Explain Bitcoin to me like a five year old

Bitcoin is an elusive term that has puzzled many and continues to do so. In this article, I will offer a very brief introduction to this concept and introduce some of the current trends.  

So what is Bitcoin? It is a form of digital money that is traded over a computer network. It is a type of cryptocurrency. Cryptocurrency is a digital, decentralised currency that uses cryptography for security. Yes, many key terms indeed. Cryptography is the science of coding and decoding messages and data to keep them secure, e.g., encryption.  

In short, Bitcoin is like cash for the internet. It is decentralised in that it is powered by its users with no central authority, i.e a bank, or middlemen. In even shorter terms, nobody owns the Bitcoin network, much like no one owns the technology behind email.  

From a user’s perspective, Bitcoin is nothing more than a mobile app or computer programme that provides a personal Bitcoin wallet and allows a user to send and receive Bitcoin with it.  

Behind the scenes, the Bitcoin network is sharing a public ledger called the ‘blockchain’. It is a record-keeping system used to record cryptocurrency transactions. As it is public, the transaction details of Bitcoins can therefore be verified by anyone. This makes the system more transparent than traditional banking systems and methods without disclosing personal information.  

Moving on, how does one acquire Bitcoin?  

1. Receiving as payment for goods or services 

2. Purchasing bitcoins at a Bitcoin exchange 

3. Exchanging bitcoins with someone near you 

4. Or Earn bitcoin through competitive mining 

As Bitcoin mining is the most heard of, I shall expand on this. ‘Miners’ use special software to solve maths problems, facilitating Bitcoin transactions. I will not be going into further details as maths is certainly not my strongest suit. And as a ‘reward’ for facilitating Bitcoin transactions, they receive Bitcoin.  

Bitcoin’s prices are volatile, like most commodities. It is influenced by the basics of supply and demand, with supply fixed at 21 million coins. Why it is fixed at 21 million warrants a separate article. Anyway, as the supply is fixed, the price is elastic to a change in price, which means a change in demand will lead to a substantial change in price.

There are three other factors which affect Bitcoin’s prices 1. investor and user sentiments 2. government regulations, and 3. media hype. As one can imagine, these factors are easily influenced, hence leading to the volatility.