Around the dinner table, on the subway, or via social media — everyone wants to sound like they’re in the know about the latest trends. Unfortunately, that means when the trends venture into the realm of technology, you’re likely going to be the one on speed dial to explain it all. Just like those 8 AM phone calls when your dad can’t get his printer to work, or the frantic emails when your aunt’s wifi goes out, you’re the point person for All Thing Digital — and that includes crypto.
It’s time to come up with a good, simple answer to the question, “What the heck is Bitcoin?”
Here’s what the uninitiated need to know about Bitcoin and other cryptocurrencies:
- It’s not really a coin.
At least, not in the physical sense.
I don’t blame anyone for thinking that you can fill your piggy bank with Bitcoin after all the images on articles showing bright, shiny gold coins with the iconic “฿.” So it’s good to start with the idea that Bitcoin and other cryptocurrencies are digital rather than physical.
This point in and of itself may take some explaining. Refer to the concept of a credit card and how it is a promise to pay, and how it’s way more convenient than carrying around pockets full of dollar bills.
- It’s not the only cryptocurrency.
While Bitcoin is the oldest and largest, there are over a thousand other cryptocurrencies, hundreds of which have market capitalizations over $100,000. New cryptocurrencies can be created at any time.
- A cryptocurrency has value because users agree it has value.
American dollars or Japanese yen are known as “fiat currency,” meaning their value is created and backed by the government of the issuing country. In contrast, cryptocurrency’s value comes from the fact that others agree that it is valuable.
Here’s where I like to use the Beanie Baby analogy. Back in the Beanie Baby craze, certain Beanies were seen as more valuable than others simply because people wanted them — they were in higher demand. As demand for specific Beanies rose and fell, the price rose and fell. The little beanbag didn’t have any intrinsic value; it was merely a representation of value based on supply and demand.
The same is true of cryptocurrency. The more people want it, the higher its value will go. Some cryptocurrencies (such as Bitcoin, Litecoin, and Ethereum) are in more demand than others.
- Cryptocurrency offers some distinct advantages.
Not only does having a digital wallet full of Bitcoin or Ripple make you sound really cool, there are also some great benefits of cryptocurrency, including:
– They can’t be forged, counterfeited, or reversed arbitrarily.
– Cryptocurrency can enable immediate settlement. Instead of waiting for a check to clear or a wire transfer to take place — which can take days, if not weeks — the transfer of value is near-immediate.
– Exchanges are anonymous. Forget about sending your credit card info in to a centralized database, just waiting to be hacked or stolen. Instead, cryptocurrency allows you to send exactly the information you want to the merchant or recipient with no further information. You can remain completely anonymous if you like.
– It’s more accessible. There are some 2.2 billion people around the world who are considered “unbanked” because they don’t have access to traditional financial institutions, either because of their location or their lack of official identification. Cryptocurrencies can be used by anyone with internet access.
– You maintain control. With a traditional bank or a financial institution such as PayPal, they hold the reins. If they decide to freeze your account, they can do so. But with a digital wallet of cryptocurrency, you are in charge.
- You can use it to buy stuff.
Although the number of retail outlets accepting cryptocurrency is relatively low, it’s growing daily. Overstock, Expedia, Dish, Microsoft, and Zynga all accept Bitcoin (see an updated list here.) It’s expected that we will see universal cryptocurrency acceptance in the future.
- They’re not regulated.
Cryptocurrencies, as of yet, are not regulated in the US and are therefore known as “shadow currencies.” However, American regulation is bound to happen at some point, and regulation is occurring in other countries including China and Singapore.
There’s no doubt that cryptocurrencies will continue to be headline news for the foreseeable future. And as the concept moves more deeply into public awareness, you’re going to get more questions about what they are and how they will benefit individuals like Mom and Dad. As tempted as you may be to brush off the questions, see it as an opportunity to serve as an evangelist and educate others about the excitement of crypto and even blockchain. After all, a rising tide of interest will raise all crypto boats.
Jason King — Humanitarian Hacker. Executive Director, Unsung.org. Co-Founder, Academy – School of Blockchain, the world’s first university-accredited blockchain training program. To find out more about how the Academy – School of Blockchain is working to address the developer shortfall, download a copy of the Academy’s whitepaper, “Developing the Future of Blockchain”.