Explaining Bitcoin To Your Grandma

If you cannot explain something in simple terms, you don’t understand it. The best way to learn is to teach. – Richard Feynman

If you can’t explain Bitcoin to your grandma, you don’t understand it. – Narender

Okay, I’ll accept it – I talk a lot more about Bitcoin than I should. But in my defense, I can’t help it either. So, I’ve decided that today, I’ll, well, talk a little bit more about Bitcoin. But it will be different. I recently read somewhere that if you mention ‘hash’ or ‘public/private key’ while explaining Bitcoin to a newcomer, it is you that is stupid here, not the newcomer.

Today, I’ll try to explain Bitcoin to my grandma, and yes, without using a single tech or financial jargon. So, here I go;

I do concede that to understand the need and working of Bitcoin truly, we might have to go all the way back to the roots of our civilization starting, from the barter system, salt, gold, invention of coins, and paper money, banks, and whatnot. But let’s just, for the sake of understanding, start with simpler things, like what is Bitcoin?

So, in this explainer, I will try to explain Bitcoin in a pretty straightforward manner without expecting any technical knowledge on your part. 

Okay grandma, sit tight, put on your specs and let’s dive into this, shall we?

What is Bitcoin?

Bitcoin is a digital currency that works in a decentralized manner – meaning it doesn’t require a central authority such as a bank to make a transfer. So, what’s wrong with banks? We already have currencies such as the Dollar, Euro, Rupee (called fiat currency), etc. Why do we need Bitcoin?

That’s a good question and I’m so glad you asked, here’s why?

Well, that’s because our fiat currency needs a central authority and that has three major problems:

1. Central point of failure
2. Expensive to secure
3. Trust who is in charge

Whereas, Bitcoin solves all of these problems with:

1. Decentralized network
2. Shared security cost
3. Trust a set of rules (codes, rather than humans)

Grandma: Yeah, that’s all okay – trust, nodes decentrali.. Whatever. Just tell me how it actually works and what’s so special about it that you keep talking about it all day long.

Okay, grandma, here we go – 

What’s So Special About it?

Well, what’s so special about Bitcoin is that for the first time in our human civilization ever, we can transfer value (in simpler terms, money), at a great distance, in a completely trustless manner (meaning without having to trust anyone). Bitcoin has made it possible. 

Never in our history before, was it possible to transfer value between distinct people or strangers without trusting an intermediary party such as banks or governments. That, my friend, is revolutionary.

Grandma: Revolution? Ohh, I’ve heard that before, Gandhi used to blabber about it all day long in our times.

Now, let’s get to the second question – how does Bitcoin actually work?

How Bitcoin Actually Works?

Well, here’s how Bitcoin actually works without going into technical details or complex jargon. Imagine there are four people in a room namely – Gandhi, Plato, Satoshi, and Adi. Let’s say all of them have $50 in their accounts initially and they all transfer some money to each other.

You see, what I did here? We made a single box or a ledger that kept account of all the money that has been transferred between all the members. Now, if all four of these members keep the same copy of this ledger, they’ll get to know who owns how much in their accounts after all of these transactions are finished.

That box above, in simpler terms, is our blockchain. That’s it. Easy, isn’t it grandma?

So, all Bitcoin does is make sure that every person can only transfer the amount they own and not a penny more. So if Gandhi has $50 in his account, he can only transfer up to $50 to anyone, not $51. 

Another thing, Bitcoin makes sure that all members can spend money only from their own accounts. Thereby making sure, Plato can only transfer money from his account, not from Adi’s or Satoshi’s account. 

Grandma: Okay, I get it, but what about Bitcoin mining? What’s all that about?

Bitcoin Mining

So, I mentioned that ledger earlier – the box that keeps a record of all the transactions, right? Well, miners are the ones who keep it updated with every new transaction going through the network. And, in exchange, for maintaining that ledger, miners are rewarded with Bitcoins. Therefore, every single time, a miner adds a new block of transactions to that ledger, they get rewarded in newly minted Bitcoin. Simple as that.

Grandma: Ohh, that’s simple, then why don’t you become a miner, son? You’re awake all night in front of your laptop anyway. You can get a lot of Bitcoins and we can buy a new cow.

Well, that’s because of the difficulty rate….. Ughh never mind. That’s all for today grandma, now I need to go learn more about the bonding curve.

So, that’s all you need to understand about Bitcoin grandma. Hope you’re taking your medicines on time.

Disclaimer: This is not financial advice, neither for you nor for your grandma. All grandmas should do their own research to talk to their grandkids before investing.