How to Explain Bitcoin to Your Grandparents – Motley Fool

• Bitcoin is a digital currency that uses blockchain technology to keep itself secure.
• Unlike money in your bank account, it doesn’t rely on a central authority like a bank or government.
• There are several downsides to Bitcoin, such as its high carbon footprint, and its potential for scams and use for illegal activities.

Once cryptocurrency is on your radar, it can feel like you see it everywhere. Whether it’s news headlines, advertisements, sports team sponsorships, or — most recently — the renaming of the Staples Center to Crypto.com Arena, cryptocurrency is becoming part of our daily lives.

While younger generations have been quickest to adapt, they won’t be the only ones talking about Bitcoin (BTC) this holiday season. If you’re wondering where to start if your grandparents ask you about crypto, we’ve put together some common questions and answers.

What is Bitcoin?

Bitcoin is basically a type of digital currency. It uses something called blockchain technology to keep track of people’s transactions. The idea is that there’s no middleman involved — you can transfer money electronically just as easily and safely as if I handed you a $10 bill face to face.

Blockchain technology? What’s that?

The blockchain is a sophisticated database — like an enormous ledger — that’s made up of individual blocks of information. The clever thing is that the information is split up and stored on a chain of interconnected blocks. This keeps it secure and means it can’t be tampered with. Information that gets recorded on the blockchain will be there forever.

Bitcoin’s not the only thing to use blockchain technology — many other cryptocurrencies use it too. And various companies are using the underlying technology for non-cryptocurrency purposes.

How’s it different from the digital money that’s in my bank account?

Bitcoin was designed to help people use money without needing banks or governments to back their transactions. One potential benefit of cryptocurrency is that it can allow billions of people who can’t access normal banking services to manage their money electronically.

The dollars in your bank account are issued by a central authority, just like the dollars in your wallet. In contrast, no single organization controls Bitcoin, and it doesn’t need the support of any outside organizations to function. The magic of the blockchain is that the Bitcoin network secures and regulates itself.

OK, so can I get a physical Bitcoin?

Bitcoin only exists electronically. You may see collectible coins in stores, but they are gimmicks.

Isn’t cryptocurrency mostly about scams and funding illegal activities?

There are a lot of cryptocurrency scams, just like there are with real money. It’s a new technology that a lot of people don’t completely understand, and one that’s made a lot of people rich. Sadly, that makes it fertile ground for scammers. But there are plenty of real cryptocurrency projects too, and some of them are doing exciting things.

As to funding illegal activities, that’s also a big problem. However, lots of cryptocurrency exchanges now have stronger anti-money laundering protections in place. As crypto becomes more mainstream, there’s less room for this type of illegal activity.

I heard it’s also really bad for the environment. Is that true?

Bitcoin has a huge carbon footprint, and that’s a big negative for crypto. There are various moves to ensure Bitcoin mining uses more sustainable energy sources, but that doesn’t change the massive amount of energy it consumes.

However, Bitcoin is not the only cryptocurrency out there. Many other cryptocurrencies use different mining models that consume a fraction of Bitcoin’s energy and have much smaller carbon footprints.

Is it safe?

Many people say that Bitcoin is safer than normal money because of the security of the blockchain. This makes sense, but there are other risks involved with buying Bitcoin. For example, Bitcoin’s price is extremely volatile and could lose 20% or more of its value in a single day.

We also don’t know for sure what will happen to Bitcoin in the future — some people think it’s a bubble and the price will collapse completely. Others think it still has plenty of space to grow. Another risk is that your account could get hacked. If this happens, you could struggle to get your money back — unlike money in a normal bank account.

How do I get some? And should I buy any?

There are lots of ways to buy Bitcoin, and the right one for you depends on how you plan to deposit money and what you want to do with your coins afterward. Top cryptocurrency apps and exchanges will take deposits in ordinary money which you can then convert into Bitcoin or another cryptocurrency

As to whether you should buy any, that’s a whole other question. It isn’t a good idea to put money you need in the short term into crypto, because it is a very risky investment. The first step is to research blockchain and crypto in more detail. Once you’ve done that, you might feel comfortable putting a small amount of your overall portfolio into Bitcoin — but only money you can afford to lose. And only if you are comfortable with the risk and aren’t sacrificing other goals, such as your retirement fund.

Some people have made a lot of money through cryptocurrency investing, but others have lost their money as well.