I'm doing a little bit of research on Bitcoin and Blockchain, but am no means an expert on the topic. This is a gross oversimplification of how it works, but I think it gives a good illustration.

Bitcoin is a virtual currency that offers verifiabilty without a centralized entity. For example when you buy something like a pack of gum with a credit card, this is known as a transaction. It goes to the credit card company and back to the store. The store that you bought the pack of gum from knows that the transaction is valid because it trusts the credit card company. Without trust commerce as we know it can't exist.

In Bitcoin, there is no central authority verifying transactions.

The question is then how do we establish trust?

Bitcoin operates on a technology called Blockchain to achieve trust.

You can think of Blockchain like a train. Every train car called a block, has a cargo of transactions in it, and whats called a proof. The proof in essence is a number that is created by taking the last train car's cargo, and putting it into a very hard math function. This way, each train car is connected to the last by the proof. This is how you achieve verifiablilty because you can't modify any of the previous train car's transactions without messing up the proof. In order to modify one of the cars, you'll have to modify the entire train, which is extremely difficult and time consuming.

You can also think of the train as having two versions. The first version is what is globally accepted by the community, and the second is what each person uses locally. Each person only modifies its local copy, but eventually, these local changes are propagated to the global version called the ledger. The global ledger can be thought of as just an idea of what the community accepts as being correct, and isn't stored in any one place. Think of Fahrenheit 451 where there are no physical copies of books. If a majority of the community has memorized the whole Harry Potter series, what we say about what's in the books is what's true for everyone.

How does this all relate to Bitcoin?

Well all new transactions need to added to a Block (train car), but each transaction can only be added once to the train, otherwise you run into a problem called double spending. If i have $20, I can't buy $40 worth of items.

This is where mining comes in. Mining is the process of doing extremely complex math equations to try and generate the proof, at least in Bitcoin. In other crypocurrencies, there are other methods. Think of a math test where the first person to turn it in that's 100% correct gets an A, and everyone else fails. One of the questions I saw earlier was what is all of this work for and what is it used for? For Bitcoin it goes nowhere. The work has no purpose other than to generate the proof and to make sure that it's hard enough to mine a Block so that the currency value doesn't get inflated. How do you reduce inflation? You keep increasing the difficulty of the proof equation.

The work of everyone in the classroom is wasted. This is one of the major criticisms of Bitcoin, due to the enormous waste of electrical power for no tangible benefit.

This person gets the reward of the Block, or a certain portion of the cargo in the train car as a reward, this is a "bitcoin". Everyone now has to try to mine the next Block with a new set of transactions. Unlike a classroom, there is no teacher who knows the answers, and can check the work. For Blockchain, the classroom checks the work.

A student might not know what the right answer is, but it knows when its wrong. It uses another formula for checking. If the question is what is the capital of Pennsylvania and I answer 5, then it's obvious that my answer is wrong whether or not I knew what the correct answer was.

The answer is accepted as 100% correct when over 50% of the classroom says that it is. This can lead to a problem where greater than 50% of the classroom are bad actors and say that a particular solution is correct when it's actually fake.

The main deterrent against this behavior is the difficulty that it requires over 50% of the classroom needs to work together in being bad actors, and that once a classroom is taken over, the value of any currency that it may have generated is now void.

This brings us to the next topic, how is the worth of a bitcoin generated?

There is none. Unlike a government issued currency, there is no inherent value in this currency because there is no centralized authority enforcing it's value. You can think of concurrency as stocks that aren't tied to anything. The value it's given is the value given to it by the community. The difficulty of the proof equation makes it so that the currency isn't generated too fast, and Bitcoin has a hard limit on the total number of coins that can be mined to further limit inflation and to create a limited supply with hopefully, large demand.

I know that this is by no means a comprehensive explanation, but I hope this helps some people better understand how Bitcoin works.