bitcoin for dummies
The time is now…
Before I dive in, I’m going to assume that we all know what Cryptocurrency IS, and that there are different types of cryptocurrencies.
But very few of us have an understanding around how cryptocurrency works, and I have to be honest with you, it’s pretty fascinating.
Here are the basics:
Cryptocurrency is a store of value, like the US dollar, except its digital. Dollars are made of paper and fibers that you can touch and feel. Crypto is made of code. Remember this as we go on.
Bitcoin is the most popular crypto currency because it was the first one, released in 2009.
Bitcoin and other cryptocurrencies run on this thing called a Blockchain.
The Blockchain is essentially just a ledger, or a list of all of the Bitcoin transactions that are happening around the world. But remember, the ledger isn’t something you can see and feel. It’s also a bunch of code.
It’s called a Blockchain because the ledger consists of a bunch of separate blocks… of code. Each block contains a complete record of a series of transactions.
Stay with me.
The purpose of the Blockchain is to keep all of the transactions secure. That means that each block that gets added to the Bitcoin Blockchain has to be verified.
The Blockchain operates as a Peer-to-Peer network. Think Facebook. Facebook doesn’t exist without the people who contribute to it. Similarly, the Bitcoin Blockchain and Bitcoin itself, doesn’t exist without the network of people around the world contributing to it.
Q: Who are the people contributing to the Bitcoin Blockchain?
A: These are the Bitcoin Miners!
In order to add a block to the blockchain, these people have to solve a really hard math puzzle. No, I am not making this up. This is literally how it works.
But the math problem is REALLY hard. A TI-84 calculator won’t do it. It’s so hard that it requires an immense amount of computing power. So this self-regulates the people who both want to and are able to do it.
Q: But okay, why are they called Miners?
A: Because, as a reward for successfully verifying and adding a new block to the blockchain, they are rewarded with… you guessed it - BITCOIN. Before the Bitcoin halving last week, each miner was rewarded 6.25 BTC for verifying and adding a block. So with BTC currently priced at $64,000 per coin, that’s a $400,000 reward. Helluva incentive.
This is also THE process of how new Bitcoin gets placed into rotation. Through the miners who earn it. However, each time 210,000 new Bitcoins get mined, the reward gets HALVED. This is what the bitcoin halving is and what it means.
In the past, every time the Bitcoin mining reward was halved, the price, or value, of BTC skyrocketed. This is why people are excited.
The last important thing to know is that, Bitcoin is finite. The anonymous creator of Bitcoin ensured that only 21 million BTC will ever be created. It’s written it its code. So UNLIKE the US dollar, or any fiat currency for that matter, once 21 million BTC are mined, there will never be any new Bitcoin added into rotation ever again, and Bitcoin mining will theoretically be over.
Q: Why is any of this important to me?
A: Bitcoin is a currency system that is governed by its code and operated by the people who to contribute to it. Not by the ancient “powers that be”. I don’t think the concept of decentralized currency is going away. As money-intelligent individuals, you should want to keep an eye on where this technology and system is taking us.
A: If you have children, getting them involved in STEM programs or activities is probably a really great idea. You did see me say people are making $400,000 by solving a math puzzle with a computer? Right.
A: Generally, the world is changing really rapidly with AI. You may not need to have a keen understanding of cryptocurrency just yet, but it is your responsibility to understand how technology might be impacting you or your children’s future financial decisions.
