This series of posts is going to be a little…different. Inspired by xkcd’s “Up-Goer Five” and the Ten Hundred Words of Science project, the goal is to explain complex and interesting technical concepts in crypto as simply but thoroughly as possible using only the one thousand (ten hundred) most frequently used words in the English language. I will aim to limit each post to around 1000 words total as well. First: Bitcoin. I hope you enjoy!
A completely person-to-person computer money thing would let one person pay another person using computers without needing to trust a third person. Making people sign their names on their computer money helps them show that they own it, but the best parts of computer money don’t work if the two people still need to trust a third person to make sure they don’t try to sign their names on not-real money to spend money they don’t have, or try to spend the same money more than once. This was a hard problem lots of people who are good with computers could not figure out for a long time.
The person who made Bit Money had a great new idea to fix the problem of spending computer money more than once by having a group of people talk to one another about a great big book of computer money. All the people using the computer money talk, and they write down who owns what computer money in this book. Your computer money is safe in the book because it has a lock on it, which only you have the key for. When you want to send your money to someone else, you have to take off your lock and put the other person’s lock on it. As long as you don’t give anyone else the key to your lock, only you can do this.
When you want to send some of your computer money to another person, you shout this to all the other people using the computer money. The group of people using computer money listen all the time for people shouting the things they want to do with their money. When they hear you want to send some of your computer money, they first check that you opened it with your key the right way, and also that you are not trying to spend not-real money or money that you don’t have.
Then, they keep track of and agree on who owns the money, the person it is being sent to, and what time it is being sent by racing to figure out hard computer problems. People are not allowed to write in the book of computer money until they have figured out one of these problems. This is important because doing the hard work to figure out these problems (which takes a lot of paper money) makes sure the people writing in the book are not able to easily change what is in the book or put not-real computer money in the book. After one of those hard computer problems is figured out by one person in the group, that computer money is “sent” for real and the whole group writes down who now owns that money in the book.
This means that you can use Bit Money to pay for things just like you use paper money, but instead of handing the other person paper money, the fact that your computer money was sent to the other person is written in the great big book of computer money. So now everyone who has the book of computer money knows that you don’t own that bit of computer money anymore, and instead another person owns it. Now the other person can give you the thing you wanted, or do something for you, and later they can give another person the computer money you gave them.
Because figuring out the hard computer problems in order to write in the book takes a lot of time and hard work and costs paper money, the book of computer money also gives the person who first figures out each problem a little bit of new computer money to pay them for their work. Anyone in the group who figures out one of these problems can write in the book and get some new computer money, and anyone can join or leave the group of people managing the book of computer money at any time.
The great big book of computer money is kept by a lot of people and lives in a lot of places at once, and you can also keep the book - anyone can. This means that no bad people can hide the book from you. Also, because the group of people that keep the book of computer money need to figure out those hard computer problems in order to write in it, you know that no bad people can change what is in the book, or add something not real to the book. If they tried to do that, everyone else would find out because they all have the great big book of computer money too, and the bad person’s book would look wrong. As long as fewer than half of the people writing in the book of computer money are bad people, the bad people can’t beat the good people, and Bit Money keeps working the way it is supposed to.
Bit Money is great because you can give it to any person you want, no matter who they are or where they live, as long as they also have a computer. And no bad people can take your computer money away or give you computer money that is not real. Your computer can use Bit Money to pay other computers on its own without you, if you tell it to. There is even a different kind of great big book of computer money that makes the book into a computer of its own! And you can make that computer do some cool things. More on that next time…
P.S. If you have no Bit Money but want to get some, there are places where you can give another person paper money and they will give you some Bit Money. You can also try to figure out some of those hard computer problems in order to write in the book and get new Bit Money, but this takes your computer a very long time to do. By now most of the people writing in the book have lots of very big, very fast computers, so you won’t figure out the problems faster than they do most of the time, and you won’t get any new computer money this way unless you get really lucky.