I was approached with sincere curiosity today by my uncles in their late 50s and late 60s about Bitcoin. I didn’t bring it up at all. The experience was generally bullish because they represent a massive traunch of wealth that is now seeking a foundation of understanding in Bitcoin.
Both of them seemed to feel like they needed to understand it, and that I was a resource to help them. It was an interesting (and of course enjoyable) experience talking about it. Here are some things I shared or would share if they stay curious:
1. Q: What is blockchain?
A: It’s a core part of Bitcoin’s underlying technology. It’s kind of like how the internal combustion engine is a core part of automobiles. It’s not the sole reason that Bitcoin has been successful so far, but it is a major part. It’s basically code that allows transactions in a ledger to happen and then be almost impossible to change.
2. Q: What about the other cryptocurrencies?
A: Bitcoin was the first proof of concept, and it’s still the best in my opinion because it’s decentralized, scarce, and secure. Every other cryptocurrency is lacking in at least one of these categories, but that’s not to say that Bitcoin can’t be beaten - that’s just how it’s panned out so far.
3. Q: What’s going on with banks (and other companies) and Bitcoin? Are they buying it, and are they using it with their own cryptocurrencies?
A: Banks and other companies are buying bitcoin. But they are also making their own cryptocurrencies, like say, JP Morgan Chase Coin, and these are completely separate from Bitcoin. They might share similarities, like they probably use blockchain technology, but they lack the scarcity and decentralization of bitcoin. They probably aren’t very secure either. In my opinion, these new cryptocurrencies from companies are basically affinity scams - they are trying to make money off of the idea of Bitcoin by marketing the idea of something like “Bitcoin but it’s better”. (Can mention how Trump’s coin was basically an affinity scam if they lean progressive).
4. Q: Why does bitcoin’s price go up over time?
A: This is the question that everyone is always asking; and you’ll probably get 100 different answers from 100 different people. I think, at the core of it, that it’s because of Bitcoin’s inflation rate - the total amount of Bitcoin ever to be created will asymptotically approach 21 million. On the other hand, the total amount of dollars is increasing exponentially. Essentially, with more dollars in circulation, it requires more dollars to buy a bitcoin. This is really a question about inflation and properly understanding how money supply expands.
5. Q: How would I use Bitcoin? Would I eventually have to sell it later?
A: You can use Bitcoin just like any money. You can buy stuff with it, even small things that are 30 cents. They did this in El Salvador. This is because Bitcoin is highly divisible - you can buy and use just a small fraction of one. You could exchange bitcoin back for dollars if you want, but currently you need to pay taxes on the capital gains. Unfortunately, you need to pay taxes when you spend Bitcoin now, as well, due to the tax code not really being updated yet.
6. Q: Do I need to have 24 words? What if someone tortures me for my bitcoin?
A: There is a trade-off here. You could control your own bitcoin by using the 24 words. This comes with the risk of someone trying to steal it from you, but generally, you should be alright if you don’t advertise yourself or brag about being rich. On the other hand, you could let someone else control/hold your bitcoin for you. There are services for this. The risk here is if that company goes bankrupt, steals your bitcoin, gets hacked, or coerced by a government. The simplest way to get exposure to bitcoin is to use a Bitcoin ETF, like Fidelity has. It’s basically a stock where they just buy and hold bitcoin for you, like gold. As I said, this has its trade-offs and risks, and I’d say it depends on how much you trust your own abilities versus the goodness of corporations and government.