Topic: AbbyCoin - Explaining Bitcoins to 12 year old using Excel as the analogy (Read 546 times)

I'm not the first to use the Excel analogy  -- but it's a good one.

Here's how I recently explained Bitcoin to a friend's 12 year old (use their name -- it's more engaging!):
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First off we need to agree on a few things.

1. “The worth of a thing is the price it will bring”

That is in a nutshell what the word “value” means.  Something is only worth what someone is willing to pay you for it.  We have historical values to look to, but that is no guarantee of the current value.  Once you have a value, then you can set a price.

2. We will rely on “strength in numbers” to assure confidence

Only when a large number of people are involved and we can rely on a simple majority rule - aka 51% then we can have confidence

3. Perception is 9/10ths of Reality

If people believe something, then its MOSTLY true — for them.

OKAY….

Using an Excel spreadsheet, we start "AbbyCoin" out with 50 coins and we all agree that Abby has them. 

Abby sends David 10 coins for a ride in his airplane.  We’ll say that Abby is Account # 1 and David Account #2

#1  sends #2  10 coins

We KNOW that #1 had 50 coins, we all agreed to it so we all put down an entry into the spreadsheet to account for it.

David sends Hailey 5 coins for some pictures she took

#2 sends #3 5 coins

There are still only 50 coins available.  Abby has 40, David has 5 and Hailey has 5.

With me so far?

This is all well and good, but an economy cannot be based on just 50 coins, otherwise a single coin might end up be worth a lot — eventually we would be buying houses with a single coin :-)

So lets say that we want to reward people for keeping track of all the transactions for us.  We offer a prize to the first person that can say, add up all the transactions in the list and find a number that when multiplied times the sum of the transactions equals say 1000.

so 10+5 = 15 and 1,000 / 15 = 66.666

Maybe we don’t allow for fractions so we have to wait until another transaction comes in to help us find a whole number.

And maybe since finding a number that equals “1,000” is good…but a number that equals “10,000” is BETTER.  The person with the best solution gets awarded 50 new AbbyCoins.

Let’s say Erica has been diligently watching all the transactions and she finds a number that when multiplied by the sum of the transactions equals “100,000” — she has the best solution, better than everyone else, so we start a new page in the spreadsheet and the network awards Erica 50 new coins.  Now the AbbyCoin economy has 100 coins total.

Abby 40
David 5
Hailey 5
Erica 50

Our spreadsheet is a  “PUBLIC LEDGER” to keep track of all the (anonymous) transactions going on anywhere in the world. We compete to be awarded new coins in a process known as “MINING” (the computers are sort of digging to find the solution) — and when we create new coins and spend coins it gives the miners something to do.

They ALSO perform the very important task of making sure we do not let someone spend coins they don’t have.  We will not add a transaction to the spreadsheet if we know that its not possible.  Therefore, you can not counterfeit AbbyCoin — and you can’t double-spend AbbyCoin.

We also want the new coins to come into the economy at a certain rate — so we adjust how hard the problem is to act as a gatekeeper —because the more people we have mining for AbbyCoin — the more likely it is someone will find a solution faster — and so we need to make the problem harder if we want new AbbyCoins to come into the economy at a steady rate.

And that’s it in a nutshell ;-)