Bitcoin has been the craze of the investment world this year and everyone, including school-age children, is talking about it. But how exactly do you explain Bitcoin to your grandmother this festive season over a mouthful of cookies?
The largest cryptocurrency by market value was invented in 2008 and launched in 2009 on the heels of the economic recession by an unknown person or group.
A $1,000 investment in 2010 is now worth more than $612 million. This year alone, Bitcoin is up 64 percent so far, trading at $48,979.56, according to Coingecko data.
Quantum physicist Richard Feynman famously said, “If you cannot explain something in simple terms, you don’t understand it. The best way to learn is to teach.”
Using Feynman’s analogy, if you cannot explain Bitcoin to your grandma, you do not understand it.
There is a lot about it that can be difficult to explain in lay terms without using tech and financial jargon. Words like cryptocurrency, blockchain, digital currency and even meme coins are not something your grandma comes across every day.
Bitcoin is especially tricky to explain because it subverts our knowledge of what money is as a physical object. Even virtual credit card transactions are about adding or subtracting physical money. It becomes extremely confusing when you take that physicality away.
It is easy for those who do not understand Bitcoin to confuse it with a digital version of Monopoly money.
Here are three ways you can break Bitcoin down so that even your parents or grandma can understand it.
Monika Proffitt, a serial entrepreneur, speaker, and author of “Blockchain 101: Fundamentals of a New Economy“, explains Bitcoin as a series of indestructible glass mailboxes connected by an underground network of tunnels.
In a Medium post, Proffitt tells readers to imagine these glass mailboxes cannot be opened by anything except for their unique individual keys.
“Even when they are opened, the contents cannot be taken out — only sent elsewhere through the underground tunnel. The mailboxes’ purpose is to store and transfer gold. If anyone knows your mailbox address, they can send you gold, and vice versa. Because the mailboxes are glass, anyone can see how much gold is inside of any mailbox at any time,” she wrote.
“However, anyone can get as many mailboxes as they want, so there is no way to know how many mailboxes everyone owns. Because the gold never physically leaves the mailbox network, and can only be transferred from mailbox to mailbox, there is no possibility of any gold being added or removed from the system. This is Bitcoin.”
Another way to explain Bitcoin that is easy to understand is by using relatable examples and nothing is as relatable as money or good old stocks. Explaining that it is regular money that has value and can be used to buy goods and services is relatable.
It is also like stocks because the value fluctuates based on the supply and demand. However, it doesn’t give any dividends, unlike Bitcoin.
The only difference is that Bitcoin is digital money or stocks. No bills to print or coins to mint, and it’s decentralized – not controlled by government, institution (like a bank) or other authority.
The other feature of Bitcoin that may need to be simplified for your parents or grandma is where the tokens come from.
The concept of mining can be simplified by using a mountain example called Mount Bitcoin where there are miners. Using computers with high power, the miners dig up the scarce tokens and are paid for the time and effort they spend doing this work.
Just like other resources, the tokens are scarce and require specialized and expensive equipment. Once the miners get the Bitcoin token, they can then break it down into many little pieces and distribute the pieces in exchange for money.