You’re the absolute Bitcoin boss, but you have a hard time explaining cryptocurrencies to your friends and family? Here’s a version that even your grandmother will understand.
The Bitcoin price is currently in a downward spiral. Nevertheless, many are probably wondering whether it is worth getting in at a low price. After all, the classic stock jargon also says “buy low, sell high”.
However, investing in something you don’t understand is always a bad idea. For bitcoin fans who are already deep into the matter, it is sometimes difficult to explain the complexity of digital gold to so-called “no-coiners” in simple language.
Get rid of the Bitcoin jargon
That’s why it’s especially important to use simple language and not claim to be exhaustive. Some details, such as when the next BTC halving will take place or what changes the Taproot update has brought to the Bitcoin network, can be left out for now.
The version for grandma and grandpa
Let’s go to the grocery shop around the corner. Products from producers are sold there. Maybe you have noticed that the prices change. Sometimes a product gets cheaper but more often things get more expensive.
But why do things get more expensive? There could be a number of reasons such as a bad harvest, or lack of raw materials needed in the production. But in our hyper efficient modern economy such gaps are closed fast.
There is another less known reason why prices go up. It’s called inflation and it’s not easy to understand. But let’s compare it to something we all understand. Imagine the first mobile phone ever sold. It was crappy technology and it cost a fortune. Today you can get a much better phone with a lot more features and it will cost only a fraction.
How does that work? The answer is that today we produce a lot more phones than in 1980. And because we produce more, the cost per item lowers. This is the principle of supply and demand. When there is apple season and a lot of apples are being harvested, they usually become a little cheaper. Strawberries in winter are very expensive because they need to be transported and grow in greenhouses that require heating.
You see, all goods in the economy become cheaper over time because we find better ways to make them. We can make more with less because our production becomes more efficient thanks to clever innovation.
But here comes a problem. At the same time, the government will print a lot of money. And money is in a way very similar to mobile phones, apples or strawberries. It represents a value. The value of a mobile phone is that you can call your friends. The value of the strawberry is it tastes delicious.
The value of money is that it stores your labour and effort and makes trade easier.
If the government would print a lot of phones, apples and strawberries, how would that affect the price of these goods? Exactly they would become super cheap due to the oversupply. The same happens to your money if the government prints it. It becomes cheap. Or in other words, less valuable.
Less valuable money means that 10 USD are still 10 USD but you get less for it. The purchasing power deminishes.
Bitcoin fixes this problem. It is similar to gold, a very scarce money. But it’s much easier to transact than gold since it is digital. Bitcoin solves a lot of problems in our society because many things that currently go wrong are tied to the injust monetary system. Bitcoin provides a better alternative that everyone can use and nobody can abuse.
Bitcoin is savings technology. If you buy a small fraction every now and then you accumulate a bitcoin holding. Since bitcoin is hard money, the supply cannot be increased. This way your savings are protected from inflation and devaluation.
Quick Bitcoin FAQ
Why do you need Bitcoin at all?
Every paper currency is at risk of losing value. Bitcoin is censorship-resistant, decentralized, transparent and borderless digital money. It can be used to send value quickly and cheaply. Because of these characteristics, many speak of a democratization of money. The limit of 21 million Bitcoin also makes it the hardest money humanity had ever access to. Other than paper money or ‘fiat’ currency that can inflate, it is impossible to inflate bitcoin.
Who has control over Bitcoin?
In general, it is the network participants who take decisions for the Bitcoin protocol. The so-called “Bitcoin Core Maintainers” are responsible for implementing various decisions. This is a small group of developers who have the ability to change the Bitcoin code. However, their proposals only succeed once miners, node operators and users accept the changes.
How secure is Bitcoin?
Through cryptography – the science of encryption and decryption – the bitcoin is considered one of the most secure technologies. The decentralized nature of Bitcoin, makes it very difficult to change the protocol. This way inflation is made impossible. Bitcoin is also open source and everyone can verify the code. Of course it is very attractive to hackers to attack bitcoin, yet the bitcoin blockchain that stores the transactions has never been hacked. Hackers usually attack exchanges or banks rather than individuals as they control more bitcoin than a single wallet.
Why does Bitcoin consume a lot of energy?
First of all Bitcoin consumes by far less energy than the traditional banking system and the Dollar empire. But it is crucial that Bitcoin consumes some energy. It is the only way to create a truly scarce entity that is also digital. The proof-of-work algorithm transforms energy into value that can cross time and space. Sounds complex and it is. But in short, it is the only way to make bitcoin valuable and useful. Other consensus algorithms like proof-of-stake are not fair and will result in a power hierarchy which tends to centralize.