Bitcoin – what is it in the simplest words
When I decided to figure out what bitcoins are, I searched for information all over the network for a long time. But all the explanations like “simple words” only created even more confusion in my head. And then I did my own research.
And if you now, like me once, do not understand the essence of bitcoin – whether it is a fraud or not, and whether it is possible to make money on it, and how it all works – then take five minutes to this article. I promise you won’t have any more questions.
And let’s first deal with the materiel. Where do bitcoins come from, and what is it? Who “prints” them? And if no one – then why is all this devilry called currency?
What are bitcoins in simple terms
Basically, bitcoin is a common computer program. Only it is located not on some separate computer or server, but immediately on millions of computers that communicate directly with each other through this program.
Torrents work in a similar way. You install a program on your site and someone else does the same. After that, you can transfer files to each other directly, without the involvement of any servers, and with little or no control. It is this feature that made torrents the main breeding ground for piracy on the Internet.
The bitcoin system works the same way. The only task of this program is not to transfer files between users, but to give them “virtual glasses”.
Where do bitcoins come from?
Would you keep on your computer an extra program that doesn’t give you anything? Hardly. Therefore, the program “encourages” those users who keep the entire system on their computers. She encourages them by issuing virtual “points” (or points), which are called bitcoins.
That is, we get such an interesting phenomenon. The program doesn’t do anything useful. It “lies” on users’ computers and gives them virtual money for being there. At the same time, the program gives its points for a reason.
The whole system has a limitation. It can issue only 21 million virtual points (bitcoins), and none more. At the same time, more and more new users are connected to the program every day. And do you know what the only action this system is programmed to do? It makes it harder to get bitcoins if there are too many users. Or, on the contrary, it simplifies if there are suddenly fewer of them.
What bitcoins are issued for
People who maintain the system through their computers are called “miners”. And the whole process of “mining” bitcoins is “mining”. This is not from the word “money” (money), but from the word “mine” – “to excavate.”
The whole mining process boils down to the following – the program creates tasks that the miner’s computer must calculate, and for this he is given virtual money. That is, literally the program generates a series of tasks, such as – how many will be:
- 34 * 54 =?
- 57+ (43-21) =?
- 12 * 34 * 76 =?
This is a conditional example, of course. The tasks there are much more complicated, and even the computer has to spend time and power of the processor and graphics card to solve them. And these tasks are becoming more and more difficult, because there are more and more miners. And the program does not issue more than 3600 virtual coins per day.
Accordingly, she regulates herself, and makes sure that the tasks are sufficiently complex. And miners, on the other hand, are assembling more and more powerful machines in order to be the first to solve the problem and get bitcoin, ahead of other miners. They affectionately call their problem-solving machines “farms”.
This is the kind of race for your own tail. Miners connect more and more powerful computers to the system so that they can count faster. And the system comes up with more and more complex tasks in order to issue no more than 3600 coins per day.
That’s actually all that the Bitcoin system is. On the one hand, there is ordinary code that comes up with math problems. On the other hand, there are geeked “miners” who solve these problems and receive virtual bitcoin points for this.
But the most interesting thing is that these “geeky miners” then sell their virtual coins on electronic exchanges for quite real money. And they are buying! For a moment, the value of these “virtual coins” has already exceeded the value of gold. How did it happen?
Why is Bitcoin worth more than gold?
The price of any product or service in the world depends on only two factors – supply and demand. If the price rises, then the supply is not keeping up with the demand. That is, there are many more people who want to buy bitcoins than these same bitcoins exist.
That is, to answer the question why these virtual, fake coins are so expensive, we need to answer two questions:
- Why do they have such a small offer?
- Why is the demand so high?
By the way, we have already figured out the proposal above. The system cannot issue more than 3600 coins per day and 21 million coins in total. This is, in fact, an ingenious solution. If bitcoins were issued without restriction, they would never reach this value.
Demand is much more interesting. Why more and more people want to buy these bitcoins even for insane money. Get ready, it’s going to be hot now.
Why do people buy all bitcoins?
I must say right away that the demand for bitcoins is actually not that great. That is, of the total number of people on Earth, only a very small percentage buys, stores and resells these bitcoins. But in relation to the scanty supply (3600 coins per knock) – yes, the demand is simply gigantic. Therefore, the price is gigantic.
And the demand is so great for three reasons. And you won’t like any of them.
Reason # 1 – Beautiful Legend
Any program has a creator, a living person, made of flesh and blood, with his own sins and shortcomings. But the Bitcoin system does not have it. More precisely, he certainly is, but no one knows exactly who it is.
There is only the mythical “Satoshi Nakamoto”, who first launched the system in 2008. But who this is, a person or a group of people, or a huge corporation – no one knows. Accordingly, this kind of mystery gives the whole system a very attractive entourage. Judge for yourself.
The Legend of Satoshi
A very cruel and unjust world is around us. Normal guys (like you and me) have to work every day to feed themselves. At the same time, bankers, financial magnates, owners of foreign exchange funds are fattening simply due to the fact that they have a crane in their hands for issuing money.
They control everything and rip off each of us. They also control all our money, and we are completely dependent on them. They said – pay 25% for the loan, we will pay. They said that a dollar will cost 70 € today, and we cannot do anything about it.
And now the Chosen One comes to this terrible world. He rebelled against the system. He taught people to raise money themselves, bypassing all these financial bloodsuckers.
There is no single control center for bitcoins, which means that no one can take them away from you. Money now belongs to people, and not to the ten richest families in the world. This is a new financial and economic system that will free people from the constant “running in the wheel”, and make them free and happy.
And no one knows the true name of the Chosen One. Nobody knows what he looks like. He does this not for his popularity and his own good, but for the sake of Mankind. He, like Neo, fights against the Matrix for our happiness.
Here is such a beautiful idea. I don’t know about you, but the “miners” will probably give it goosebumps. They see themselves as the future rulers of this new economy.
Imagine computer nerds who spent their entire high school in the toilet with their heads. Now imagine that they are being offered a new system of world control, where exactly they are – the stars of the first magnitude. They will try to make it so.
Such a beautiful legend increases the motivation of miners and makes the ideas of bitcoin popular “among the people” (even though no one there even understands what it is). But there is a second, even more prosaic reason.
Reason # 2 – Get rich quick
What do you think happens to a product that is rapidly increasing in price and that can be quickly resold at a higher price? That’s right, more and more people want to buy it in order to sell it later.
That is, the true value of the product does not play any role here. It all depends solely on how many new people are willing to outbid in order to resell later at a higher price. This rise in prices is called a financial bubble.
Financial bubbles have always appeared, and at all times. Back in 1636, there was the so-called “tulip mania” or “tulip fever”. There, tulip bulb prices rose even faster than Bitcoin today.
And also simply because a lot of people wanted to buy them, not in order to benefit from their purchase (to grow for their own pleasure or to eat), but in order to resell them the next day at a higher price.
The same is observed when the price of any currency begins to rise sharply. The dollar was 30r. – grew to 50 €, everyone ran to buy dollars, and as a result it grew to 100 €, everyone ran to buy even faster. And so on, until the price reaches its peak.
There is a limit above which people will not pay for tulip bulbs or Bitcoin. At a certain moment, some part of the currency holders will decide that the price is already high enough – and it is necessary to sell. But there are no buyers. It always happens that way.
Then they will lower the price a little to buy. Then a little more. And as a result, the financial bubble will burst in an instant. Bulbs that no one needs will float on the waters of the Julian Canal, traders will fight among themselves, and those who have not managed to get rid of the bulbs will lose their money forever.
All this is called a simple word – “money-grubbing”. And buying something with the expectation that the price will still rise, and we will be able to sell for more than we bought, is called the game of “who is the last is the fool.”
Reason # 3 – Network Marketing
How did you even know about the existence of bitcoins? Most likely one of your “friends” on social networks posted a post that there is such a cool thing – a new world currency. And what he has already bought, and now you can become immensely rich by following his link and buying yourself a whole bitcoin or part of it.
Networkers immediately liked the idea of distributing bitcoins for commissions. There is no need to deliver anything, to meet with anyone, to “recruit” anyone. Just spread the word that bitcoin is already more expensive than gold, and that this is just the beginning – that’s all. The rest of them will be done by the human thirst for easy money.
By the way, most of the angry comments under this article, like “the author is an asshole who does not understand anything, and deceives people, and he is a swindler !!!!!! 111 ” will be left by networkers. They also have their bread by attracting new customers. And believe me, they try very hard.
Accordingly, the information that bitcoins are the future of the whole world is spreading very quickly through thousands and thousands of voluntary heralds.
To be fair, I will say that not all networkers love such “pyramids”. And in general, network marketing is actually a very good thing. I wrote about this in the article “Internet business from scratch – where to start step by step” . But it is necessary to distinguish between “networkers” and “hyipers”.
For these three reasons, the demand for bitcoin is so huge. On the one hand, there is a beautiful legend that inspires miners to feats. On the other hand, there is greed and a desire to “snatch” and earn money without doing anything. Throw in the very limited supply and word-of-mouth distribution of ideas by networkers, and you have “virtual coins” at a price higher than real gold.
And finally – let’s put together a small “FAQ” on Bitcoins.
Frequently asked questions about bitcoins
Are bitcoins a scam?
In general, yes. But this is not the kind of fraud when someone deceives you and pulls money out of your pocket. Here people are beautifully deceiving themselves. I used to think that people fall into financial pyramids and bubbles out of ignorance, and because they were deceived.
In fact, most of the participants in all pyramids and bubbles consciously or subconsciously understand what they are doing. Namely, they want to get rich at the expense of other people by reselling air. From time to time, such people get together and arrange a new “hype” until it collapses. And then again in a circle. If you are not one of them, you better not get involved.
Can you make money with bitcoins?
It’s over. You can even earn a lot. By the way, during the peak of “tulip mania”, one tulip bulb cost the same as a big good house. So bitcoin certainly has room to grow.
According to experts, the last bitcoin should be “released” by 2033. That is, until that time, it is likely to grow in price. And you still have the opportunity to buy now at a lower price and then resell at a higher price. Only here you will not buy new karma with this money later.
Why are so many famous people buying bitcoins?
This is always a sore point. One has only to tell one of the followers that what he is doing is a financial bubble, as the names of actors, football players, bankers who are “also in business” are called right there. “ German Gref bought himself Bitcoins. He’s probably smarter than you, what do you think? “
And I think that one should not overestimate the mental and moral qualities of famous people. They are just as inclined to believe in beautiful fairy tales and want easy money like everyone else.
By the way, Sir Isaac Newton lost almost all of his fortune in the financial bubble, which has been preserved in history under the name “South Seas Company” (1711 – 1716). But he was also not a stupid guy.
Why is it so difficult to explain what bitcoins are?
It’s not hard to explain. It is difficult to explain in such a way that people would both understand and not run away in horror. As soon as you start looking at things honestly, all the charm of Bitcoin disappears. Therefore, in fact, no one is trying to explain to you what bitcoin is in simple words.
It is more convenient for them to say that this is too ingenious a piece, and ordinary people do not understand the full scope of thought. Incidentally, this is a very common excuse in financial pyramids with “innovative products”.
Conclusion – what will happen to bitcoin in the future?
Speaking specifically about bitcoin, it will be the same as with any other financial bubble. It will burst. But it will last quite a long time, because the system is “sharpened” for the automatic reduction of the issuance of coins to miners.
Anything can cause the collapse. For example – a massive departure of miners due to the fact that too much power is needed to continue to “keep” the system. Or the fact that the “last fool” will finally be found, and a massive drain of “candy wrappers” will begin. One way or another – “boomsik” is inevitable.
But if we talk about the idea of cryptocurrencies in general, then, it seems to me, everything is much more promising.
The financial situation in the world is increasingly tense due to a small flaw in the modern monetary system. Namely, the FRS issues currency as they want, and they also demand that this money be returned with interest (this is the so-called “discount rate”).
And where to get new money to pay off the interest on the loan, if the money is printed only by the same FRS? That’s right – again take from the Fed to pay off the interest on the previous loan. And so on ad infinitum. In this sense, the idea of a new system of issuing money is quite reasonable.
And this is just my guess, but it seems to me that even during our lifetime, the principle by which bitcoin is now working will be the basis of the future world monetary system.
Don’t forget to download my book Hitchhiker’s Guide to a Million . There I show you the fastest and safest way from zero to the first million on the Internet (extract from personal experience for 10 years =)