Many wonder what Bitcoin is, but everyone in the crypto community struggles to explain it in a simple yet clear way. Too many get lost in technical details that don’t help ordinary people to appreciate the incredible features Bitcoin bears, nor the striking innovation such technology carries.
To fill this gap, we have decided to offer an explanation suitable even for a 10-year-old child. In this way, you can explain what Bitcoin is to your children. Indeed, at SwissBorg, we believe financial education should start from a tender age. Every parent wants the best for their kids, and offering them the tools to build their wealth in the future is the best for them!
The concept behind Bitcoin
Imagine you have a special kind of money that exists only on the Internet. This money is called Bitcoin. It's like having digital coins you can use to buy things, just like the coins you use to buy games or a pizza.
Like EUR or USD, Bitcoin is valuable because everyone wants it, but… here's the interesting part: Bitcoin is not controlled by any person or government. It's a bit like a secret code that keeps everything fair and secure. This special code is called the “blockchain”.
Now, imagine you and your friends have a special notebook where you write down every time someone gets a Bitcoin or uses it to buy something. This notebook is shared with all your friends who have a copy. Whenever someone wants to add something to the notebook, they must solve a fun and challenging maths problem.
Once the maths problem is solved, the information is added to the notebook (blockchain), and everyone's copies are updated. This way, everybody knows who has how many Bitcoins, and it's impossible for someone to cheat because everyone is watching. This is what is called “proof of work”.
Those who complete the “proof of work” first are awarded some Bitcoins. This process of solving maths problems and adding information to the notebook in return for new Bitcoin is called “mining”. It's a bit like digging to find hidden treasures or solving puzzles. Miners are people who use special computers to solve these maths problems and make sure everything is correct.
Now, you might wonder why people use Bitcoin instead of regular money. Well, there are a few reasons for it.
- First, Bitcoin allows you to send money to anyone in the world quickly and easily. You don't need to go to a bank or ask for permission. You can do it with just a few clicks on your computer or phone, anytime from anywhere in the world.
- Second, some people like Bitcoin because it's not controlled by any single person or government. This means that no one can suddenly make more Bitcoins or take them away from you. It's like having your own little treasure that nobody can touch.
- Lastly, some people believe that Bitcoin is like digital gold. Just like gold is valuable because it's rare, Bitcoin is valuable because there's a limited amount of it. Only 21 million Bitcoins can ever exist, making them special and desirable. The more rare something is, the more you want it. Think about Pokemon cards or Fort Nite special skins.
Some even stated that Bitcoin could become more valuable than gold. It is easier to store (it’s weightless and can be stored in any electronic device). While we cannot tell precisely how much gold is hidden in the ground, we can surely tell that the blockchain can host only 21 million Bitcoins forever and ever!
The technology Powering Bitcoin
Now that it is clear what Bitcoin is and what you can do with it, we can delve into deeper technological details. The mechanics behind Bitcoin are fascinating. Bitcoin is a refined intellectual feat, combining maths, cryptography, and information technology.
The Bitcoin blockchain is like a special digital ledger or record book that keeps track of all the transactions occurring in Bitcoin. It's a way to ensure everyone agrees on who owns how much Bitcoin to whom.
Imagine a big chain made up of many blocks, where each block contains a list of transactions. These blocks are linked together in a specific order, creating a chain. That's why it's called a blockchain!
Now, let's talk about some important components of the Bitcoin blockchain:
- SHA-256 Hash: This is a fancy term for a special kind of code. It takes any information, like a transaction, and turns it into a unique string of numbers and letters. It's like a fingerprint for that information. This fingerprint helps ensure that the transaction data can't be tampered with.
- Ledger: The ledger is like a record book where all the transactions are stored. It's a list of who sent Bitcoins to whom and how much. Everyone who uses Bitcoin has a copy of this ledger, and they all need to agree on the same information to keep things fair.
- Proof of Work: This is where the mining process comes in. With their powerful computers, Miners compete to solve complex maths problems related to the transactions. This problem requires a lot of computational power to solve. When miners find the solution, they add a new block of transactions to the blockchain and get rewarded in Bitcoins. This helps ensure that the ledger is secure and that no one can cheat.
- Transaction Signing: When you want to send Bitcoin to someone, you use a wallet, which is like a digital bank account. Your wallet has two important keys: a “private key” and a “public key”. The private key is a secret code that only you know. It's like the key to your wallet. The public key is like your address, where people can send Bitcoin to you.
When you want to send Bitcoin, you use your private key to sign the transaction. It's like writing your name to say: “Yes, I want to send this Bitcoin.”
The signature ensures that only you can authorise a transaction from your wallet. It works the same way as a handwritten signature on a cheque.
Check our article “How the Blockchain Works” for a deeper look.
The value of Bitcoin
If you listen around, you may hear that Bitcoin has no intrinsic value because it isn’t backed by anything.
The same applies to EUR or USD. These currencies are not backed by any commodity, such as gold. They are just backed by governmental authorities. People value EUR because governments collect taxes with this currency and declare this money legal tender, meaning that everyone must accept it as a form of payment for their work, products, or services.
This is called “intangible value” and is based on trust. Other than the paper on which the money is printed, EUR or USD have no intrinsic value. If tomorrow people stop accepting these currencies, their value will collapse. A recent example of this kind can be found in Argentina, where people’s trust in the Argentinian Peso dropped significantly over the last decade. As the trust sank, so did even the very value of the Argentinian Peso.
On the other hand, Bitcoin has an intrinsic value. Because of Proof of Work, mining a Bitcoin costs a lot of electricity. The cost is bound to increase over time as mining a Bitcoin gets increasingly complex; hence, more and more work is required.
Let's take out the speculative value that can vary significantly over time and according to the shape of financial markets. We can say that Bitcoin is as valuable as the cost of electricity employed to mine it, i.e. to run its blockchain network.
How to invest in Bitcoin
There are many options for investing in Bitcoin, but one of the simplest ways to get started is with the SwissBorg app.
Available in 100+ countries, the SwissBorg app allows you to deposit 16 fiat currencies which you can exchange for more than 70 different cryptos, including Bitcoin, all from your phone. Plus, every exchange is run through the SwissBorg Smart Engine, which scans four different cryptocurrency exchanges to find the best price every time you buy on every exchange!
To get started, simply download the SwissBorg app from the App or Play Store. Make sure you have access to your email and proof of identity on hand so you can complete the verification process, and you’ll be able to start exploring the app in minutes!
