Bitcoin is the most famous of what is known as cryptocurrency. Bitcoin was introduced in 2008. The currency is created by powerful computer servers and are transfered online. The currency has no central authority as the coins exist and are mined solely online. There is a finite number of bitcoins that can be mined based on the protocol that allows for their development. Mining will end in 2140 when Bitcoins will have reached a maximum of 21 million coins.
A simple analogy to explain transactions, anonymity, and coin production.
Let's say there’s a room that anyone can access. The room has security cameras that anyone can view, and every second of recorded footage is available online forever. The room is filled with indestructible piggy banks made of transparent plastic. Naturally, these piggy banks have coin slots, and everyone can see which coins are in which piggy bank. These piggy banks can never leave the room.
Each person has a key that can open their piggy bank. Let’s say I want to buy a pair of alpaca socks, and you want to sell them. First, you tell me which piggy bank is yours. Then, I walk into the room with a ski mask on. Anyone in the world can see me on the security cameras, but not my face.
Next, I unlock my piggy bank, take some coins out, then put them into your locked piggy bank. I leave the room. Now, everyone in the world knows that your piggy bank has coins that were previously in my piggy bank. This is the case with every transaction, so everyone knows the history of every coin.
“So where do the coins come from? How did it start? Who got the first coins?”
There’s a robot in the room that runs lotteries. Every so often, this robot randomly chooses a piggy bank in the room, and puts 50 coins in it. When it first started, there weren't many piggy banks in the room since nobody knew about it. Back then, it was easy to win the lottery. Today, there are millions of piggy banks in the room, so your odds aren’t very good.
