Bitcoin might have been created back in 2009, but over the past six months or so the number of people talking about it (as well as other cryptocurrencies) has reached an almost deafening crescendo.

Maybe you dabbled, or maybe you didn’t, but there was bugger all chance you weren’t caught up in at least a few chats on the subject.

Awkward chats, too, because who the hell actually knows how to describe Bitcoin after a few gins to the face?

We’re not going to try, either, but we will hand over the reigns to Luno, South Africa’s leading digital currency company.

They have something called The Luno Learning Portal, and it’s actually a fascinating look inside how we ended up at this point.

A little screenshot before we dig deeper:

It’s not in that screenshot above, but how about trying to figure out how the price of Bitcoin is calculated? Strap yourselves in and let’s do this:

Let’s first look at how the prices of most things are derived – we can use oranges as an example. What is the price of an orange?

Well, it depends. As a starting point, one would derive the price of an orange based on two things: how much someone is trying to sell it for, and how much another person is trying to buy it for. If John wants to sell it for USD2.50 and Sarah is only prepared to pay USD2.00, there is no deal. But if they agree on a price that works for both, let’s say USD2.25, then the transaction will happen…

Bitcoin and other currencies are a bit different from oranges in that they are what is called ‘homogeneous’ – one dollar is identical to another dollar, just as one Bitcoin is the same as another. Oranges on the other hand can vary in size and quality. All this means is that it’s easier to come up with a price of a currency or Bitcoin. Once again, just what a buyer and seller will agree on.

Many people might not realise that other currencies work exactly the same – if you are holding a coin or note of your own local currency in your hand, at any given point in time there are millions of people buying and selling your local currency, so while you might observe it as stable, it’s value actually continuously changes. When you want to exchange it for another currency at a currency desk, let’s say for USD, one day you pay 10 local currency to a dollar, the next day maybe 11 or 9.

Bitcoin works exactly the same way – you can just think of it as a currency other than the one you are used to.

Well that’s quite a bit simpler than what I’ve heard trotted out before, and while we’re here we may as well tackle something else I’ve heard cropping up a few times.

Bitcoin mining – everyone wants to be a smart arse and I’m just after a simple explanation.

We are in luck:

Whenever Bitcoin transactions are processed on the Bitcoin network – that means Bitcoin is moved from one person to another – someone has to make sure all the transactions are recorded properly and that the ledgers on all the systems are synchronised all over the world.

In the case of Bitcoin, this process is not done by people or companies, but by thousands of computers all over the world that are all connected to the internet. These computers are knowns as ‘miners’, but they should really simply be called ‘computers that process transactions’.

To do this processing in a very secure way, these computers need to perform very complicated calculations that take a lot of computing power, and in turn, require a lot of energy and expensive and specialised processing equipment. Someone – the owner of the computers – needs to pay for all this equipment and electricity, so they need to be compensated for all the money and effort they are putting into making this network work.

They earn this compensation through newly minted Bitcoin – so in short all new Bitcoin that is created acts as a reward and incentive mechanism for people to contribute their computers to the system to help process transactions.

There you have it – I wish I had known this the last time I heard two boets outboeting each other and arguing about Boetcoin.

Fancy wading into your next crypto convo with some actual knowledge at your disposal? Course you do, because everyone likes making other people look foolish.

You’ll find Luno’s Learning Portal here, and the rest we’ll leave up to you.

Happy Bitcoin-splaining, you wise mother truckers.