i hate comparing gold/paypal to bitcoin.. but its what average joe understands.
so: walkthrough
1) gold is not insured by a government should you lose it, you cant simply ask your bank for a new lump of gold in the manner you ask for a new debit card. you need to learn how to secure and look after gold yourself.
telling people the combination to your safe is risky, ptting your gold into a strangers safe is even more riskier, gold is not like FIAT at all.
2) be aware that gold prices change alot more then FIAT prices
3) replace the word 'gold' with 'bitcoin' and you are getting the picture.
4) metal is heavy and takes effort to move between people, having to use postal services to transport it. bitcoin is not metal. its computer code. which can travel the world in seconds, like email. so imagine where posting a letter became email, where instead of packaging it up into a box to send on a truck, a program on your computer sends the valuable message instead.
5) if you have ever used paypal you have a username and password to get to play around with your wealth, the username is your identity. and the password is your proof that the identity belongs to you. where you are safe to tell people your username so they can send you funds. but never ever tell anyone your password. Well bitcoin is similar. the public key is your username. you can have millions of them if you want and you dont even need to register or fill in lots of forms to get the keys. the private key, that is your password. DONT TELL ANYONE
6) the private key is the most important thing of all. the private is not only the proof of access but the final public key is created via the private key. you can make, as i said before many private keys and they all generate a public key that only responds to that private key
7) if talking about public and private has started to lose your understanding then replace public with username and private with password. to get you back on track.
if you want to go into more detail on how the transactions work, read-on. or use this point as a chance to make yourself a coffee
9) imagine a cashiers cheque. it has a payee line, an amount and a bunch of numbers along the bottom to represent who it is from. when cashing a cheque. a clearing house service will check the FROM information to ensure funds are available. the clearing house will take a few days changing the balance of where the funds came from. and then crediting you with that amount. the banks instead of just reading the ledger of every cheque ever processed to see who sent what to who. to get a proper balance of who owns what at any point in time. they have a separate "balance" database that corresponds to the ledger of.. 'cheque stubs'.
with bitcoin its similar at the start it needs to know where the funds came from and that the person is authorized to send them, the amount being sent, and the recipients details. BUT instead of having a easy to use "account balance" database that can be manipulated (printing money) the proof of value held is done purely by adding up and subtracting the ledger/cheque stubs to get the total.
10) most of you new people dont need to know all the intricate details of how cheques work. same for bitcoin. as long as you know that it does work and is safe. well bitcoin is ALOT safer then cheque clearing and bank account balances in this respect.
11) the even better part is that there is not one single bank/clearing house that has all the copies of the ledger/cheque stubs. with bitcoin anyone has the entire ledger/cheque stub listings and anyone can, with the right program/website be able to check the total value currently held by any public address.
12) this stops people/banks from tampering with it, because if the millions of people who have a copy, notice a single ledger/cheque stub listing that has been altered or does not show the value previously existing in that persons previous ledger/stub. it would be ignored.
