Understanding Bitcoin
By Steve
No hype, no pressure. Just a simple explainer on what it is and why some people are so interested in it.
Welcome back to our “Tech Explainer” series. Today, we’re going to tackle a topic that you have almost certainly heard of, and which probably sounds confusing, strange, or maybe even a little bit ridiculous: Bitcoin. The word itself brings to mind stories of overnight millionaires and spectacular crashes, and many people have understandably written it off as a scam or a fad.
Our goal today is not to convince you to buy Bitcoin or any other digital currency. Instead, we want to take a level-headed look at the idea behind it. What is this technology actually trying to do? And why do some of the brightest minds in technology and finance find it so interesting? Let’s peel back the layers of hype and try to understand the concept.
Tech Explainer #5: A Guide to Understanding Bitcoin
So, What is Bitcoin? The Big Idea
At its heart, Bitcoin is the first successful form of digital money that is not controlled by any single government or bank. Think of it like digital gold.
It’s scarce: Just like there’s a limited amount of gold in the world, there will only ever be 21 million bitcoins created. This is written into its core programming and cannot be changed.
It’s decentralized: No single person, company, or government “owns” or controls Bitcoin. It’s run by a global network of computers that all work together to verify transactions. This means you can send value to anyone, anywhere in the world, without needing a bank to act as a middleman.
It’s secure: All transactions are recorded on a shared public record book called a blockchain. This record is copied across thousands of computers, making it virtually impossible to counterfeit or fraudulently change.
Why Do People Find It Interesting? A Hedge Against Instability
For much of history, the value of money was tied to something physical, like gold. Today, the value of a dollar is based on the faith we have in the government that issues it. Sometimes, governments print more money, which can cause the value of the money in our savings to go down over time (this is a major cause of inflation).
The excitement around Bitcoin is partly due to the idea that it can act as a hedge against this. Because its supply is fixed and predictable, some people believe it will hold its value better over the long term than traditional currencies. They see it not just as a way to pay for things, but as a way to store wealth in a system that operates outside the control of traditional monetary policy.
What About All the Scams and Criminals?
The early days of Bitcoin and other “cryptocurrencies” were like the Wild West. The technology was new, regulation was non-existent, and a lot of dishonest people rushed in to take advantage of the confusion. This is where Bitcoin got its bad reputation.
However, the landscape is maturing. As the technology has proven itself over more than a decade, established financial institutions are starting to participate, bringing more scrutiny, security, and regulation to the space. While risks still exist, the industry is becoming much more professional than it was in its early, chaotic days.
One of the earliest and most persistent criticisms you’ll hear about Bitcoin is that it’s primarily a tool for criminals and money laundering. In its early days, its use on illicit websites gave it this reputation. The thinking was that since it’s not tied to a real-world identity, it must be anonymous and untraceable.
However, the reality has turned out to be the exact opposite. Because every single transaction is recorded on the public blockchain for the entire world to see, it creates a permanent trail of digital breadcrumbs. In recent years, government agencies have become incredibly skilled at analyzing this ledger and following the money. It turns out that a permanent, public record is a terrible tool for criminals who want to hide their tracks, and they have largely moved on to other, more private methods.
The Future: “Internet-First” Programmable Money
This is where the idea could actually have real tangible value. Other digital currencies that came after Bitcoin (like one called Ethereum) have a special property: they are “programmable.” This means you can build rules directly into the money itself, which could make things on the internet much more frictionless.
Think about how paying for a toll road has evolved.
First, you had to stop at a booth and exchange cash with a person.
Then came automated machines for coins, which was a little faster.
Now, many of us have a transponder (like FasTrak) that pays the toll automatically as you drive by, with no friction at all.
Programmable money is like the next step for the entire internet. Imagine a world where:
Instead of subscribing to an entire newspaper, you could automatically pay a few cents to the author for just the one article you want to read.
You could stream a song, and a fraction of a penny would go directly to the musician, with no record label or streaming service taking a huge cut.
In the future, a self-driving car could pay for its own charging or parking spot automatically without you needing to do a thing.
This “internet-first” money allows for tiny, automated payments that could unlock a whole new way of using the web.
Quick Tech Tip
The world of digital assets comes with a new level of personal responsibility. The core idea is “self-custody,” meaning you are in complete control of your own funds. A common saying is: “Not your keys, not your coins.” This means that if you hold your own digital assets, you are responsible for securing your password (or “private key”), because there is no bank you can call to reset it for you if you lose it.
Tech Term Demystified: ‘Blockchain’
The Blockchain is the breakthrough technology that makes Bitcoin possible. The simplest way to think of it is as a digital public record book. Each “block” is like a page in the book, and it’s filled with a list of recent transactions. Once a page is full, it’s “chained” to the previous page with a special cryptographic seal. This ever-growing chain of pages is copied and shared across thousands of computers around the world. Because everyone has a copy of the same book, it’s incredibly difficult for anyone to cheat the system and change a past entry.
Did You Know?
The very first real-world commercial transaction using Bitcoin happened in May 2010. A programmer in Florida named Laszlo Hanyecz successfully bought two pizzas for 10,000 bitcoins. At the time, those bitcoins were worth about $41 (One bitcoin is currently over $120,000!). It’s a famous story that shows just how much the value of this new technology has changed over time.
Your Turn to Start a Conversation!
Again, this is a complex topic, and our goal is to demystify, not to recommend. This week, try asking a younger, tech-savvy family member or friend what they think about Bitcoin. Or you can email me to ask more questions or share your thoughts! (Just reply to this email or reach me at steve@hotline.net). It’s a fascinating window into how different generations think about money, technology, and the future.
Wishing you a week of curiosity,
Steve