Bitcoin is a protocol which maintains a distributed ledger of information whose usefulness is best summarized by a problem it solved. Notably that of the Byzantine General who wanted to communicate with his lieutenants, some of whom he could not trust.
He needed to take the castle the next day with all his lieutenants acting independently, as he suspected one or two were working for the enemy. However the attack on the castle would still work if the majority of the lieutenants all advanced at daybreak, half an hour either way was not going to make any difference so long as 50% of them did, he knew that the castle garrison would be over stretched at that point.
Being able to communicate in the knowledge that the order would reach his lieutenants was all that mattered. It did not even matter if the defenders of the castle knew, there was nothing they could do to stop the majority of all his lieutenants from either finding out or acting on the order in the morning. Even with the lieutenants they had bribed, they had no idea how many message runners there were or even precisely how many lieutenants and platoons had been drafted in.
Think of a database as a store of knowledge and imagine that the banks have sets of databases that overlap together to provide the banking system. These are stretched around the world, so that you can wire someone some Stirling (British Pounds) and it will magically arrive in a friends account in Dollars.
Unfortunately because of lot of the institutions are involved:
- they have arcane systems
- they are not interested in improving their systems due to their monopoly status
- and many involved certainly don’t trust each other
Have you ever wondered in the modern world why it costs so much money to send money abroad and how on earth it can take the same time to “clear” a cheque from the UK to the USA as the first steam liners? Sound familiar?
Bitcoin represents an electronic version of General’s communication system and an early application happened to change the way we think about money
A person we know as Satoshi Nakamoto created a protocol/process for sharing information which allowed it to be copied but not altered. You can add information at the end of the bitcoin database, which is know as the bitcoin blockchain. But you cannot edit information in the middle or edit someone else’s copy of the database which they hold for reference.
This bitcoin database is shared throughout the world and is referred to as the bitcoin blockchain. And often a ledger.