"Writing a description for [Bitcoin] for general audiences is bloody hard. There's nothing to relate it to." – Satoshi Nakamoto

WHAT IS A CURRENCY

• Unit of account
• Medium of Exchange
• Store of value

Analogy
The best analogy for a currency is a Ledger.
A ledger: keeps track of who you owe money to (credits), and who owes money to you (debits).

In this case a ledger is a book that keeps track of your personal wealth. Essentially, you track your own wealth by moving numbers, that represent money, to keep track of credits and debits.

Poker Senario
Now imagine that you're sitting at a poker table in your basement. You're playing Texas Hold'em with four other strangers; everyone starts with 1k. Instead of using chips, you keep track of everyone's wealth with your private ledger. At the end of 2 hours of drinking and gambling you have to distribute the pay out. You'll find that no one trusts you to redistribute their wealth. For all they know you could have given yourself money to cover your losses!

We solve this trust issue by using chips. Every time people come to your house you have a total of 1k chips and each chip is equivalent to $5. The chips have a specific design to represent that they are indeed the $5 chips that are used in your house. The fact that they represent an agreed value of $5 makes the chips a unit of account. The physical chip is a particularly good medium of exchange because, after each hand, they're easily transferable from person to person. Your chips are a store of value because you've never used more than 1k chips and always play with $5k between strangers; they know that when they come back to your house 1 chip = $5.

Takeaway
Instead of moving numbers on a ledger to represent wealth we move a physical asset to represent wealth. Your house now acts as the ledger because you wealth is being tracked in your house and the chips aren't worth anything outside of your house; strangers no longer need to trust you when transferring wealth (the chips). They play with your chips all the time because you have an impeccable reputation for only using 1 chip per $5 while never increasing the supply of 1k chips. Congratulations, you just created a currency that resides within your own home!

In future blog posts we'll expand upon this analogy to explain what makes currencies valuable

Is Bitcoin a Currency?

• One Bitcoin is the unit of account that is currently used. As 1 dollar is made up of 100 units called cents, one Bitcoin is made up of 100,000,000 units called Satoshis. A Bitcoin is similar to a physical dollar because the secure code that proves ownership is located on your physical hard drive of your computer.

• The Blockchain is an ultra secure, widely available, version of the internet acts as the medium of exchange. The blockchain is where all Bitcoin transactions take place that is accounted for on Bitcoin's ledger. Note: Bitcoin is a software that has updates to make transactions cheaper, faster and easier.

• Bitcoin is arguably the best store of value in existence because it is mathematically certain that there will only ever be 21 million Bitcoins will ever be created. Similar to gold, there is no company or government in the world that can increase the supply.

Soon to come...

• What is Bitcoin Backed by... What Makes a Currency Valuable?

• How does Bitcoin work without a trusted 3rd party, company or government?

• Alt-coin Series: Searching for Value