Demystifying Bitcoin: Your Essential Guide to Enlightening Loved Ones
Break it down and help your family embrace the future of finance.
The idea of just throwing your hard-earned money into some kind of hocus-pocus computer-made digital currency (aka Bitcoin) is seen as absolutely ridiculous if not scary for most, especially to old generations.
For those who have the luck to be tech-savvies and understand the technology behind Bitcoin, life is not easy either.
Long-distance cousin Sammy and uncle Aubrey, bash us at the family Xmas dinner with a “You’re a phoney if you believe that stuff is real”.
It was American attorney Nicholas Klein (not Gandhi), who once said in his 1918 speech:
“First they ignore you, then they laugh at you, then they fight you, then you win”
Remember what people said back in the 90s about the internet?
We’re in mid-2023 and we can judge by ourselves what the internet has become.
That’s what happens when technology evolves. First, they doubt it then they want to know about it and then they finally surrender.
Blockchain and Bitcoin are following the same path, it’s a technology that’s here to stay.
The best we can do is stay curious and help our dearests and loved ones understand it.
But where do we start?
What Is Money?
Centuries ago there was no money or currencies.
Our ancestors traded goods and services using a barter system, the oldest form of commerce.
The barter system was like a massive trading game where you exchanged one thing for another without any cash involved.
Imagine Bob the farmer growing a ton of juicy oranges in his backyard to feed his family, who also needs shoes and clothes for their everyday life.
Bob would go into town and offer some of those citrusy delights to Will, the shoemaker, who would then craft his family fabulous pairs of shoes in exchange.
It was all about negotiating and finding the best trade-off for your needs.
You give me a bag of oranges and potatoes and I’ll make you a pair of shoes for you and your wife. And that’s the way business was done back then.
Sure, it had its quirks and challenges (no exchange rate between apples and shoes back then), but this was how our ancestors got what they needed.
Later, we progressed from barter to using sea shells and from metal money to paper money. Today, digital dollars.
Regardless of its form, money is a technology that allows us to exchange goods and services more efficiently.
It also serves as a store of value, that is able to preserve our wealth over time.
Well, at least it should. More on that later.
What’s FIAT?
Did you confuse FIAT with the car manufacturer?
Worry not, it happened to me too my friend. Guilty as charged. We pay for our ignorance with our curiosity and get wise in the process.
FIAT is our coins and banknotes in our wallets and pockets. A piece of paper or metal that is issued and regulated by our dear governments and dearest central banks.
Today, FIAT money isn’t backed by anything.
You see, in the old days, money used to be directly linked to something tangible, like gold or silver, so everyone would say, “Hey, our money’s valuable ’cause it’s backed by precious metals like gold and silver. We trust those shiny things, so our cash is stable and safe.”
But then the government came up with this “brilliant idea” and said, “Hey, let’s use these pieces of paper and metal as money. They’re worth something ’cause we all trust and believe in ‘em.”
Funny, right? We trade these little pieces of paper with numbers on them for goods and services, and everyone goes along with it because we’ve all agreed that it works.
Looks more like a pretending game, where we pretend these pieces of paper have value, and use them to buy our daily latte with butter toast every morning on the way to work.
The real problem starts when our beloved governments start to print money like crazy. And it usually happens when economies go bust.
Suddenly there is more money floating around, but the things we want to buy, the bread, cheese and butter, start costing more and more and our hard-earned salary doesn’t keep up.
Sounds more like a collective delusional belief that these pieces of paper have value.
So let’s trust our governments to keep our economies running and make sure what we earn is sufficient to buy the things we need every day(!?).
Grab onto your chair, there’s more.
Problems with FIAT
Today holding FIAT is a No-No. Here’s why.
If you go to Wendy’s bakery and try to buy the same quantity of bread, it will cost you more than 10 years ago.
And that’s thanks to our beloved government money-printing machine.
Printing FIAT money dilutes the value of our money because it increases the money supply.
Remember the boring supply and demand economy classes back in college? It might come in handy now.
Picture this: you’re at a yard sale and a vintage card collectable catches your eye $$. You get excited because you know it might be worth a lot of money.
Then the seller starts making copies of that same card, one after the other, placing them for sale. They are exact replicas but nobody knows.
Suddenly, everyone starts buying that same “rare” card and… it’s not rare anymore.
In the same way, when governments excessively print money, the value of each dollar decreases because there’s an oversupply in the market.
Putting it simply, if governments increase the money supply by a certain percentage, then that’s roughly how much your money will lose value.
That’s inflation oversimplified (forgive me, experts). Your money doesn’t buy you the same goods it bought in the past because it lost value.
Take Lebanon for instance where the Lebanese pound lost value thanks to inflation.
Citizens were forced to literally rob their banks to get their savings and be able to pay for their needs because the banks halted withdrawals.
But that’s not even the worst. The extreme is hyperinflation.
In Central America Venezuela, the prices of goods can change within a matter of hours or minutes.
Imagine that! You get to the supermarket to buy your bread, you see the price, rush home because you forgot your wallet and when you come back the bread is more expensive.
It sounds funny at first but, I am sure you and I wouldn’t want to be in their shoes.
FIAT money problems are not getting solved, and getting worse all over the world.
But, there might be a solution.
What is Bitcoin?
Bitcoin is literally software.
A computer program, that was created on the 31st of October, 2008, by an anonymous fellow known by the pseudonym of Satoshi Nakamoto.
Its also an online network that enables the transfer of value across the internet between individual users, without the need for an intermediary.
This computer program has a built-in currency also called bitcoin.
So you transfer value using the currency bitcoin (small b) on the Bitcoin network (capital B).
The bitcoin currency is often referred to as BTC, which is also its ticker.
Genius or not, Mr Nakamoto (or Mrs N, nobody really knows) solved the problem of trust and reliance on a third party.
Because let’s face it, we are not saints and we like to look out for ourselves. That might turn out to be a problem, so someone else was always needed to make sure there are no sneaky businesses.
That’s our banks, Western Unions, Moneygrams or Paypals alike.
So just like banks, Bitcoin keeps track of who has what and when they spend, but with a twist.
Instead of one big bank boss, Bitcoin keeps a copy of that “what and when spent record”, and spreads it out through nodes on the network.
Nodes are basically a piece of that Bitcoin software, running on a computer. Much like bookkeepers, nodes keep an updated copy of that record, as a ledger of transactions.
When any transaction happens, all the bookkeepers have to agree that it’s legit before it’s added to the ledger.
Since these bookkeepers are spread out across the globe, there is really no central authority, a government, a bank or a single person controlling Bitcoin.
Why is BTC Different?
For starters, Bitcoin’s supply is finite.
There are 21 million Bitcoins and that’s about it. A finite supply.
Nobody can “print” out of thin air, supplemental amounts of Bitcoin just to fix Uncle Sam’s and his nephews’ bad decisions on running economies and inflate the price of your bread and coffee in the process.
Remember the bookkeepers?
Nobody controls them, they are all over the world part of the Bitcoin network.
So Bitcoin is decentralized, meaning no single entity is in charge of it and its value is not controlled by anyone.
Unlike FIAT currencies, Bitcoin is inflation-proof and its value increases as more people start to use it, becoming a great alternative to store our wealth.
Have you heard of Bitcoin Pizza Day?
22 of May is the day when the computer programmer Laszlo Hanyecz made the first recorded purchase of a physical good (pizza) using Bitcoin.
In 2010 he bought 2 pizzas for 10000 BTC. As of today, 1BTC is worth roughly 26.6K.
I bet Laszlo asks Santa Klaus for a time machine every Xmas.
Do’s and Dont’s to Remember
If you accepted the brave mission to pass this knowledge to your dearests, then remember to keep it simple and don’t throw them tech jargon.
Mentioning Blockchain, mining, nodes, or even wallets, might make them run for their lives.
Stick to everyday life examples of how they can use BTC to pay for a coffee or send money to friends and family across the globe fast and cheap.
With today’s savings accounts extra low-interest rates, bitcoin is increasingly considered a way to store our wealth and escape inflation.
Bitcoin solves problems with our current monetary system, talk about those and help them understand how they can benefit from it.
The concept is complex, forgive yourself if you can’t explain it in your first attempt.
But if they stay curious, then there is hope.
