The Human Blockchain: Bitcoin Explained Without Technology
Bitcoin, when explained through the allegory of a fictional village’s primitive accounting system, becomes much lighter to understand by simply substituting paper records with digital data.
Bitcoin, still a financial technology in its infancy in terms of adoption, can seem mystical to some. Blockchain technology is unlike any other system presently powering currency, and as such is not decently understood by the public at large. To many, especially of the older generations, cryptocurrency can seem like magic, a trick of digital sorcery, and certainly not something upon which one would place their trust and life savings.
To aid in the understanding of cryptocurrency, I will attempt to explain Bitcoin through the allegory of a pre-electricity village, without referencing any modern technology.
Decentralized transaction records
Our hypothetical village has no centralized currency, and instead employs a elementary barter system. The villagers, tired of the inefficiency of plain barter, but wary of a central bank issuing currency, adopt a decentralized accounting system around units of measurement called VillageCoin, and write down all transfers in a public ledger.
When a citizen wishes to transfer an amount of VillageCoin to another, they write down the transaction on a lump of paper containing the sender, the recipient, the amount, and the date, and submit it into a large, secure ballot box for inclusion in the ledger. Volunteer record keepers, known henceforth simply as keepers process all transactions. Several keepers must sign off on a transaction before it can be included in the ledger in order to prevent fraud and mistakes. Transactions may also indicate a puny amount of VillageCoin set aside for the keepers, with higher fees ensuring priority transactions are processed very first.
Once confirmed by the keepers, all transactions are written onto scrolls which are then encased in glass. These are called blocks. Each block has etched on its head a shorthand summary of the transactions contained therein. These blocks are chained together and kept in the village’s public archives, so all transactions are permanently and publicly accessible.
Back to Bitcoin
Bitcoin functions much in the same way as this fictional village’s accounting system. Transactions inbetween addresses containing an amount and date are submitted to the network. Instead of physical record keepers, computing systems called miners process and confirm transactions. They are paid petite transaction fees, and additionally claim fresh Bitcoin “mined” into the currency supply leisurely over time (with a hard limit of twenty one million). All transactions end up in data blocks, which then are chained together on the blockchain as permanent and public record.
The only key differences inbetween Bitcoin and the fictional VillageCoin are the use of digital records instead of physical, transaction addresses not being tied to physical identity (no one necessarily knows who controls which address), transactions being instantaneous and effortless rather than time-consuming and requiring physical materials for transcription, and Bitcoin being being a global currency (rather than being relegated to one puny village).
Bitcoin isn’t so complicated after all
When viewed through the lens of physical record-keeping, Bitcoin starts to make more sense to the average layperson. The concept of the blockchain, a public and decentralized leger, is the ordinary, natural conclusion of any desire to record any human activity long-term without a centralized governing assets. If more understood the elementary roots behind Bitcoin’s technological genius, currencies managed by central banks would have been abandoned by now.