What Is Bitcoin? Money Without a Bank

In 2010, a programmer named Laszlo Hanyecz paid 10,000 bitcoins for two pizzas — because back then, bitcoin was so new that nobody knew if it was worth anything. Today, that same amount of bitcoin would be worth hundreds of millions of dollars, making it one of the most expensive pizza orders in history. So what exactly is this digital money, and how can it exist without any bank keeping track of it?

- Explain what makes Bitcoin different from the money in your piggy bank or a bank account. - Describe what a 'blockchain' is, in simple terms. - Explain what 'mining' means for cryptocurrency. - Identify one risk and one benefit of using cryptocurrency.

When you use a debit card, a bank keeps track of how much money you have in a private computer system, and you trust the bank to get it right. Bitcoin works differently: instead of one bank keeping the records, thousands of computers around the world each keep an identical copy of every single Bitcoin transaction ever made. This shared, public record is called a blockchain, because new transactions get bundled into 'blocks' that are chained together in order, and every computer in the network checks that new blocks are legitimate before accepting them.

Imagine a shared notebook that 10,000 people around the world each have an exact copy of. If one person tries to secretly erase a page and rewrite it to give themselves extra money, their copy no longer matches everyone else's, and the network rejects it. This is why blockchains are described as 'trustless' — you don't need to trust one company or bank, because thousands of independent copies would all have to be changed at once to cheat the system, which is practically impossible.

New bitcoins enter circulation through a process called mining. Powerful computers compete to solve a very difficult math puzzle, and whichever computer solves it first gets to add the next block of transactions to the blockchain, earning a reward of newly created bitcoin. This puzzle-solving takes enormous amounts of electricity; some studies estimate the entire Bitcoin network uses more electricity per year than a country like Argentina. Mining is also what keeps the network secure, because cheating would require more computing power than the rest of the honest network combined.