... like I'm 5 years old
Bitcoin is a digital currency, also known as cryptocurrency. It's like the money you use to buy things online, but with a few key differences. Bitcoin was invented in 2008 by an unknown person or group of people using the name Satoshi Nakamoto. What makes Bitcoin unique is that it's decentralized, meaning no single institution controls the Bitcoin network. Instead of a bank or government issuing and tracking it, Bitcoin is tracked on a network of computers across the world.
To own Bitcoin, you have to buy it from a Bitcoin exchange using real money. Once you have Bitcoin, you store it in a digital wallet. You can then use Bitcoin to buy things online or send it to other people. Transactions are recorded on a public ledger, called a blockchain. However, the identities of the people involved in the transactions are kept private.
Think of Bitcoin as virtual gold. You can buy it with real money, store it, and send it to others, but instead of a bank or government tracking it, it's tracked by a network of computers.
... like I'm in College
Bitcoin operates on a technology called blockchain, a kind of public ledger containing all transaction data from anyone who uses bitcoin. Transactions are added to "blocks" or the links of code that make up the chain, and each transaction must be recorded on a block. But these transactions are not automatically added to the blockchain. Instead, they must be added by bitcoin "miners". These miners use powerful computers to solve complex mathematical problems that add the transactions to the chain and receive Bitcoin as a reward.
The supply of Bitcoin is finite, capped at 21 million. The number of bitcoins unlocked for mining one block falls by 50% every four years. This event is known as a "halving". These halvings reduce the rate at which new Bitcoins are created and thus decrease supply.
Consider Bitcoin mining like solving a complex puzzle. Miners compete to add the next block in the chain by solving these puzzles, and the winner receives a reward in Bitcoins.
Imagine a Lego tower represents the Bitcoin blockchain. Each block of Lego is a block of transactions. When you want to add a new block to the tower (i.e., make a transaction), you have to play a game.
You and other players (miners) race to find a small, rare Lego piece (solve a complex mathematical problem). If you find the piece first, you're allowed to add your block to the tower and you receive a reward in new Lego pieces (Bitcoin).
As the tower gets taller, finding the rare Lego piece becomes harder and the reward gets smaller. This is like the Bitcoin "halving" event. Despite this, players keep wanting to add to the tower because the Lego pieces themselves become more valuable as the tower grows.
In this Lego analogy, the growing tower represents the Bitcoin blockchain. The game of finding the rare Lego piece represents the mining process. And the Lego pieces themselves represent Bitcoin.
... like I'm an expert
From a technical standpoint, Bitcoin transactions are fundamentally a series of inputs and outputs. When you send Bitcoin, your transaction is grouped with others into a block and added to the blockchain. This block then serves as a reference point for future transactions.
Bitcoin’s Proof-of-Work (PoW) consensus algorithm requires miners to solve a complex mathematical problem to add a new block to the blockchain. This system makes it nearly impossible to alter past transactions, as it would require re-mining all subsequent blocks.
Bitcoin's value isn't backed by any physical asset or a government. Instead, its value is determined by supply and demand dynamics in the market.
Bitcoin can be compared to a complex mathematical game, where players (miners) compete to solve problems. The game is secure and tamper-resistant, thanks to the underlying blockchain technology.