How do you explain to a five-year-old what Bitcoin is?

...or if you still can't figure out what the hell this is

Imagine - we are sitting on a park bench, a warm sunny day. 

I have one apple with me. I give it to you. You now have one apple, and I have zero. 

It's simple, isn't it?

Let's take a closer look at what exactly happened now.

My apple was physically placed in your hand. We both know that it happened, we were both there, we both touched the apple.

We did not need an intermediary to carry out this exchange. We did not need to call Uncle Vasya (who, of course, will judge fairly) in order for him to confirm that I really gave you the apple.

The apple is yours! It no longer belongs to me, I can no longer dispose of it. You now have complete control over the apple. If you want, give it to a friend, and he can give it to his friend, and so on.
This is what an individual exchange looks like. It doesn't matter what I give you - a banana, a book, a quarter or a dollar bill. However, let's talk about everything in order.

Now let's assume that I have one digital apple. I give you my digital apple. At this point the fun begins.
How do you know that the digital apple I sent you now belongs only to you? Think about it. How do you know that I didn’t send it to Uncle Vasya first, attaching it to an email? Maybe I made a copy of this apple and put it on the Internet, and more than a million people have already downloaded it?

Now you understand why digital exchange can be a little more difficult than exchange of real apples. Computer scientists have a name for this problem: double spending. But don't think about this problem. All you need to know is that they couldn't solve it for quite a long time, but recently it has been solved. However, let's try to come up with a solution to the problem ourselves. 

Ledgers

You may need to keep a record of these digital apples in a ledger. And since our book must be digital, it must have a director and its own system. This problem has already been solved for us. For example, the people at Blizzard, who created the game World of Warcraft, have a similar “digital ledger” that keeps track of all the rare fire swords that exist in their system... But a couple of problems immediately arise:

1) What if the head of the system wants to create digital apples for himself? He can add as many apples as he wants to his balance at any time.

2) This method does not meet our requirements, because contacting employees of other companies is the same as calling Uncle Vasya.

Can’t I give you a digital apple as easily as I gave you a regular one? Is there a method to recreate that situation on the bench as closely as possible? It seems pretty hard. 

Solution

What if everyone had access to our digital book? Instead of it being on Blizzard's computer, it will be on everyone's computer. Every digital apple transaction that ever happened will be recorded in this ledger. The system cannot be fooled. I can't send you an apple if I don't have one, because it won't sync with the rest of the system. Plus, this system is not controlled by one person, and therefore I can be sure that no one will decide to simply add apples to their wallet. The rules for the system's operation were laid down from the very beginning. The code and rules are publicly available. This is done so that those who want to help the project can do so. 

Of course, this is all a little simplified.

The system that I described exists. It's called the Bitcoin protocol. And this system uses bitcoins instead of digital apples. So, what are the benefits of a public ledger?


1) Remember about the code in the public domain? The total quantity was determined at the start of the system, the exact amount of apples is known. This also means that their number is limited. 

2) Now you can know for sure that when I give you an apple, it belongs only to you. The fact and time of transfer will be entered in the register.

3) Since the register is public, we do not need third parties to keep order. 

Inside the system, exchanging a digital apple looks about the same as when I handed you the apple on the bench. You clearly see how the apple leaves my hand and falls into your pocket. And just like on a park bench, only two people participate in the exchange. Just me and you - we don’t need Uncle Vasya to confirm the exchange.. 

But you know what’s coolest? Since the apple is digital, I can send you a million, a billion, or 0.00001 apples with one keystroke. At the same time, I may be in New York, and you are in Nicaragua. I can even attach some kind of file with a note to the apple, it is digital after all. Or maybe it will be something really important? For example, a contract or an identity card. Seems like a pretty useful addition. However, how should we evaluate these digital apples? 

Many people are arguing about this now. There are debates between different schools of economics. Between politicians. Between programmers. Some say the system costs billions, some say it costs nothing. Some say it's virtual gold. Some say it will change the world, some say it's nonsense. You shouldn't listen to any of them. You should have your own opinion on this matter. 

However, that’s another story.

 And you now know much more about Bitcoin than most. 

According to https://medium.freecodecamp.org