This is the first video in our series about cryptocurrency.
The purpose of this series is to explain cryptocurrency in such simple terms that even your grandma would understand.
'Isn't cryptocurrency for criminals?' she might ask, and you would reply,
sometimes
Our first video covers the basics of blockchain and cryptocurrency.
Blockchain might sound like a fancy word but it's actually two very simple words that is on most five year olds' vocabulary lists: block and chain.
And that's literally what is, a chain of blocks.
A way to think about blockchain is to go back in time to those old library checkout cards.
For example, back in the old days before libraries had digital record keeping systems, let's say Anna went and borrowed a book from the library called 'Blockchain for Dummies.'
The librarian would record her name and the due date for the book.
When Anna returns the book, the librarian will enter the date she returned it.
When Ben comes along and borrows the book next, the librarian will fill in his name and the due date and so on.
The library checkout card is a ledger of transactions that occur in relation to the book.
The library checkout card is the one source of truth that records everything that happened in the history of the book.
Blockchain is basically the library checkout card. The transactions listed on the library checkout card are the blocks in the chain.
The power of blockchain, compared to a simple paper based ledger like a library checkout card, is that copies of it are stored in thousands of computers around the world called nodes.
So if we go back to the example of the library checkout card, only the librarian, and Anna and Ben themselves would know when they have borrowed and returned the book.
But let's say, the librarian and Ben like each other a lot, maybe even more than just as friends,
and when Ben decides not to return the book, the librarian blames Anna for not returning it.
If thousands of people had a copy of the library checkout card, they would be able to check their records and confirm that Anna did return the book, and that a new entry was recorded for Ben.
The librarian and Ben would then be busted.
In a blockchain, the benefit of having the ledger stored in a decentralised way
is that it is less prone to bad actors in the system manipulating the data because the transactions are on display for all to see.
Now that we have a basic understanding of what a blockchain is, let's talk about cryptocurrencies.
If we go back to the library example, think of the book as the cryptocurrency.
Therefore in a Bitcoin blockchain, the blockchain is recording all of the buying and selling transactions that have happened to the Bitcoin.
Now your grandma may ask 'well a book is physical, but what exactly is a cryptocurrency,' and you would reply 'trust.'
That might seem like a strange answer, but in fact that's all money is. Money has a physical form in the form of notes and coins, but ultimately it is based on trust.
This trust is derived from the fact that the government issues money and that people in society accept money
as a store of value and as a medium of exchange for purchasing and selling goods and services.
These days most of our payments are made digitally,
so really it is not so hard to conceptualise cryptocurrency as merely a new form of money that people trust, even though we can't touch it or feel it.
Unlike traditional money, cryptocurrency isn't issued by a central government authority.
Instead it is created by a community of software developers who set out the rules for creating new cryptocurrency in computer code which is made public for everyone to see.
Different cryptocurrencies have different rules and we'll go into these in further detail in later videos.
Cryptocurrencies use blockchain technology to allow thousands of people to verify the transactions that have occurred
which allows people to trust that the system is working, just as people trust their governments to manage their currency.
The word cryptocurrency comes from combining the words 'cryptography' and 'currency' - perhaps these words are slightly too advanced for a five year old's vocabulary list.
Cryptography is an important part of blockchains.
Cryptography is an incredibly complex field of mathematics but at a high level, it helps to link the blocks on the block chain
and is the reason why blockchains are seen as incorruptible and therefore trustworthy.
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