In this article, we will simplify the process of bitcoin so much, we will replace it with an orange!
The Orange Scenario
Let’s say that you have one orange.
You meet Paul and decide to give him your one orange.
Paul now has one orange, whilst you have none.
Pretty simple transaction, right? Since you just had a tangible experience in exchanging the orange, there is no need for evidence. This means that, a third party to confirm such transaction was not required.
Now that you gave your orange to Paul, you no longer can control what happens with the orange as it completely left your possession. Paul has now full control over the orange and it is entirely up to him whether he decides to keep his orange or give it to his other friend.
The Digital Orange Scenario
You now have a digital orange.
Unlike the real orange, if you give Paul the digital orange, he will not have any proof that the digital orange is now his, since it can be easily replicated.
Due to the digital exchange, in such circumstances, a contract has to come in between to confirm that the orange was solely given to Paul.
So, how can we send digital oranges and not involve third parties?
Let’s find a way!
Introducing a Ledger
Let’s say that, in order to keep track of your digital oranges, a ledger has to be created where it records all transactions occurring.
The next step is to now find someone to be in charge of it and ensure that no changes will be done…
But there is a problem.
What if the person in charge of the ledger decides to increase a few digital oranges in his favour whenever he wants? How can you control it?
Unlike the first transaction of the real orange, it is no longer a simple transaction of one orange and requires a third person.
But the ultimate question remains, how can we create a process that involves just you and Paul for a digital transaction?
Finding The Solution
What if this ledger was not controlled by an individual but instead is given to everyone? This means that all the transactions for digital oranges are tracked in it and visible to everyone.
Therefore, no one can cheat the system and you cannot send Paul digital oranges that do not exist.
So how does a public ledger system exactly solve the problem?
- Since the ledger is an open source and available to everyone, you will know the exact amount of ‘digital oranges’ that are available and exist within the system.
- Once a transaction happens, in the public ledger you will see that the digital orange left your possession and is now Paul’s. It will be updated and made public in the ledger.
- Since it’s a public ledger, you no longer need a third party to confirm that the transaction happened.
There you have it, the system explained above already exists and is called the Bitcoin protocol. In this story the digital oranges are the bitcoins!
To simplify it even further, the bitcoin system enables a digital transaction to behave like a physical transaction, excluding any third parties that were required to confirm in the past.
The best thing about it is that, thanks to the benefits of it being digital, we can now deal with 100 oranges or even a million, all done with a click of a button, from anywhere in the world.
The final question is, how much can we value these digital oranges?
There are many debates on this subject whether in favour or against. Some say that it is a brilliant idea and that will work extremely well in the near future whilst others argue that its useless or too risky. Others named it a digital currency whilst other claimed it to be digital gold. One person actually put a hard number on it – €8,000 per orange.
There are many opinions on this subject, however, we recommend that you first educate yourself, make the necessary research and then formulate your own opinion.