Angry Little Tree

Money is super important because it lets us save and buy and sell things easier. If I’m a farmer and all I have are chickens, I might be able to find a baker who will trade me bread in exchange for a chicken. But if he doesn’t want my chicken, I have to find someone with milk (or candy, or something the Baker wants). I’d have to trade my chicken for that thing, then trade that thing for the bread. It gets really complicated when different people want different things, and if I can’t work it all it, I’m stuck with my chickens.

That’s why “Money” is so popular. We’ve all agreed to use it, and to give it the same value. I can sell my chickens for $100 when people want chickens, then save it or use it to buy what I need – even if the grocery store wouldn’t have wanted my chickens.

Anything can be used as money if enough people agree to use it – because the value of money is in the agreement everyone has made, not the worth of the paper itself. The problem is making sure that people don’t just take a pen and some paper and “make” themselves new money without doing the work to earn it. That’s why banks and and governments are usually in charge of money: they make it very detailed, on special paper, and hard to copy, so that it’s easy to spot when someone has made their own fake money instead of working for it.

“Bitcoin” is a special kind of money that some people have agreed to use. Instead of being printed on paper or coins, it’s stored on computers in files, like music or movies. That makes it really easy to send to other people or receive from other people… but it has the same problem as paper money: How can we make sure that the “Bitcoin” someone has isn’t just a file they made without doing the work for it?

Bitcoin solves this in a weird way that works pretty well: Everyone who agrees to use Bitcoin also keeps track of everyone else’s transactions. When I give 5 Bitcoin to my friend, I tell all the other Bitcoin users about it and they all agree to recognize the transaction. If someone announces, “I’m rich! I have a million Bitcoin!” but there is no record of them receiving Bitcoin from anyone, all the people who use Bitcoin know they’re lying.

Double-checking those transactions takes a lot of complicated math – it even takes computers a long time to do it. (Computer graphics cards are particularly good at this kind of math, so people usually use them for it.) Even though it’s hard and takes time, it’s very important, because without all that double-checking, would be no way to know whose Bitcoin is “real.” So, when people do those calculations to double-check everyone else’s transactions, they get a little bit of Bitcoin to make it worth their time.

That means that people who want to get some Bitcoin can spend their time double-checking everyone else’s transactions, and be paid for that work in Bitcoin. They call that “mining,” because they spend their time calculating numbers and getting “coin” for it, sort of like gold miners digging in the ground.