With our Youth Economy Report showing that 13% of UK kids invest in cryptocurrencies, it’s likely your child has heard of Bitcoin. However, do they know how this cryptocurrency works? Here's how to explain it in simple terms.
What is Bitcoin?
Bitcoin (BTC) was the first cryptocurrency and is currently one of the most highly valued digital currencies. Unlike everyday fiat currencies like the euro or pound, Bitcoin and all cryptocurrencies do not come as physical money; all of their value is held online and is completely virtual.
What is cryptocurrency?
A cryptocurrency is a digital currency designed to work through a computer network. Unlike the euro, pound or dollar, cryptocurrencies are not controlled by a government or bank. Instead, Bitcoin works through a ledger (a list of digital transactions) known as a blockchain. This is a financial database, and users have a private key that acts as their digital signature, enabling them to access funds.
How do you use Bitcoin?
Bitcoin can be used to pay for products and services at places like Microsoft, the gaming platform Twitch, Xbox, the travel company Expedia, car dealerships and even Burger King. That said, most people buy Bitcoin for investment purposes.
If you want to shop at places that don't accept cryptocurrencies, the easiest way is to use a crypto debit card. These cards are like prepaid debit cards but are loaded with cryptocurrency instead of money. You can then use them online and in-store.
How is Bitcoin created?
Bitcoin is created by a process known as mining, where computers solve mathematical equations and get bitcoins as a reward. However, solving these puzzles requires very powerful computing power, which uses vast amounts of energy. This has led to a call on the Bitcoin community to tackle its large carbon footprint and reliance on fossil fuels.
How do people get Bitcoin?
There are several ways to buy and invest in Bitcoin:
- Going through a cryptocurrency trading platform (such as Coinbase or eToro) to exchange pounds for Bitcoin.
- Financial apps like Gemini and Crypto.com also sell Bitcoin.
You can also earn free Bitcoins online through what's known as a Crypto Faucet, which drops small amounts of crypto when you complete easy tasks.
Can Bitcoin make people money?
You can make (and lose) a lot of money with Bitcoin. This is because Bitcoin is known as being a volatile investment. Volatility is an investment term that describes periods of unpredictable and sharp price movements.
This means a Bitcoin investment involves a high degree of risk. It may offer the chance of high returns, but you could lose all of the money. This happens because Bitcoin has no central authority as ordinary money does. As a result, its value is easily influenced by how much people want and what's being said in the media. For instance, when Elon Musk tweeted about Bitcoin's environmental impact and how Tesla would no longer accept the currency, it caused Bitcoin stock to drop by 15% in May 2021.
10 fun facts about Bitcoin
- A person or a group of people known as Satoshi Nakamoto introduced Bitcoin. He, she (or they) vanished off the Internet in late 2010 and hasn't been heard from since
- In July 2011, one bitcoin cost £12.28, and £880 would have bought you 71.89 bitcoin. Today that amount would be worth £2,459,848.00.
- Only 21 million bitcoins can exist in the market.
- 1.000 people hold half of the total amount of bitcoins in the world.
- Around 20% of Bitcoin has been lost forever in locked and lost wallets.
- The lost Bitcoin is worth £165 billion.
- El Salvador was the first country to accept Bitcoin as legal tender.
- The first commercial bitcoin transaction was in 2010 for two pizzas and is now commemorated through Bitcoin Pizza day each year.
- The pizzas were purchased using 10,000 bitcoins, which equated to roughly £36 back in 2010 but would be valued at approximately £335 million at the current rate.
- There is currently only 1.3 million Bitcoin left to buy on cryptocurrency exchanges.
How do you explain Bitcoin in terms that kids will understand?
Bitcoin was designed to make digital payments without relying on money, debit cards or credit cards. However, as banks don't control Bitcoin, the value goes up and down very quickly. Think of it this way, one Bitcoin could buy you a car or a house one day, but in a few weeks, it may only be worth enough to buy you a pair of trainers!
How can my child find out more?
Money Missions on the GoHenry app has quizzes, challenges and videos helping kids of all ages to learn about everything they need to know about money, from investing to the future of money and stocks and shares.