“Sorry to be a wet blanket, but, writing a description of Bitcoin for general audiences is bloody hard. There is nothing to relate it to.” — Satoshi Nakamoto, July 5, 2010

Satoshi Nakamoto, is the person or group—no one really knows—who created Bitcoin, and if they can’t explain it, how are we mere mortals supposed to grasp the idea? The best way is to break it down into basics.

Bitcoin is an online payment system—it’s really as simple as that. But instead of going through a bank, or Paypal, or some other financial institution, people pay each other directly, peer-to-peer. Transferring money from one person to another is as easy as sending an e-mail or scanning a QR code.

Payments are recorded in a public ledger using its own unit of account, which is also called Bitcoin.

Because there’s no central repository or single administrator that handles payments, the US Treasury calls Bitcoin a decentralized virtual currency. Although its status as a currency is disputed, media reports often refer to Bitcoin as a cryptocurrency or digital currency.

Bitcoins are created as a reward for payment processing work in which users offer their computing power to verify and record payments into the public ledger. Called mining (explained further below), individuals or companies engage in this activity in exchange for transaction fees and newly created Bitcoins. Besides mining, Bitcoins can be obtained in exchange for fiat money, products, and services.Users can send and receive Bitcoins electronically for an optional transaction fee using wallet software on a personal computermobile device, or a web application.

It all began in the midst of the financial crisis in 2008 when computer programmers like Satoshi Nakamoto were looking for a new way to address the financial issue. They wanted to be able to decentralize the banks and let people take ownership of their money. But how? Above the actual physical money, banks rely on their ledgers. These ledgers are what control how much money each person gets. If someone that isn’t the bank gets ahold of these ledgers, they can add zeros to whoever they want and that person has more money in their account. Satoshi wanted to decentralize the banks by giving public access to these ledgers and make it all digital. That is what Bitcoin is, a decentralized form of exchanging Bitcoins, a type of digital currency. Now, I know what you’re thinking, “Can’t anyone just add or subtract from their own accounts through the ledger?” and “Where the heck do these Bitcoins come from?”

To answer the first question, when it comes to technology, something Bitcoin does really well is copy. We can copy and paste, we can make copies of pictures and music. So, maybe making a public ledger isn’t the smartest thing to do. This causes a double spending problem as well. For example, if Sally purchased some jewelry online using digital currency, a hacker can access that transaction and copy it elsewhere to purchase items and so on and so forth. Sally doesn’t lose her money but she just gave someone access to the code of her currency. However, Satoshi used this part of technology to his advantage. He made perfect copies of the ledger, so if any little thing is added or subtracted, it will be caught. This gives the ledger full transparency, and is called the “block chain.” Everyone can see everyone’s transactions and each transaction has it’s own address.

Now, on to the second question of “where the heck do these Bitcoins come from?” Just like gold, Bitcoins come from mining. Ok, so maybe they don’t come from caverns, but the people who create Bitcoins are called miners and the process is called mining. Bitcoins are created through mathematical calculations that confirm transactions. The people who are able to make the computer do these equations are called miners. They are rewarded transaction fees along with newly made Bitcoins. According to Bitcoin.com, “Mining is a specialized and competitive market where the rewards are divided up according to how much calculation is done.” These equations are very difficult, which means it’s not a way to make a quick buck…or coin. Now that you understand the basics of how Bitcoin works, you can better understand how it’s used.

First step is for you to choose your wallet, and there are a multitude of choices. The first is Bitcoin Core; this has the most security but takes up the most space on your device and doesn’t have very many options. The second is MultiBit, an app that can be downloaded to your phone or tablet—it has the most features.Thirdly, there are  Hive OS X and Hive Android programs that can be downloaded to your computer. You can also access your wallet through any browser.

The next step is for you to acquire Bitcoins. There are a number of options to get them. One way is to accept them in exchange for goods and services. A friend or someone near you can sell them to you. Another way to get Bitcoins is through an exchange where you can buy them directly with a bank account. You can find these exchanges online and just link your credit or debit card to purchase the coins. You can then spend your Bitcoins with any merchants that accept them. Bitcoins can translate many different types of currency around the world which makes international purchasing easy.

But why should you care?

One advantage is that Bitcoin is easy. It’s as simple as sending a link or scanning a QR code. And this means that it’s fast. Another advantage is that it weighs nothing. There is nothing that you have to physically transport around. Another important advantage is that you can use it around the world without additional fees. This could potentially save you a small fortune, Bitcoin also means easy accounting because it’s already digital and online in the Bitcoin system. Everything with Bitcoins is automatic. Also, no one owns it—not the government, not some corporation.That means everyone is responsible for Bitcoins success, and everyone owns their money. As a Bitcoin user, you’re anonymous. The only thing that links to you personally is your wallet ID.

Anyone can use Bitcoins and they can use them anonymously. Being anonymous does have it’s disadvantages though. For example, Bitcoins can easily be bought with stolen credit cards. They can be used to purchase a variety of illegal things like black market drugs, weapons. It’s for these reasons that the US Senate is taking a closer look at Bitcoins and considering how to regulate them. Bitcoins are very new, so of course there are a lot of issues that still need to be addressed. And since Bitcoin is so new, it’s not strong as a currency. This means there still aren’t a lot of places using it. Mostly, it’s being used by online stores like Amazon.com and Overstock.com. Finally, one last disadvantage is that it’s software, so it’s relatively easy to steal.

Bitcoin isn’t an easy concept to grasp—digital currency versus actual currency. But for many users, it means convenience, simplicity and saving money.

You can learn more and get started with Bitcoin here.

Here’s a helpful introductory video.

Find out where you can use Bitcoins here.