Bitcoin, as explained to my mother
Everyone and their pet knows and talks about cryptocurrencies. Few people are able to explain what they are.
Like many of you, I was asked by my parents to explain what bitcoin was during a family dinner. The expectations were high, and the attention span very short.
There was not even time to assert the difference between bitcoin and other cryptocurrencies. Dessert was coming.
I had to make it count.
You do not really understand something unless you can explain it to your grandmother. (A. Einstein, not)
The basics are pretty simple and I encourage you to think about it this way it too.
Think of a $20 banknote. It’s a simple piece of paper that has intrinsic value. You give it to someone, this person uses it to buy goods. As simple as that.
Its intrinsic value derives from the fact that once I gave a $20 to my friend Anne, there is no chance I can give the same note to Bob (and because your government says so — but let’s not dwell here).
Sounds dumb — but it’s exactly the point.
While I can put the cash in an envelope and mail it to aunt Anne and she would be able to spend the cash from the other side of the country, I cannot scan a banknote and send it to aunt Anne via email and expect the same result.
Assuming I would even able to scan some cash, the image file generated would not be acceptable by any serious merchant.
But — what if THE CASH DISAPPEARED ONCE YOU SCANNED IT?
If your cash magically disappeared from your scanner and became an email that also disappeared from your “sent” box, and you could never resend the same email to anyone else, then the email itself would become valuable. Sitting in your outbox, you would have a unique value-bearing asset — like a banknote — with all the cool bells and whistles of a digital file — like easy storage and instant transmission. Sounds familiar?
What about a bank wire though? Isn’t it the same?
Not exactly, and for a few good reasons:
- When you give cash you are effectively giving the money to the recipient. It’s as material as stuffing their hands with greenbacks
- When you do a bank transfer, the bank is updating a ledger, then calling the other bank (sometimes using one or two other banks as intermediary) and ask it to please update the ledger on their side as well.
- While in the modern world this is pretty much a smooth transaction, mistakes do occur. In developing countries, it’s not unusual that money gets lost on the way due to some clerical error
- Even if all goes well, it could take days for an international bank transfer to go through
There are other aspects (which I have not shared during the dinner):
- Bitcoin is a non-inflationary asset (but other cryptocurrencies might not be)
- Non-reliance on a central organism — or the “no trust” protocol
- Application of smart contracts (especially on the ETH blockchain)
And more. If your mother is still interested, you can refer her to this great course on Coursera. I know mine wasn’t.
