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How does the current banking system work ?

We have accounts in the banks where we deposit our salaries. We have credit/debit cards and a banking app to spend the money in our bank accounts.

The banks maintain a ledger where they record account balances of all the individuals. They update the ledger with new account balances when two individuals conduct a transaction.

We trust the banks that:

  • Bank will honestly maintain and update the account balance whenever a transaction occurs.
  • Bank will allow us to transact with each other.

This does not seem like a big deal till the time the system functions smoothly.

However, imagine waking up one day and realizing that your bank account has been frozen because you participated in a protest that government did not like. This is what happened with thousands of truckers protesting in Canada in 2022.

Bitcoin fixes this !

At its core, Bitcoin is nothing but a distributed ledger system.

It replaces the centralized ledger being maintained by the banks with the distributed ledger being maintained by thousands of nodes spread across the earth.

This takes away power from any one individual to tamper with the money ledger.

What is Bitcoin at its core ?

Bitcoin ledger is nothing more than a record of addresses and their balances. Noone said that these balances mean something.

The reason these balances have value is because someone is willing to trade their services and goods in exchange for a higher number next to their account addresses.