A Brief Laymen's Description of What Bitcoin is and Why it Works.

[MatthewLM]

Hello. I'm trying to figure out a short way to describe bitcoin to laypeople in a document. So far I've got this. What do people think? And are there any ideas for good descriptions?...


Bitcoin is a decentralised electronic currency which is not backed by any other currency as it is a stand-alone currency traded against other currencies.

Bitcoins are traded using a peer-to-peer decentralised network over the internet. Bitcoin does not rely upon banks or clearing houses; instead the electronic transactions are guaranteed mathematically without needing trust in a third party.

This works because the bitcoin software stores secret keys which allow people to access their money and nobody else. People can send bitcoins to each other using bitcoin addresses. Bitcoin addresses are analogous to bank account numbers, such that money can be sent to them.

Bitcoin uses a proof-of-work system to prevent people from spending the same money several times. Transactions are stored alongside proof that a required level of work was completed to store these transactions. This required work makes it practically impossible to reverse transactions and spend the same money more than once.

People who do this work are referred to as “miners”. These miners receive newly generated bitcoins as a reward for processing transactions, hence this activity is described as “mining bitcoins”. The reward miners receive will go down over time because the amount of total bitcoins created will never exceed 21 million, but miners also receive transaction fees included in transactions which provides an additional incentive to process transactions.

Below is a graph showing the total amount of bitcoins created over time which the software is designed to follow:



Bitcoins can be generated or “mined” by anyone with the appropriate computer software, but to trade bitcoins people do not need to mine them; instead people can buy bitcoins online or trade goods or services in exchange for them. Then people can proceed to make purchases in bitcoins using various computer applications or web-apps. These applications provide bitcoin "wallets" and addresses which allow people to send and receive bitcoins. "wallet" is a term which is used to refer to the place where bitcoins are accessed. It may be easy to think of a bitcoin wallet as being like a bank account.

The key benefits to using bitcoin are:

* There is no third party risk because people own their bitcoins directly through the secret keys.
* Transactions are irreversible (No chargebacks).
* Transactions are typically free at the present time.
* Nobody has to share sensitive financial details unlike with credit/debit card payments.
* Bitcoin creation is limited and predictable.
* Payments can be made globally over the internet.

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[cbeast]

If you want to explain it to laypeople, you need to really dumb it down. Trust me, it ain't easy, but absolutely necessary. Here's my attempt:

Bitcoin is a new technology designed to make your money easier to use, more convenient, and also protect your identity. It combines military-grade codes with the latest in computerized accounting. The resulting invention greatly improves on the banking systems that originally combined IBM computers with telegraphs. While banking has improved somewhat with faster computers, it still required them to be owned and maintained by trusted bankers. Now with Bitcoin, you can use your own computer, your own internet connection, and like the cash in your pocketbook, your computer keeps track of your account, yet can be every much as secure as the strongest bank vault. Your purchases can be next door or across the globe.

Here's how it works. Anyone with a little computer know-how can set up a Bitcoin Mining computer program that adds power to make Bitcoin stronger for everyone. It's called Mining because as a reward for helping to make Bitcoin stronger, you actually find Bitcoin. This is no longer for the casual user anymore as Bitcoin Mining has become a profession managed by businesses. It can still be a good hobby and there are many opportunities to start other sorts of businesses using the Bitcoin Network.

Just like the early days before the big international banks, Bitcoin needs people to trust in the new technology. The difference between Bitcoin and the big banks is that you don't need to trust bankers you never met, and you don't need to give up your privacy just to make a purchase, or worry about identity theft. Almost all the independent experts say that the computer network is safe to use and so far after nearly four years they are right. Despite numerous attempts to attack the Bitcoin Network, nobody has succeeded. In fact, the people that tried to destroy it actually found out that it's better to just join in and make Bitcoin stronger while making money. You will too. You will find that as Bitcoin grows in popularity, so will its value. So while you can no longer put your money in the bank and make high interest rates on your savings account like you used to, you will be able to save the Bitcoin you do not spend and expect it to grow in value for a long time. Won't that be better than just letting your bank hold your money and make all the profit for themselves?

[hazek]

Here, take a look at my videos, maybe you can draw some inspiration from how I tried to explain it: http://www.youtube.com/user/bitcoincurve/videos

[justusranvier]

This is the best explanation I've see to date: http://evoorhees.blogspot.com/2012/04/bitcoin-libertarian-introduction.html

[niko]

This has been attempted several times already, with some success. Search the forum. In my opinion, you can't dumb it down and make it brief without deciding what aspect of bitcoin is most important to that particular person. In some cases the best elevator pitches are the likes of what you can find on paysius.com or weusecoins.com. In other cases, your lay person will be more interested in political aspects. Either way, I suggest you make the explanation a dialogue. Make a few simple but crucial points, then let them ask questions. I usually get asked where bitcoins come from in the first place, and if it's simply a ponzi scheme. Wiki has a decent public relations guide.

[R-]

cbeast I liked it.

[cbeast]

cbeast I liked it.

Thanks. It needs a little cleaning up. I just threw this together for older folks like myself.

[SimonL]

I'm gonna have a go.

What Bitcoin is (how transactions are made and kept secure), and why it works (and why anyone would tie any value to this particular virtual currency).

Bitcoin is a decentralised, internet based, transaction network. Anyone can use and receive Bitcoins without a third party. Transactions are recorded in a public ledger called the blockchain. The blockchain is publicly accessible to all and usually required for client and miners alike, unless they use a server to maintain the blockchain on their behalf. A block contains transactions over an approximately 10 minute period. Each block is intrinsically linked in a chain to the very first block to verify every transaction's authenticity. Anyone can verify transactions by creating blocks but only one block can be created every 10 minutes. Creating a block of transactions requires meeting certain conditions and these conditions are made more or less difficult according to how many blocks are solved in any one period. Solving a block requires computing power as a "proof of work", and this verifies the authenticity of verifications since it is impossible to fake computer processors. The more computer resources dedicated and distributed among individuals, the more secure the network is. By default the longest chain of blocks is considered the most secure and up to date simply because shorter chains took less time and resources to create. Requiring computer resources as evidence that the blockchain is valid helps weed out fake, old, or "forked" chains.

The Bitcoin software can be separated into two distinct pieces, Bitcoin mining software, and the Bitcoin client. Anyone that just wants to use the Bitcoin network only requires the client. Those that want to secure transactions need the mining software. Those that secure the network by solving blocks are given incentive to do so by being given a reward for every block solved. This is called the block reward. Initially since there was no Bitcoins available, the block reward served as a way to give Bitcoins to those that not only secured the network, but were also the most likely to use Bitcoins in the very early stages. This encouraged early adopters to promote and make Bitcoin useful for others since they had financial incentive to do so.

Bitcoin's block reward is not limitless though and every 3 years it will halve until a maximum of 21 million coins is reached, the current block reward of 50 Bitcoins will halve to 25 around December 2012. To counter the block halving, transaction fees will replace the block reward over time and still provide incentive for miners to secure the blockchain. Scarcity of Bitcoins helps to secure the value of Bitcoins over time, and though Bitcoins will be lost, each Bitcoin has precision to 8 decimal places so that those that still hold coins can continue to transact without losing precision.

The value of Bitcoin is determined by natural market forces. Bitcoin's scarcity, usability, usefulness, network security, number of transactions, and amount that passes through exchanges all helps to guage how much a single Bitcoin is worth. Value is primarily determined by how much money people think it is worth and this can be rather arbitrary. In Bitcoin's early valuations, the price varied wildly (and still does to a limited extent) but as more people use it and the currency becomes more widely distributed, these fluctuations will ease.

Bitcoin's encryption standards are on par with banking encryption and transactions are permanent and impossible to undo after several blocks are solved. It falls under no one jurisdiction, and no one person controls the Bitcoin network. It is a network that is free to join and use by all.

[BitPay Business Solutions]

I still think the way to explain bitcoin is not to say what it is or how it works, but how you use it, and why.

"With Bitcoin, you can send money like you send an email, to anyone, anywhere, anytime, for little or no cost."

if they are more of an anti-banking person, show them this 1 minute video

http://screwbanks.net

if they are your average tech-savvy person, try these

http://lovebitcoins.org

http://weusecoins.com

[Coinabul]

Bitcoin is internet money. You can send money anywhere in the world for little to no cost. It works because the smart people who made it says it does.

Done

[FreeMoney]

"You know how good tech is like magic? Bitcoin is magic."

In 2010 I wanted to tell people all the details I knew. I don't think it's a coincidence that so few people used bitcoin that year.

But if you have to say more maybe:

All we really need is a ledger. Bitcoin lets everyone participate in keeping that ledger correct, new coins go to people who devote computing power to help with this. No onehas a special position. Anyone can use Bitcoin and no one can close their accounts.

[bb113]

Bitcoin is just a giant ledger stored on peoples computers around the world that keeps track of every transaction ever made so noone can counterfeit them. It is way cheaper than using credit cards. Also, you know how everything keeps costing more every year? Well bitcoin is designed so the opposite occurs, so it encourages saving and discourages going into debt and consumerism.

[BoardGameCoin]

Bitcoin is just a giant ledger stored on peoples computers around the world that keeps track of every transaction ever made so noone can counterfeit them. It is way cheaper than using credit cards. Also, you know how everything keeps costing more every year? Well bitcoin is designed so the opposite occurs, so it encourages saving and discourages going into debt and consumerism.

+1

These are the key points for understanding the 'why'.

[cbeast]

Bitcoin is just a giant ledger stored on peoples computers around the world that keeps track of every transaction ever made so noone can counterfeit them. It is way cheaper than using credit cards. Also, you know how everything keeps costing more every year? Well bitcoin is designed so the opposite occurs, so it encourages saving and discourages going into debt and consumerism.

+1

These are the key points for understanding the 'why'.

Yeah, I like that for its brevity.

[miscreanity]

I still think the way to explain bitcoin is not to say what it is or how it works, but how you use it, and why.

Right there. It isn't necessary to explain chemistry or physics to someone buying a car, just show how to use it.

Better yet, it's good to provide just enough to leave a bit of mystery, encouraging independent discovery. Remember that feeling when you first understood the potential of Bitcoin?

Merchants are more important for adoption than consumers. They act as free advertising when consumers see a Bitcoin logo, and they choose which payment method is preferred. Since Bitcoin costs almost nothing to set up for acceptance and can attract a loyal fanbase of sorts, it wouldn't make sense for any business not to offer it as an option. As they start to see the benefits compared to traditional payment networks, they may offer discounts or other incentives that will further encourage consumers and spread awareness.

What's important on the consumer side is user interface. It's critical to make Bitcoin as easy to use as email or text messaging while minimizing the intrusiveness of security measures. If it can be used intuitively and quickly on feature phones, people will be able to pick it up with little to no effort.

Bitcoin: Better Money