What do oxygen, gravity and Bitcoin have in common? You can’t see them, but they exist.
On the other hand, water, airplanes and quarters are visible, so you KNOW they exist, making them far easier to both explain and understand. So how do you describe something you can’t see, much less hold in your hand?
Bitcoin is especially tricky to explain because it subverts our knowledge of what money is–a physical object. Even virtual credit card transactions are about adding or subtracting physical money. If you take that physicality away, expect confusion.
So give your parents a break if they think of Bitcoin as digital Monopoly money, and use this Bitcoin breakdown below to educate them.
- Bitcoin is a type of currency that’s completely virtual. It’s not a virtual version of a dollar, but you use it like a dollar. It has worth; you can make purchases with it; and you can convert it into cash.
- While other cryptocurrencies exist, such as Ethereum and Ripple, Bitcoin is the most popular.
- All Bitcoin transactions are publicly recorded, so its entire history is traceable. (This could help ease erroneous concerns that Bitcoin isn’t on the up and up.)
- No, you can’t just sit down and create bitcoins with your computer, just like you can’t sit down and create gold.
- However, you can mine for bitcoins. Miners verify Bitcoin transactions and are rewarded in newly “minted” bitcoins. This is the only way bitcoins are made. And just like you need the right tools to mine for gold–a shovel, pan and pick–you need the right tools to mine for bitcoins, i.e., a super-powerful computer.
- Bitcoin’s value is assigned, but so are all forms of currency. For example, paper money itself doesn’t have value. Paper money is backed by a promise from the government, and the value is established through trade with foreign exchange markets. Gold too has value only because we’ve assigned it that value. Many early Native American tribes viewed gold as shiny earth and not intrinsically valuable. They used wampum, strings of beads, as a money system, as did some of America’s earliest European settlers. Bitcoin’s value is determined by supply and demand. There are a finite number of bitcoins, and as demand increases, value goes up.
- Bitcoin is decentralized, so it’s not controlled by a bank or government. If there’s a run on banks that creates a financial crisis, Bitcoin could remain stable because it works outside of this system.
- Bitcoin and other virtual currencies typically have lower online transaction rates than traditional currencies. So, yes, Mom and Dad, you save money by using Bitcoin.
- Bitcoin is not illegal. Despite the stories about how Bitcoin has been misused, scammed, hacked, illegal, and more, it is a perfectly legal to buy, sell, mine, and use in financial transactions around the world.
- Not all companies accept bitcoins (yet), but among the heavy hitters that do are Microsoft, Overstock, Wikipedia, Whole Foods and Starbucks. You can even get a new Bentley with Bitcoin.
So next time your parents ask, “What is Bitcoin exactly?”, point them here. We got you covered.