Invention of Paper Money
Thousands of years ago, people exchanged goods to get what they needed. If they wanted to buy meat, they had to give some of their possessions to the person who wanted to exchange the meat for something else. During these few millennia, livestock and grains were exchanged for something. So they started to be used like money.
In this way, people were able to buy everything available by exchanging grain or livestock. The barter was a direct transaction between individuals. Just like children exchanging toys.
As time passed, some problems began to arise in exchange transactions. For example, a musketeer friend of yours promised to give you his own Legos in exchange for your toy car, but he didn't. In ancient times, a wise person, an intermediary, was usually consulted to solve such problems. This wise person, for example, wants his teacher, his harmonica friend, to keep his word. Over thousands of years, these wise men (in our case, the teacher) whom ancient societies consulted for such problems, evolved into what we now know as banks.
Banks developed the concept of "paper money". People no longer needed to own anything other than paper money to exchange for other goods or services. They could buy anything they wanted using paper money. They earned money sometimes by working, sometimes by making and selling goods such as toys, and sometimes by borrowing money. In this way, paper replaced real goods, representing them. If you examine the paper money a little closer, you can see the signatures of the wise people we just mentioned.
Just as you trust your mom or dad when they promise you a new toy, the entire monetary system is built on 'trust'. Without people's trust in each other, money is like a piece of paper. What about the wise in-between who make the compromise? They are now banks that fulfill people's promises of payment to each other.
Digitization of Paper Money
Paper money, which replaced live animals and grains to be exchanged, was actually the first step towards digitalization. The videos you watch on YouTube today were previously stored in a tape. This tape was a physical device with magnetic tapes inside. The video was right here. Now the whole process has been digitized: now he can watch the video without even knowing where the tape recordings are. The same goes for money. The family's money is safely in your bank account without your parents even seeing it. The family does not need to carry all their money in their pockets to buy items.
Banks have digitized paper money and provided a way to manage it over the internet. Just like watching cartoons online, you can control your money online. Money is not physically present and moving money from one computer to another is much easier than the old methods.
Do you remember what your mom and dad did before they went on vacation? They completely locked the doors of the house to keep the house safe while you were away. We provide security on computers in a similar way: we use passwords that work similarly to locks. We can generate complex encryption keys that look like very strong locks using computers. If a malicious person gets hold of these encryption keys, which are similar to our house keys, they will also have our money.
Encryption is central to Bitcoin's underlying technology. But with strong encryption, we can be sure that we only have the keys to our Bitcoins.
Bitcoin software associates each unit whose keys you have with you and makes it yours. All transactions are added to the chain of transactions, verified by hundreds of validators, and added to the Bitcoin registry, just like you do when you buy a toy and give Bitcoin. We call this distributed and decentralized ledger technology “blockchain”. Bitcoin is also an application of this amazing technology.
Bitcoin is a technology that does not require interpersonal trust. So you don't need the "wise person" you need to solve the problem you have with your phony friend while using Bitcoin. In addition, the Bitcoin registry is located in users who are called “miners” and scattered around the world. Each miner has exactly the same ledger as the others. Thus, even if malicious people try to change the records in the ledger, they cannot access other ledgers. This way, records can always be verified with confidence.
To transact with Bitcoin, you need:
- A Bitcoin wallet: There are many wallet solutions where you can keep your Bitcoins safe. You can safely store your Bitcoin keys on paper, on your mobile phone or on your computer.
- Bitcoin: You must have Bitcoin to exchange.
- A buyer who pays you: No matter what you use, this part of the economy never changes, you need someone willing to buy something from you for exchange.
- A seller who will sell something in exchange for Bitcoin: If you want to buy something with your Bitcoins, you also need a seller who accepts Bitcoin.
- Internet connection: You need to deliver your transaction to miners scattered around the world.
If you want to shop with your friend using your Bitcoins, you can send directly from your own wallet to your friend's wallet without the need for an intermediary such as a bank.
Mining, devices that are not connected to a center and scattered at different points are made to users. Anyone with sufficient computing power can become a public Bitcoin miner. Mining is open to everyone and there are many miners in the world.
The fact that the network is open to everyone ensures transparency and reliability of transactions. Bitcoin network and technology is not owned by any institution. Miners compete with each other to solve a complex mathematical problem. The information of the transfers made by the users between each other is transmitted to the miners over the Bitcoin network. Miners combine these transaction dumps to form a block. Next, all miners work to verify this generated block. The first miner to solve the problem adds a new chain ring to the blockchain and gets the right to receive the generated Bitcoins as a reward.
How Can I Own Bitcoin?
There are multiple ways to own Bitcoin. The first methods that come to mind are:
- You can get it by being a Bitcoin miner and producing Bitcoin: This method requires you to have sufficient processing power by investing some money.
- You can sell things for Bitcoin: You can sell products for Bitcoin on your own website and get Bitcoin.
- You can get your salary in Bitcoin: When you grow up and start working, you can request to be paid in Bitcoin!