Explaining Bitcoin & Ethereum to a 7 year old child

This is how I explain it to folks who have no idea what all this is about

Hope it’s useful.

What is blockchain?

Think of blockchain as a shared, distributed and open database. This database stores information. Just like any tech, this could be interesting for some use cases, not so useful for others.

What was the first?

Bitcoin was the first blockchain. No one knows who created it.

Think of blockchains as islands/countries/locations — but island is a better analogy.

This bitcoin island has its own currency - also called bitcoin.

The rules or constitution of this island had these important things:

• there can only be 21 million bitcoin created or minted

• bitcoin’s main use case is to transfer payments from one to another

• you can create or mint a bitcoin by competing with everyone else to finish first in a 100m race (“proof of work” — more on this below)

That’s it.

So people went racing. And the fastest won and minted the bitcoin.

Expand on the third bullet please, you can’t just say that and not explain what it is. What’s this… race?

Bitcoin’s constitution basically said if you want a bitcoin, you need to solve this super hard complex cryptographic puzzle and if you solve it fast enough you’ll get the coin.

When everyone saw this, they were off to the races. You had to compete with each other to solve the riddle. And the first won!

Over time, the puzzles became more difficult and the people became stronger and faster.

This is what proof of work means.

You have to put in the work (ie; run the race) to win the coin.

That means 10, or 25, or 100,000 people will have to run the race … to find 1 winner to mint that one bitcoin. And move on to the next bitcoin. Rinse, repeat. What a waste of energy.

All those running and races caused folks to use a lot of energy and power. That’s what proof of work does. It incentivise people to run faster, or to have more people run for you ——> use more electricity, power etc.

Gotcha. Tell me what is ethereum then.

Okay, so folks looked at the Bitcoin island and went…. hmm we can do better.

Bitcoin could not handle transactions properly, well because it wasn’t designed or built for transactions. Remember, bitcoin had some fairly simple rules.

So these folks went, hmmm, what if we used the same underlying technology or island and build something that could support a bunch of other stuff that can handle more stuff.

What if we integrated the ability to create contracts in it… so you know, people can do more stuff. With contracts, you can do a lot. Because contracts are basically rules. And rules can be codified into a computer.

So they created Ethereum. The second island.

Ethereum’s constitution had a bunch of stuff, including the ability to create smart contracts.

And the currency for this island is ether.

The same folks went…let’s use proof of work. Because it clearly worked for Bitcoin.

And in this proof of work, ether will be rewarded to folks who can validate the transactions that happen on the ethereum blockchain / island.

And the ethereum founders…or foundation also started to use these ether to incentivize developers to build on their island.

In an effort to attract developers and builders from all over, the island of ethereum constantly talks about how fast it is and how many transactions it can handle per second. Some major flexin’!

Isn’t proof of work bad for the environment?

Yes. That’s right.

Why force everyone to run a 100m race to win a coin or validate a transaction when you’re better of selecting who will win the race at the starting line.

This is proof of stake.

Before the race begins - every racer will stand in line and the racer with the most “Staked” capital behind them will win the transaction or the mint. No need for everyone to race. No need for all of us waste energy.

The island of ethereum saw this and went hmmm this could work for us, so they’re now in the process of transitioning to proof of stake.

What about other islands?

Great question.

So some other folks saw Ethereum and went… hmm we can do better.

So the island of Ethereum say they can do Y transactions a second huh.. and that they’re incentivizing developers and builders with their ABC% interest rates huh.

And it looks like they are transitioning to proof of stake huh.

Why don’t we create another island that can do 3*Y to 100*Y transactions a second faster or just start with proof of stake?

Or build an island ground up with ABCDEFG and H features in our constitution from the get go?

Enter the island of Solana, with its currency Sol.

Or the island Avalanche with its currency Avax.

Enter 100-300 more islands with their own constitution, currency, varying level of developer or builder friendliness, transaction speeds and so on.

Every island is different.

Some islands like Ethereum attracted a lot of developers and got clogged up, so the transaction fees or gas fees shot up.

This attracted a bunch of builders (eg: Polygon/Matic — called L2s) on Ethereum to come and say, hey developers build on us instead.

We’ll remove the clogginess of Ethereum and make it easier for you. So it’s seamless for your customers.

Other islands like Solana, Avalanche are saying ha, look at Ethereum’s high gas fees, come build on us instead.

What’s next?

Before that, understand this.

L1 = islands = blockchains

L0 = tunnels below island= some stuff you don’t need to know or care about

L2 = stuff built on islands to make islands perform better

L3 = skyscrapers that are used by consumers like you and me (NFTs, soccer game, NBA games)

L1 / islands are trying to attract as many L2 and L3 builders and developers to their island so island can be prosperous and the economy can thrive.

Also, intuitively speaking, these are some of the things that are being figured out at the moment.

• how does one one get from one island (L1) to another island (L1)? do I need a visa?

• how can I communicate between one island (L1) and another (L1) ?

• how can i transfer my $$ between one island (L1) and another (L1)?

• how can i communicate in the island — on the ground (L1) to skyscraper (L3)?

• i have an identity in the real world. how can i port this identity in the web3/crypto world? do i have to start from scratch?

• how can i use my identity in one island (say the island of ethereum, an L1) and use it in the other islands (say solana, another L1)?

• is anyone building bridges? is there an underground tunnel? or can i jump from one skyscraper to another skyscraper?

• i own a bunch of cool assets on this island (like NFTs), how can folks in other islands know I’m cool?

• what if there are so many islands, will there be many bridges?

• will someone have to create a river or an ocean to connect all the islands by water?

It’s still early days.

Lots of islands, bridges, tunnels, oceans, skyscrapers are being built.

Developers are experimenting on different islands, experimenting on different L2s, experimenting with different applications.

Lots of fun stuff happening.