Most of us have had to explain to a retiring parent, elderly aunt or grandparent the inner workings of new tech. And while Wi-Fi, social media and bluetooth are mostly now understood, the new conversation is about cryptocurrency and blockchain.
As the digital-savvy young person, you will be considered the expert. So it’s worth taking some advice from Albert Einstein: “The definition of a genius is taking the complex and making it simple.”
While you don’t need to assume genius status, this post will help you explain the high tech world of cryptocurrency to older adults.
Older People Want To Learn
While it might seem that the elderly simply aren’t interested in learning about cryptocurrencies, this isn’t always the case.
In fact, the National Center for Biotechnology Information says older adults are actually eager to learn about new technology. This is despite citing a number of stated obstacles including a lack of prior knowledge about a subject matter perceived as complex. By keeping explanations clear, the older generation will have a base from which they can do their own research and choose whether they wish to dive into the brave new world of blockchain and cryptocurrency.
Ditch The Technical Terms
Cofounder of blockchain voting platform Horizon State, Jamie Skella says the starting point when explaining crypto is to ditch all the technical jargon. It can be confusing and is not necessary.
Blockchain itself, for instance, is actually just a distributed database or ledger. But even that can be simplified. Skella suggests calling it a record book that is shared. Every block is just a line item to go inside the record book.
“Technology is only as complex as salesmen (and conmen) want it to sound,” Skella writes. “It’s all created by people no smarter than you or I, and it’s all quite simple when you break it down.”
Of course, the record book is not a single, physical book stored in one place. There are, in fact, thousands of copies of this record book stored on computers around the world. This means there is no centralized body looking after it.
Use Examples for Clarity
Say you’re visiting your mother and she asks for an explanation of how all of this works. You tell her to imagine sending money to her brother. To do that, she’d have to enter a new line item in the record book. This line item is seen and stored by thousands of other computers that confirm the transaction is authorised and legitimate.
Skella says it works a bit like having a few hundred friends watching the pair exchange the money.
The record book cannot be reversed, so the records are permanent and seen by everyone who has a copy stored on their computer. If the money is sent back to your mother, this would be a new line item requiring the same authorization and legitimizing steps as before.
Cryptocurrencies Are Strictly Digital
It may seem straightforward, but Jason King, Academy School of Blockchain cofounder, says while there’s a lot of talk of coins, people need to realize there aren’t actually any physical coins. And these non-physical coins have a certain value determined by their users.
Fiat currency, used by national governments, has value created and backed by the country’s finance department. Cryptocurrency has value because people agree it does.
If that sounds a bit confusing, King suggests thinking about rare comic books. The original Superman comic book sold for 10 cents; just a few years, however, a collector bought it for $3 million. It’s rare and desirable and, therefore, valuable.
The more people want a cryptocurrency, the higher its value. Here are some other reasons why people value it:
- Cryptocurrencies are safe from forgery and counterfeit and cannot be reversed without reason and agreement.
- Cryptocurrencies allow for fast settlement.
- Users can remain anonymous, sending only the information they want to the merchant or recipient.
- It’s accessible to people without identification or traditional bank accounts.
- Users maintain control, unlike bank accounts that can freeze your account.
Wait, What’s Mining?
Tech expert Lance Ulanoff says a trickier discussion is explaining where these non-physical coins come from, and where they can be sought.
Ulanoff advises using the mountain analogy at this point. There’s a place called Mount Bitcoin at which there are miners. Except miners use computers instead of actual mining equipment. In exchange for the power of their computers, these Bitcoin miners hope to mine a coin that can be broken, like a piece of gold, into smaller nuggets and exchanged for the currency they want.
Mining is basically just “using computers to solve math equations,” Rami Niemi and Rachel Abrams at The New York Times say. “But similar to the Gold Rush of 1849, the more miners there are, the harder it becomes to mine Bitcoins.”
Explaining How Value Works
Gil Gilead at venture capital firm Incentive writes that “one key factor that determines cryptocurrency price is its utility.” The more widely crypto is accepted, the higher its utility and the higher its price.
Supply and demand also affect price, with scarcity driving up its value. This is purposeful and there are only a limited number of coins that will ever be produced. Bitcoin, for instance, has 21 million coins that can be mined with bitcoin software, or bought with other currencies on crypto exchanges.
While most older people are used to the idea of centralized financial institutions and trusted third parties, peer-to-peer cryptocurrency exchanges do not rely on these. The exchange is operated and maintained by software.
So the software gets rid of matching a buyer order with a seller order and connects the buyer to the seller. The intermediary is cut out and, with it, fees.
Machines More Trustworthy Than People
The computer-based authentication makes the system a whole lot more trustworthy.
Risk and technology consultant Joe Ippolito says at Hackernoon that while people have not devised a way to trust one another, they have been able to get machines to trust other machines or networks of machines.
He calls the current epoch “the rise of the ‘economic internet.’” It’s not just that people are spending money online (that’s already happened). It’s “a shift to where the money is baked right into this new iteration of the internet,” which once mainstream “will upend everything we know about the current systems.”
What Are The Risks?
It is essential to point out to any would-be investor what risks are involved with cryptocurrencies.
“The internet is a lawless land, the Wild West still, this new form of gold born on the internet can very much be vulnerable to hackers and thieves, if one is not careful about who they use to get in,” Ippolito writes.
Work is still required to keep inexperienced investors safe, so using trusted crypto services such as Coinbase and established currencies such as Bitcoin and Ethereum is a wise strategy. Past fraud has driven down value of the cryptocurrency, but this is becoming less common, Ippolito says. His argument is that the currencies recovered and are stronger for it.
This is something John Biggs, East Coast editor at Techcrunch, picks up on. He writes that it’s a strange time in cryptocurrencies with blockchain technology mature enough that fintechs big and small are using it, yet it is not “trusted enough to become a true store of general value.”
Cryptocurrencies are entering the mainstream but many don’t understand how they work. Biggs says this is not so different from “the NASDAQ with untrained traders making gut-based guesses on complex companies.”
The problem with this approach, he argues, is that “in crypto the technology is wedded to the price and misunderstanding the news coming out of services like CoinDesk can get you into a lot of trouble.”
Biggs provides a short checklist to use with your family members:
- Cryptocurrency will replace how people send money from computer to computer.
- It’s not illegal.
- It’s complex, fascinating, and fun and when it isn’t, it’s time to ditch it.
The Risks Are The Same As With Stocks
Finance writer Stacy Rapacon at the money advice site, Grow From Acorns, says people can lose money with cryptocurrencies in the same way they can when investing in stocks.
“Unlike with individual stocks, you have no real way of evaluating the odds of your investment doing well, and we have little historical data to analyze broader trends — making it tough to determine a fair price to pay or when it’s time to sell,” Rapacon writes.
The lack of regulatory oversight is appealing to some but worrying to others, who argue that as the FDIC does not protect cryptocurrency accounts, they are open to scams.
The advice is to invest responsibly and never more than you can afford to lose. While value of bitcoin has soared in the past, from $800 in January 2017 to $19,000 within 12 months, it also fell by $5,000 in just six days.
“That kind of volatility should be limited to a small portion of your portfolio—the part you’d be okay never seeing again,” Rapacon writes.
Is Cryptocurrency A Bubble?
Simon Vans-Colina at Medium says when people call crypto a bubble, they’re not wrong. But some bubbles, like the Social Security system, don’t pop. “The money you pay into the government coffers isn’t actually stored until your retirement, it’s used immediately to pay for the care and retirement of current retirees, with the promise that the next generation will pay for yours.”
Bitcoin is immediate and there aren’t any “fundamentals” to end its growth. In November last year, bitcoin is worth $160 billion, which Vans-Colina says is a “pretty useful as a way of storing and transmitting value.’
While cryptocurrencies are becoming more mainstream, there is still an aura of the unknown. People are skeptical of it, especially the older generations who may not be as digital-savvy. Explaining crypto in simple terms helps them to understand the potential crypto offers to us all.
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