Cryptocurrency explained to my 6 years old son

Blockchain is really simple. The official definition in two words is ‘distributed ledger’. But such a simplistic definition does not really emphasise how blockchain is going to be (and perhaps already is) the most disruptive technology of the decade.

Calling blockchain as a simple distributed ledger would be like calling computers as a simple plastic box, or a newspaper as a piece of paper.

Of course the core attributes of any technology are fundamental, but technically speaking there were already so many (sort of) ‘distributed ledger’ tools in the past decade thanks to cloud computing.

Blockchain became popular thanks to Bitcoin that offered a very clever way to encourage public participation in the validation of transactions.

This process is called cryptocurrency mining and I took the challenge of explaining it to my 6 years old son. Here is how the dialogue went: Me: If I give you a new toy now, who will see the toy going from my hand to your hand? My son: Only you and I, papa. Me: Now if Jaden (his best friend) was here watching, could you ask him to tell your teacher that now you have a new toy? My son: Yes... Me: That is ‘certifying’ My son: Witnessing or certifying… Me: OK, but maybe Jaden would want something in exchange for witnessing or certifying… How about a coin? My son: OK. Me: So if you give a coin to Jaden he will certify with your teacher that papa gave you a new toy. Clear? called ‘witnessing’ or My son: Clear. Me: But now that you are offering a coin to anyone so that they can witness or certify, maybe also Mark and Dylan (his other 2 best friends) would want that coin. My son: So? How? Me: Well you could give them a task. The one that completes the task gets the coin. Deal? My son: Yes! In very simple terms, that is what cryptocurrency mining is all about: witnessing and certifying (i.e. validating or signing a transaction). But when it comes to the task, that is perhaps beyond the understanding of a 6 years old.

For Bitcoin mining, the task works around a cryptographic code called SHA 256 (Secure Hash Algorithm at 256 bit). The process is a one way encryption that generates a 64 digits almost-unique code.

So this very long code can start with any letter from A to Z or any digit from 0 to 9. So in order to validate the transaction, the observers would need to generate a SHA 256 code that satisfy an arbitrary rule.

For instance in Bitcoin the rule that the code must start with zero.

But since there are so many ‘observers’ interested in pocketing the prize for the validation (i.e. a token) — and computing power has grown drastically over the past 9 years since Bitcoin’s inception — the challenge of generating an SHA 256 starting with a zero has become fairly easy.

That is why the founder of Bitcoin set a timeframe of 10 minutes within which the tasks is to generate the SHA 256 starting with the largest number of zeros.

The process is is much simpler done than said.

In the validation box we can key in any number and/or alphabet.

That, together with the transaction that we want to validate, generates the SHA 256. It is a trial and error process.

Mega computers right now can process very large number of attempts, hence the number of zeros needed to win the task could be 30 zeros or more.

If we were to attempt manually, one by one, the likelihood of getting an SHA 256 starting with 30 zeros could be slimmer than winning the lottery in a lifetime.

Therefore mega mining farms, able to process million of SHA 256 attempts, sprung over the past decade or so, making the mining process nearly impossible for the average Joe.

Transaction after transaction, blocks are created and lined up.

Hence the validation of the last transaction requires inclusion of all the precedent transactions, making nearly impossible to ‘fraud’ the process of mining Bitcoins.