How did we transfer money thousands of years ago, when we all still lived in little villages and knew and trusted each other?
We simply exchanged things with each other, as we still do with cash today. But when money moved online things got a bit trickier, and the way the banks and credit card systems dealt with this was to create a ‘ledger system’ – basic records of account showing who owns what.
For example, if John wants to transfer $100 to Sarah online, the bank moves the money from John to Sarah. John cannot do it himself because there is a risk he might cheat – he can copy and paste the digital money (it’s only numbered on a computer after all) and send the $100 to two different people.
nobody would know. Instead, we trust the bank to send the money and make sure it’s only sent to one person. Now, the bank can also cheat, but we trust them that they don’t.
If the transfer is between two accounts at the same bank, it’s easy to transfer, but if it’s between two different banks it gets a bit more complicated. They might have different ledger systems that need to be reconciled. For this, they charge a fee, and it often takes more time to complete the transfer. When they are banks or other financial systems in foreign countries, it gets even more complicated: different languages, systems, currencies, more parties to co-ordinate and so on, so the fees and transfer times increase. That’s why the current financial system is so complex. It’s just a massive entanglement of various ledger systems around the world.
Bitcoin is changing all of this. How? It is simply one global ledger system that synchronizes across the entire internet so that everyone can access the same ledger account in real-time no matter who or where they are. The result? Money can easily be transferred between parties without all the lag times and exorbitant fees. Just like it used to be before the world became big and complicated.
And what do people use Bitcoin as a payment system for?
Everything that one would do with normal money: send to friends and family – both local or abroad, buy things online, get paid for their work and so on.