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How to Explain Bitcoin to Your Parents

Bitcoin is a currency that is completely digital. This means that, unlike paper money or gold stones, nothing tangible is spent in a transaction. But even without something physical, purchases can still be made and the coin can still be exchanged for cash. This is not a unique concept. In fact, Bitcoin is just one of thousands of decentralized cryptocurrencies that are not owned by a central authority such as a government or a bank. Bitcoin is not illegal, however. The majority of governments around the world continue to allow users to buy, sell, mine, and use their Bitcoin for a variety of different financial transactions.

In order for Bitcoin to work, however, it is the technology that makes it possible to make it accessible to such a wide audience. When explaining Bitcoin, it is important that you know the answer to the basic question, “How does Bitcoin work?” And more importantly, “What is blockchain?”

Starting with blockchain.

If someone had a digital asset like a work of art that they created on a computer, they could theoretically duplicate it as many times as they wanted. The art could then be sent to numerous people as an “original”. The seller is unlikely to be caught as there is no evidence of which copy is the original. This example might seem unrelated, but keep in mind that this double-spending problem has led many to wonder how a digital currency is possible. This is where blockchain comes in.

All Bitcoin transactions are publicly recorded in a database called the blockchain. The blockchain is a decentralized ledger with the history or events in which Bitcoin changed hands. A bank usually has a database of transactions on their computer that only employees in a specific position can access. The blockchain solves a similar problem, except that instead of a person or organization having access to the data, any device using the blockchain can see it. Personal identities are hidden and camouflaged with a series of numbers to avoid security concerns. However, the security is still the same as users can be identified by their wallet address.

The blockchain gets its name from the way data is stored by storing each transaction in a block. When the block is filled with transactions, the miners review and verify each one. This ensures that each bitcoin is only in one place and is not spent twice. Once this is proven, the block can be added to the previous one to form a blockchain.

Where do bitcoins come from?

Bitcoins are created through a process called mining. Miners can earn Bitcoin by doing two things. First, they need to check the value of the transactions in a block. Next, your computer must correctly guess the answer to a complex mathematical algorithm. As more and more miners compete for newly minted coins, more powerful computers than ever before are needed. This means that no one can sit down at their computer and create a bitcoin. This can be compared to when a computer owner couldn’t just sit down and create a gold pad on their device.

Bitcoin is valuable.

Your parents may still be skeptical about Bitcoin having value because they can’t see it. When this question comes up, you can compare the bitcoin value assignment to the value we put in fiat money. Technically, the paper the money is printed on is worth very little, if any, but with a number printed on it we believe it has some value because the government tells us it is is. Similarly, gold was once considered of no value as it was simply something that was found on earth. What makes something valuable are the laws of supply and demand. So if enough people continue to believe that Bitcoin is worth something and there is a limited amount of the asset, the price will only keep rising.

Don’t worry if your parents still don’t understand Bitcoin after giving them an initial explanation. The concept can be complicated to strangers. For reference, this article can provide the additional reading needed to understand the nuances of the Bitcoin world.


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