Explaining Bitcoin and Crypto To Your Family
2021 was a rollicking year for crypto. We've seen more people asking about crypto-related matters than ever before. Institutional money pouring in, people who used to pooh-poohed crypto are at least showing some interest via NFTs, while others are literally jumping on the bandwagon and getting into all sorts of safe (and unsafe) crypto projects. For those who are still sitting on the sidelines, they might still need a bit of convincing. If you've tried explaining crypto and Bitcoin to others and met with little success, or figuring out how to do so, read on for some ideas!
Brenda and her Nana
"Nana, I got a present for you!" Brenda exclaimed as she handed her grandmother a gaily-wrapped present. It's Christmas time at the Berenson family. After a sumptuous dinner filled with good food and lots of laughter, it's time for exchanging gifts. Nana, the indisputable matriarch of the family, is seated in her regular seat with a plum-coloured crochet blanket wrapped around her slender frame. She beams happily at Brenda, her favourite grandchild, as she accepts the present from her. Then, with slightly trembling fingers together with Brenda's young sturdy ones, ripping the wrapping paper away reveals a simple box. The cellophane tape gets peeled off, and the lid gives way to a beautiful blue-patterned Wedgwood teapot nestled in it.
"Oh, how beautiful", said Nana as she slowly lifted the teapot to admire it. "I knew that you love the hibiscus flower, so when I saw this, I just had to get it for you.", explained Brenda. "But this must be really expensive!" exclaimed Jessica, Brenda's mother. "Where did you find the money for this? You're still in college and art school, no less. Wait a minute, you're not involved in anything illegal, right?" A slight frown crossed Jessica's forehead as she walked over to Nana's side to admire the teapot. "No, mom. Course not!" Brenda made a face at her, got up and left. "Why do you have to be so mean about this?" she yelled before heading upstairs, followed by the sound of a door slamming shut.
Brenda was busy making sketches in her room when a soft knock at the door drew her attention. She opened the door to find her Nana there. "Mind if I come in?" Nana asked. Brenda ushered her in and pushed some clothes away on the bed to make room for her. "I didn't get a chance to thank you for that wonderful present. It's simply gorgeous. You must have a cup of tea with me sometime soon." Nana said while gently holding Brenda's hand. "I'd love to, Nana," said Brenda. "But I am curious. Where did you find the money to buy this? I heard your mom say that you'd lost your part-time job, and I can only imagine art supplies costs money. Your parents can barely afford your tuition. You didn't...?" Nana asked cautiously. Brenda shakes her head. "It's not what you think." She stayed silent for a moment, then said, "If I tell you something, will you promise not to say anything to anyone?" Nana nodded.
She pulled out her phone and opened an app. It looked like a financial app with numbers on it. She scrolled to a page and showed Nana. "This is how much money I have now." The bank balance on the app showed a tidy 6-figure digit. Nana's eyes opened wide. "How did you get all this money?" she asked. "I bought some cryptocurrency early in the year. The price went up heaps, and I sold some. That's how I got you the teapot." Brenda replied. "What's this cryptocurrency thing?" asked Nana with a look of confusion. "Well, the shortest way of saying it is that it's a kind of digital money used for buying and selling mostly digital stuff, but it's not controlled by a bank," Brenda said. "Well, you've lost me completely, dear." Nana gave a quick laugh. "Hmm.. let me think how I can explain it to you." Brenda pondered.
"Do you have a $5 bill with you, Nana?" Nana patted around her, reached into a pocket and came up with a crumpled bill. "Will this do?" Nana asked, handing it over to Brenda. "Perfect." Brenda holds the dollar bill in front of her. "Let's pretend I'm a shopkeeper, and you're a customer coming to the shop to buy something from me. You pick something you want, hand over the cash, maybe I need to give you some change, and you walk away. We've just made a transaction. When you handed over the money, you have less than when you came in, and I have more when you left. We remained complete strangers to each other unless we shared some stories about ourselves with the other person. Got me so far, Nana?" She nodded.
"Nowadays, we buy stuff with money we see on the screen. We can't touch or hold it, but we know it's there, and I can use it whenever I want. It's the same as using the $5 bill, except I can buy stuff from people I cannot see. So our money has gone digital." Nana nodded.
"Money usually gets deposited into a bank for safekeeping from robbers and thieves. Once you become the bank's customer, the bank needs some information about you. Not only is it because it's the law, but it's also because the bank wants to make sure you're not going to do bad stuff like sell drugs or something. You also need to trust that the bank won't take your information and sell it to someone else. When you use cash, though, no one needs to know anything about you. So you are giving up some of your privacy for another kind of safety and convenience.
Since the bank keeps my money, it also records what's happening to it. So if my records and the bank doesn't match up, what do you think will happen?" Brenda asked. Nana thinks for a moment.
"Remember that time cousin Julia, and I argued when we were young? We both said it was our turn to wear your butterfly brooch." Nana said, "Ah yes, oh.. the both of you were at each other hammer and tongs. I didn't know who to believe." "And in the end, both mom and aunt Pauline had to step in to decide what to do." Brenda continued. "Point is, Julia and I alone couldn't sort things out on our own. We needed a 3rd-party. What if, at that time, someone else, and not just one person, but many people, also kept track of whose turn it is to wear the brooch? When Julia or I forgot whose turn it is, we look at those records, and we'd know straight away." Brenda said in a triumphant tone. Nana pointed out, "You'd still need a 3rd-party." "Well yeah, true," Brenda admitted. “But it wouldn't be just one. It would be like public knowledge. Everyone knows.”
Nana digested this for a moment and said slowly, "So everyone knows everything about everyone." Brenda said, “Yeah, that's called blockchain technology. There are thousands of copies of records all around the world. So no one can make any changes to it once the money changes hands. And there's no reason to doubt that the records can be faked because it's impossible to do that.”
"What does this have to do with banks, though?" Nana asked. "Well, for starters, we don't have to take the bank's word for it when it comes to the absolute truth about records. Not that they would actually fake them." Brenda added hastily. 'What really gets me excited is that for the first time in human history, there is another way to deal with money that is as safe as banks and better too! It doesn't make sense when I look at how much interest I'm getting from the bank versus what mom and dad are paying in mortgage interest. And you know what's the dirty secret?" Brenda asked, slightly breathlessly.
"Oh? What's that?" Nana quizzed. Brenda whispered in her ear. "The banks don't need our money. They can make money out of thin air." Nana's eyes became wide. "But how?" "I'll tell you that next time." Brenda grinned impishly.
"So back to this cryptocurrency thing..." Nana countered. "Yes, well, it's not always a kind of currency. Sometimes it's also an asset, but that's beside the point. Anyway, cryptocurrency is digital money based on blockchain technology. What makes it safe like a bank is because of that technology. Anyone can issue a cryptocurrency for any reason." Brenda remarked triumphantly.
"Isn't that dangerous? What if people get tricked? Or scammed?" Nana interjected. "Well, yes, which is why people need to spend time learning about the projects before they buy it. It's the same as when dad went shopping for a TV the other day." Brenda remarked defensively. “He went through like a dozen shops, compared prices, models and all sorts before he bought the one we have in our living room now.”
"So what you showed me on your phone just now are all these currencies that you bought," Nana concluded. "Yeah, I bought them when they were cheap, the prices went up, and then I exchanged some of them for cash," Brenda said. "That's how I got the money for the teapot." "So that's why you were always holed up in your room, doing research?" "Brenda nodded guiltily.
"Well, I'm glad that's all sorted out," Nana remarked. "Thank you again for the teapot." She brushed Brenda's hair. "Now, as your Nana, here's my advice. Go talk to your mother about this. I'm sure she'll understand." Nana smiled. Brenda replied in a huff. "I don't know..." "Give it a try for me, won't you?" Nana cajoled. Brenda made a face. "I'll think about it." Nana kissed her on the cheek and left the room.
Jessica and Brian
Jessica sighed as she saw Brenda headed upstairs. Nana patted her arm. "Time for my debut." Thus saying, she handed Jessica the teapot, got up slowly from her seat, and Jessica handed her back the teapot. Nana gradually made her way up the stairs.
Brian reassured Jessica. "It'll be fine." She reached under the tree, came up with a small box and handed it to Brian. "Merry Christmas." Brian stared at the small box with a bemused look. "Oh?" He unwrapped the present, revealing a Ledger Nano X, opened. "Is this what I think it is?" He commented. Jessica replied, "What do you think it is?" "Some kind of crypto?" he queried. "Yes. But which is it?" Jessica countered. Brian thought for a moment and glanced at her. "You know I'm a noob when it comes to this, so it must be pretty well-known. Probably Bitcoin or Ethereum?" "It is one of those two, but which one?" Jessica replied smugly. "It couldn't have been both?" She shook her head. "Alright, I'm guessing Bitcoin then." He laughed. "It's Ethereum." She smiled.
"Well then, now that you've pulled me in to give me skin in the game, I suppose I should pay a bit more attention to it. So let's start with what they are, and the difference between both?" Brian said. Jessica took a deep breath. “I'll give it my best shot.”
"So you know both of them are cryptocurrencies, basically digital money made possible through blockchain technology. Brian nodded, indicating for her to continue. "Bitcoin is the first cryptocurrency to appear. It was conceived by someone or a group known as Satoshi Nakamoto. A document outlining the theory and usage of Bitcoin, called a whitepaper, was published back in 2008, on the heels of the financial crisis. So you know, almost anything digital these days can be copied by anyone, right?" Brian nodded. "One of the most important parts of the whitepaper was that Nakamoto had found a way to resolve an issue called double-spending." "Double-spending?" Brian asked. "Yeah, like when you give me a dollar, I now have it, and you don't. But if you send me a JPEG, you'll still have your copy." Jessica explained. "Ah right, ok, I get you. So no double-spending is there being only one JPEG passed around." Brian remarked.
Jessica continued, "So for blockchain to work, we need lots of people to do the record-keeping, and there needs to be a master copy that keeps track of everything. Of course, nothing works better than an incentive, so Bitcoin was the incentive for people to keep records on the flow of Bitcoin on the network, basically where it is and when it was last used. The idea then is that people who get the Bitcoin would be able to use it like cash to pay for basic necessities." "I gather that hasn't happened?" Brian smirked. "Not yet, but it's coming." Jessica gave him a playful punch on the shoulder.
"Alright, let's see what I've gotten so far. Bitcoin is a reward given to people who keep records of the movement of Bitcoin itself. That sound about right?" Brian asked. Jessica nodded. "So why do people call it a store of value?" "That's because there is a hard limit to the number of Bitcoin that could ever exist, like 21 million." Jessica continued. "And this limit can't be changed at all?" Brian queried. Jessica shook her head. "Maybe not now, but in the future? I heard they're making great strides with artificial intelligence and quantum computing?" He joked. Jessica gave him a playful shove. "Not likely."
"Well, I can see how all this makes sense. We have inflation because more and more dollars are entering the market, but nothing is taken out of circulation. And there's no limit to the amount coming in. Whereas with Bitcoin, even though there is also more coming in, there's a finite number." "That's right," Jessica said.
"Now, about Ethereum." Brian reminded her. Jessica continued, "Right, ok. So Bitcoin is a kind of single-purpose blockchain. All it does is crank out Bitcoin all day long. Pretty useless for other things, at least that was the initial design. However, Ethereum has a much bigger plan. While also using blockchain technology, the guy who invented Ethereum, a Russian called Vitalik Buterin, came up with something called a smart contract that works on the Ethereum blockchain. Like Bitcoin, it also needs people to keep good records, and the reward is known as ETH." "And it also has a limited supply like Bitcoin?" Brian interjected. Jessica shook her head. "No, there's no limit." "But then you have the same problem with cash!" Brian remarked excitedly. "Not so fast, mister." Jessica put a finger to his lips. “ETH is also destroyed as it is used. In fact, more gets destroyed than what is given out, which makes it different from cash. And there's more.”
"Getting back to the smart contracts, it's an agreement that will execute itself." "What do you mean?" Brian asked. "Remember that bet you lost a while ago, and you said you were going to do the dishes for a whole week?" Brian rolled his eyes. "I cannot believe you're still bringing that up. I did the dishes, didn't I?" "Yes, yes, I know you did. Just using it as an example." "Fine." Brian huffed. "I won that bet fair and square, by the way," Jessica said in a gloating tone. "I don't know about fair and square, but you did win. I'll give you that." Brian said. "So if let's say I made a bet with someone else who is not as principled as you, and that person lost but didn't make good on the bet. I might not be able to do anything about it." Jessica pointed out. "I'd like to see him try. You're the most persistent woman I've ever met. I don't think running away to the north pole is enough." Brian snorted. "Now, dear," she patted him gently on the shoulder. “Where was I? Oh yeah, smart contracts.”
"Well, long story short, the Ethereum blockchain is more useful than the Bitcoin one because it has more functions, not just spitting out coins. With smart contracts, people can create services that use any agreement mechanism to work. To execute the smart contracts, people pay gas fees which can only be paid in ETH. These services that people built also accept ETH as payment, so some people think ETH can be more valuable than Bitcoin. And that's why I gave you some ETH. Happy?" Jessica concluded.
Brian scratched the back of his head. "Well, it's still all a bit fuzzy to me, but I can kinda see your point. Thank you for the present." He gave her a quick kiss. "Now, let's get on upstairs so I can give you my present." Brian chuckled. "By the way," she pointed to the Ledger device, "this thi ng doesn't store bitcoin or any cryptocurrency in it, but it gives you access to what you can claim on the blockchain. There's also a password called seed phrase in it. Both of them together is proof of your claim, especially the seed phrase. That's like the key to your car. Anyone with the key can drive off in your car, so keep it safe, k?" Jessica warned. "Yes, ma'am." Brian acknowledged.
Jessica and Brenda
The next morning, over breakfast, Jessica approached Brenda, "Hey, look, I'm sorry about yesterday. I shouldn't have snapped at you or jumped to conclusions. You know, I'm just worried about you." Brenda stared at her mom for a moment. "I didn't do anything bad to get the money." Jessica said, "Thanks for telling me that. I do trust you." Both smiled. "So, where did the money come from?" Jessica asked casually. "I sold some crypto," Brenda replied coolly. Jessica laughed, “I should've known.”
Well, that was a happy ending for that family. While it's true that not all conversations concerning crypto will go as smoothly as the ones above, it's worth taking the time to have a good chat about it. As enthusiastic as you may be about the prospects of crypto and the role it will play in the coming years, take the time to listen to the concerns and fears, acknowledge where the shortcomings maybe, but also point out that its imperfections lead to more room for improvement in the future. At the end of it all, people are either ready to take the leap or not. If not this time, maybe the next? Or they're just waiting for the next big thing in crypto to tickle their fancy, making the leap a no-brainer.
For all of you taking on the challenge of explaining crypto to your friends and family, good luck and may the force be with you!
Disclaimer: These are the writer’s opinions and should not be considered investment advice. Readers should do their own research.