intensive to solve.

If this “work” was easy to perform, Bitcoins would be generated rapidly – creating a surplus of Bitcoin and driving down their value. Instead, bitcoin mining demands computational power that regulates the speed of production and creates a stable and fair system for distributing the currency.

bitcoin value

What is a Bitcoin worth?

The monetary price of Bitcoin is constantly fluctuating according to the economics of Bitcoin markets. So far in 2017, Bitcoin has seen a high price of $3000 and a low price of $735.

It would be silly to ask, “How much will Bitcoin be worth in 10 years?” After all, there is no way of knowing. The price of Bitcoin in 10 years could be $100,000 or it could be zero dollars. It’s fun to speculate and come up with an educated guess – but at the end of the day, it’s still just a guess!

It is expected that the price of Bitcoin will continue to rise as long as people continue to find it useful. This is largely in part of an artificially-created level of scarcity. After all 21 million Bitcoins have been mined, no more will be created

Because the supply is fixed, the price will rise as the demand grows. Additionally, scarcity will grow as Bitcoins are gradually lost over time. It’s hard to imagine losing a Bitcoin like you might lose your cell phone or a pair of keys. However, it happens all the time, often due to the death of their owner, a lost physical bitcoin wallet, or a forgotten password.

To truly understand what a bitcoin is worth, you should also consider the other factors that make Bitcoin valuable.


How does Bitcoin have value?

At some point, you may have been asked, “Why should I own cryptocurrency?” There are technological features that make Bitcoin and other digital currencies unique from fiat (physical, government-regulated currencies). These special features show how Bitcoin has value in addition to its monetary value. If you have had Bitcoin explained to you in detail, this should be a quick review.

A few of the valuable Bitcoin features include:

  • Freedom of payment: send and receive payments at any time
  • Privacy and anonymity: protect your personal information
  • Decentralization: no government or organization “owns” Bitcoin

Simply put, one of the primary benefits of Bitcoin is the ability to make private transactions without relying on a third-party that may demand fees, become corrupt or fraudulent, or act carelessly with an individual’s personal information.

How does Bitcoin make money?

There is no “official Bitcoin organization” that profits from the use of Bitcoin. The companies that profit from Bitcoin are not owners of the technology – they are intermediaries that charge fees for making acquiring or transferring Bitcoins simpler. However, it is possible to own and use Bitcoin without paying any of these fees.

Bitcoin explained simply

These Bitcoin basics should be enough to answer others’ questions about cryptocurrency, and maybe encourage them to do some additional research of their own.


Just remember: the more you share, the more questions your friends will have. Be careful what you wish for!

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