How to Explain Bitcoin to Your Grandparents

how-to-explain-bitcoin-to-your-grandparents

Bitcoin’s been around since 2009, and while it’s no longer the sole province of hard-core Web geeks and fortunate (if occasionally forgetful) speculators, it’s not exactly a household name, either. In a 2014 survey conducted by digital finance and media giant The Street, only two percent of those surveyed said they owned Bitcoins, more than three quarters had never heard of the virtual currency, and less than a fifth said they’d ever consider using Bitcoin (or any alternative to traditional currency). A full 80% said they’d rather own gold compared to any kind of crypto-currency, but given mankind’s long love affair with shiny metals, that’s hardly a surprise.

What is surprising, however, is the breakdown of Bitcoin familiarity among different age groups. While older folks (such as your parents or dear old Gran) might seem unlikely to care about such cutting-edge financial wizardry, the same survey that underscored Bitcoin’s low profile with the general public also revealed a surprising stat: respondents who fell into the 50-to-64-year-old demographic were the most familiar (at 30%) with Bitcoin, outdistancing younger generations by 10%.

That said, a 2013 survey of British Bitcoin users found that the average “Bitcoiner” is most likely to be a man in his early 30s who’s got a full time job, a relationship, and a love of capitalism (or at least the virtual variety). So while your Dad or your Gran might be interested in Bitcoin, if you’re a young fellow with a nerdy vibe, it’s possible they might be looking to you to explain just how they can turn that pension into sparkly cyber-lucre.

Fortunately, the basics of bitcoin are fairly easy to master, and line up well with examples from the non-virtual world (including wallets and key codes). So while it remains unlikely you’ll be called upon to explain the intricacies of mining and hash rates at the next family dinner, it probably would behoove you to review the basics (just in case Grandad decides he wants to convert your inheritance!)

How to Explain Bitcoin to your Grandparents

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How to Explain Bitcoin to your Grandparents

Have you ever tried to explain Bitcoin to your grandparents? It’s not hard if you get the basics right.

What’s Bitcoin Dear?

Bitcoin is a currency, just like $, £, €, ¥. But Bitcoins are a decentralized, digital money created, held and spent electronically around the world.

Bitcoin is similar and different to conventional money:

$, £, €, ¥ BTC
It’s backed up by… Products, services, and the economy of the issuing country Products, services, and a sound consensus of users
It’s governed by… Central Banks Mathematics and distributed computing
International transfer takes… Several days A few minutes
International transfers cost… Up to £10 or 2-3% of a transaction 0 to $0.01
Once you have paid… A chargeback is possible No chargebacks

Imagine a bank account or a credit card: instead of paying in cash, buyers transfer conventional money via a bank. Bitcoin works the same – you can buy products on the internet or cash it in for other currencies. What’s new is that you cut out the middlemen: banks and payment companies.

Get Bitcoin!

Buy it at an online exchange or by direct deposit

  • Picture a bank where you open an account in a foreign currency:
    1. 1. You walk in
    2. 2. Open an account
    3. 3. Hand in some money to buy foreign cash to put on your new account
  • In Bitcoin’s version:
    1. 1. You log in to the Bitcoin exchange or direct deposit platform online
    2. 2. You open a Bitcoin ‘account’ (i.e. a ‘Wallet’)
    3. 3. Wire money ($, £, €, etc.) from a bank account or pay at a local Moneygram agent in cash to get bitcoins at current exchange rates.

Buy physical Bitcoins

  • Order from reputed, independent producers. Be prepared to pay more for physical Bitcoins than their face value.

Mine it

  • Buy a mining computer and unleash it in your spare bedroom.

Store your Bitcoins!

In your ‘wallet’

  • Forget your leather billfold – A wallet is a digital storage on the internet, on your computer or your mobile phone. A wallet is like a bank account without a bank.

In your secret drawer/stash/pillow

  • Even physical Bitcoins can only be spent online. Each physical coin has an online address that you can access with the password (private key) hidden in the coin. Then, you can transfer the Bitcoin to your wallet or spend it right away. 

A Bitcoin wallet contains:

Address(es)

  • Imagine a bank account number. Your Bitcoin wallet also contains such a number (or multiple ones) and each address has a Bitcoin balance. During a transaction, the address is visible to all users in the network.

Private key(s)

  • This is a secret code (similar to a PIN) generated for each address where you hold Bitcoins. This key is known only to you and allows transferring money from a Bitcoin wallet to another.

Spend them!

  1. 1a. Online at more than 15,000 online retailers.

    • Open your wallet using your own Bitcoin address…
  2. 1b. At point of sale: In Bitcoin-friendly cafes and shops worldwide, If you have smartphone access to your bitcoin wallet.

    • Use your phone to scan the code shown on the bill.
      • Approve the transaction on your phone.
        • Wait for the Network to verify this transaction. This takes on average 10 minutes…
  3. 1c. At a Bitcoin exchange – swap Bitcoin for $ or other currencies.
  4. 2. Use your private key to authorize a transfer to the seller’s Bitcoin wallet.
  5. 3. The transaction is processed by a network of ‘miners': computers that verify your transaction.
  6. 4. The transaction is encrypted = turned into an alphanumerical code.
  7. 5. Then, it is included in a ‘block’ with other transactions of the past 10 minutes.
  8. 6. The transaction block is processed by thousands of miners for verification. They are like virtual bookkeepers who record every transaction in a general ledger transactions called ‘block chain’.
  9. 6a. Once a block is ‘mined’, miners reap a reward of 25 Bitcoins and sometimes a transaction fee. You can join the miners to earn your share of the mining rewards and fees.
  10. 7. Everybody sees your transaction and address in the block chain – but not your private key, your Bitcoin balance or personal data. This ensures that no Bitcoin is spent twice, no Bitcoin is hijacked and no personal data is exposed.
  11. 8. Transaction confirmed! You have spent your Bitcoins!

Right-O. But is it real?

As real as your money on a bank account – but you cannot spend it in cash and Bitcoin’s acceptance is far from universal yet.

Can I buy my veggies with Bitcoin?

Probably not at the local grocer just yet, but it’s only a matter of time.

Is a Bitcoin transaction cheap?

Miners’ fee typically ranges between 0 and 1 US cent – cutting deep under typical credit card fees.

Wonderful. Is it safe?

A Bitcoin transfer can be safer than credit card transactions as it doesn’t involve personal and credit card data. You wallet and private data are stored on your computer or your online wallet – it’s up to you to keep them safe.

Success? Good. Now wait for the next family gathering to bring up definitions of ‘hash rate’, ‘difficulty’ and ‘orphaned blocks’. And try to put up an honest smile when his Bitcoin balance dwarves yours.

*All currency quoted is in USD.

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Discussion

2 Comments to “How to Explain Bitcoin to Your Grandparents”

  1. […] However, it’s no longer an impossible thing – thanks to the infographic below, created by our friends from WhoIsHostingThis website. […]

  2. as far as my understanding goes bitcoin is imaginary money used to launder money or use to make illegal deals. in reality its only value is its conversion rate into real money as that is how its valuation rate is defined.

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