Twitter explains Bitcoin

We give you one totally wrong explanation of cryptocurrencies, and one right one.
A person holding a visual representation of the digital crypto-currency Bitcoin. (Jack Guez/AFP/Getty Images)

Understanding Bitcoin, crytocurrencies, and blockchain is hard. So when we came across a Twitter thread by @BryceElder it took us a minute to realize that their explanation was completely wrong. 

But it's funny! So we wanted to share it with you.

But of course, all of that is wrong.

Here's how it all REALLY works.

Bitcoin is what's called cryptocurrency. That means it's a currency that uses some of the qualities of encryption to keep track of how many "coins" there are, and who owns what. It's not "real", in the sense that you can't hold a Bitcoin in your hand. Instead it's a currency that exists entirely in digital form.

The transactions of people paying for things with bitcoin all go through a network of people called "miners". These miners collect records of all the Bitcoins exchanged on a network, and record that information on what is called a "block". Each new block is attached to the block before it, forming a chain going all the way back to the first block on the network. This record, or ledger, is call a "block chain".

These blocks are public, so everyone can see and agree that the transactions, and the money is "real". But they're also completely anonymous, so no one else can see what you bought, or who you bought it from.

To get the right to make one of these blocks, the miner needs to solve a complex computational problem, and then prove they solved it correctly.

It's kind of like solving a puzzle. It can be really difficult to solve, but once you do, it's really clear to everyone what the solution is, and everyone can clearly see that you've solved it. It can be hard to finish a sudoku puzzle, but once you do, anyone can see where those threes go, and they can tell if you fudged any numbers. 

Now, anyone can buy and use bitcoin. You don't have to be a miner. But being part of a network of miners has some rewards. The miner that solves that cryptographic puzzle first and and gets to write the next block in the chain, is rewarded with a certain amount of created Bitcoin. This is also how new Bitcoins are created, since the that reward in Bitcoins for the miner is actually completely new money, created out of thin air. 

The trick is that to solve the puzzle takes a lot of computing power, and uses a lot of electricity. And everyone else in your network is trying to find the solution before you. So just like real mining, it requires resources to go looking for the gold, and it's a gamble whether or not you actually end up finding any.

The system is basically impossible to hack or get around because each new block refers to the blocks before it. So if anyone tried to make a change to the information in a block, the later blocks wouldn't make sense and everyone would see that something is wrong.