Stepping foot in the crypto space for the first time can be quite intimidating. Strange terms are thrown around and it may seem like a bizarre internet cult. Fortunately, there's nothing to be worried about, for everything can be simplified.

Bitcoin is the world's first cryptocurrency. Its creator, Satoshi Nakamoto, released a whitepaper which details the particularities about bitcoin (its purpose, how it works, etc). Said document is 9 pages long and uses advanced computer science jargon which can make it difficult for the average person to understand. I, however, have read the document in its entirety and familiarized myself with the terminology towards the aim of simplifying it for others.

Here is the original whitepaper.

Here is a condensed, simpler version ~2 pages.

In today’s world, online money transfers rely heavily on middle men (banks) who oversee and verify the transaction. Although this can be beneficial as they provide some degree of security, transaction costs become significantly large. Also, senders and receivers of funds are obligated to trust the mediator with their money and wait, in some cases, hours or days for their transaction to go through. Bitcoin eliminates the need for middle men by managing transactions autonomously with computer power and undeniable proof. 

Transactions are sent to a timestamped unchangeable server known as the blockchain which is a public record of all transfers. Although someone may attempt to spend the same bitcoin, an issue known as double spending, the blockchain would only recognize the earliest transaction.

Transactions that are in close proximity to each other (in terms of time) are put into one block. Blocks are then linked together one after the other, forming a chain. To validate transactions, computers, known as nodes, use CPU power to solve digital puzzles (known as proof-of-work). The first node to solve the puzzle sends a signal out to other nodes and a new block is created. As nodes know all previous transactions in the blockchain, they can verify to make sure that stolen funds are not being transferred. 

This system is democratic; transactions need a >50% consensus to be validated or rejected. The proof-of-work is adjusted in difficulty to ensure that a block is only generated every ten minutes. This prevents an increased number of nodes from resulting in over-production of blocks.

Nodes are rewarded with brand new Bitcoin for each puzzle they solve. This provides an incentive for individuals to provide their CPU power and secure the Bitcoin network. 

Although privacy seems to be of concern in the Bitcoin blockchain, identities are kept secure pseudonymously. A person is given an alternative identity (similar to a username) known as a public key. When that person makes a transaction, others can only see that “bRTZ3S sent 636.6 bitcoin to w31fd3 at 02:00:01 on 20-11-2012”. Nobody can derive the sender or receiver’s identity from their public key. Additionally, one person can hold as many public keys as they like. 

A companion to the public key is the private key (which is similar to a password). It is used to access a certain public key’s coins. With a private key, one can send the corresponding public key’s coins anywhere. It is crucial for this to be kept safe as it holds the authority over one’s funds.

The blockchain’s security can be mathematically proven. A hacker trying to take advantage of the system by editing a previous transaction would have to redo the proof-of-work of that block and all blocks after it since they are linked together. They would have to complete that faster than all the other nodes. The probability of a hacker succeeding such an attempt falls exponentially as new blocks are added to the blockchain. Additionally, the mere amount of CPU power and energy expended in such an attack would be unreasonably expensive to pursue. It’d be simpler for an individual to use their CPU power for the benefit of the network and collect the incentive. As long as honest nodes hold the majority of power, the network is secure.

In conclusion, Bitcoin allows for peer-to-peer (p2p) transactions with no middle man. Its network validates transactions with consensus from nodes and secures the identities of all parties involved while reducing fees and processing times. Individuals can use CPU power to help secure the bitcoin network and collect an incentive in doing so. Bitcoin is a functional and enhanced alternative to centralized monetary transactions.

Want more? Here is a longer version (~9 pages) why I deep dive into each individual section of the whitepaper and make it understandable.

Thank you for reading.