Imagine You and I are at the school cafeteria, and I have bag of M&M’s with me. I give it to you. I gave you the bag. You received the bag. I have no M&M’s and now you have exactly one bag of M&M’s. Transaction done. Straight forward. We don’t need anyone to verify what just happened. You have the bag and I don’t.
Now imagine that I have a digital M&M’s. And I want to give it to you. It is just a bunch of numbers in a computer file attached to an email. I send it to you. Now you have the digital M&M’s and I don’t right? Well, not exactly. What if I sent that email to you and CC’s 10 other people. How will you know who got the original M&M’s. The one I sent you could be fake, right? Ah ha…this is essential problem that digital currencies have had. And that cryptocurrency now solves, and this is what makes it so special.
If you could have had your best friend, Jimmy be by my side to verify that I only emailed you the digital M&M’s first, and no one else, you would be satisfied, right? But your best friend can not always be by my side to verify. And what if I gave him $10 to lie for me?
Instead, cryptocurrency solves this problem in even a better way… What if the general public was by my side to verify that I indeed sent that digital candy to you? I could not cheat because then everyone would be there to tell you that I cheated. I couldn’t pay everyone $10. And no ONE person would be responsible for this verification, so they could not collectively collude with me. The Bitcoin protocol solves this issue of verification in a similar way.
Every transaction that has ever happened with a bitcoin is recorded in something called block chain. This block chain is made public and open source so that everyone has access to it and anyone can see it. Whenever a new transaction occurs on the bitcoin, a new block is added to the chain…but… But it has to be verified by everyone else that can see the transaction. And as long as people agree that the transaction took place, it is allowed. This public verification ensure honesty in the system, and in fact makes digital cryptocurrency even more reliable in many ways than real currency.