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How Do You Explain Bitcoin To People?



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stock in a belief

somewhere in a dark, smoke-filled room, there are people in suits congratulating themselves on the remarkable con.

the romantic story of an anonymous japanese programmer, genius marketer, who has slipped back behind the curtains is a total fantasy.

I'd say it's a digital currency

that has an algorithm that limits its supply. If someone wants to know more technical details, they can look it up or I can explain further, but people do trust that there are clever enough people out there to pull off those details. It's the concept itself people want to know about and where the money comes from and how that compares to what we currently use.

Defend Liberty!

I'd say its like a mix of ponzi scheme and religion

Those who "buy in" will benefit by having more people "buy in" so they evangelize the benefits hoping to sell their shares at a profit before the scheme collapses.

By the way, the expert in this video (Jeremy Liew) basically described online transactions with a credit card, not the bitcoin scam.

I'd say it is a worthless penny stock but...

a whole lot of greedy people chasing US dollars are trying to make you think it is actually worth something. That about sums it up.

Bitcoin, for your information....

at this moment is not quite a currency. You can't buy all that much with it and it's not all that fungible. It's difficult to convert into USD and it takes a LONG TIME. However there are a growing list of things people will sell for bitcoin.

At this time, most of the "momentum" is in bitcoin as an INVESTMENT VEHICLE. In other words, most people want to buy them and hoard them and not spend them. That is the biggest barrier bitcoin faces right now but also a great defense as it grows: large selloffs of bitcoin to date haven't really impacted it's perceived value OR PURCHASING POWER for long. In other words, so far it's agnostic to what would normally be an "inflationary input".

In that sense, bitcoin to an extent is BEHAVING LIKE A COMMODITY.

HOWEVER, the fact that it's not is apparent from it's wild fluctuations which are tied to no earthly physical events. It's agnostic to earthly physical events like tornados, tsunamis, drought, etc.

Do not be fooled by people talking about it "inflating" or "deflating", that is a mis-application of both terms. It's not a currency. It's something that promises to be one. The real thing to look at is it's PURCHASING POWER. That is the end-of-the-road metric. Ditto for "price discovery". Look at "purchase discovery".

Therefore it's a hedge to certain portfolios perhaps, especially a PM heavy one. But it's HIGH RISK. Way, way way high risk all the way from it's core code to you sitting at your computer in your very own home. And you can't just sit on it, you have to maintain security precautions as threats constantly evolve.

To summarize, bitcoin at present is kind of a morphing of commodity, a durable investment vehicle and a currency.

Now if you didn't understand any of the above, my advice to you is such:

DON'T BUY BITCOIN.

Be brave, be brave, the Myan pilot needs no aeroplane.

It's agnostic to earthly physical events ...

"It's agnostic to earthly physical events like tornados, tsunamis, drought, etc."
Not if those events cause power outages.

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Not if those events cause power outages

over THE WHOLE PLANET. PERMANENTLY.

It's a distributed system doncha know mon?

Be brave, be brave, the Myan pilot needs no aeroplane.

Irie

Me know tanks for tellin I

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Rude boy

wan' 'ima bitcoin.

Be brave, be brave, the Myan pilot needs no aeroplane.

They're too involved to explain it to people

The average person who is still uninformed on bitcoin needs to know the following. Each statement should build on the listener's full understanding of the previous ones. This limits the depth of explanation to the listener's understanding capacity.

* Bitcoin is a new global currency.
* It is used exactly like your electronic bank balance is now, except without the banks' involvement.
* By design, it has no physical/material form, not that one couldn't exist at some point.
* Each unit is called a bitcoin (the same as people say euro, dollar or peso) but they can be divided more than pennies or pence.
* While pennies (a 1/100th of one dollar) allow for purchase of small items (like one stick of gum), they do not allow for very small breakdowns (like one BB or one toothpick). Bitcoins can be broken down 1 million times farther than 1/100ths.
* This lack of divisibility causes public perception that pennies (and now nickels or dimes) aren't even worth carrying around. Bitcoins easily track change far beyond the possible worth.
* It can be transacted or transferred by itself, without visa, mastercard, paypal or other 3rd party middlemen.
* Its uses for item purchase is just beginning but growth is nearly viral.
* It is earned into existence, as opposed to bank money which they lend into existence at interest.
* Interest on that loaned money (all national currencies) means more is owed back than ever exists. This causes real wealth (such as assets) to be constantly sent to those lenders at cumulatively increasing rates.
* All currencies' acceptance is based in people's trust that it will hold its purchasing power or real value.
* National currencies, or decreed (fiat) currencies, are trusted due to trust in government. This is fading slowly but at increasing rates.
* This trust is currently migrating to multiple competing digital currencies, of which bitcoin is the current standard and this shows by its growth in awareness, new merchants, discussion and new applications. So, while all bitcoin's attributes could be said about its competitors, they apply most it it. This could change but hasn't shown any signs of doing so yet.
* Bitcoin's trust comes from some participants' competition to earn new bitcoins.
* This contest includes a race among the world's most powerful computing resources (collectively) to verify and record the newest block of ledger entries of all its transactions, globally and nearly instantly.
* To corrupt and steal bitcoins would take more computing power focused on that task than all the collective competitors power combined. Winning at this would need to be done at least 6 times in a row to collect. It is doubtful it will ever be truly corrupted.
* For this reason, thieves attack the storage (wallet) programs that people use and the exchange entrepreneurs instead.
* These entities are the result of personal choices, so their security has been an important topic of debate and development.
* Its exchange rate wrt other currencies is determined by its users, not by decree or manipulation, comparing to said currencies' value.
* All fiat currencies' values are slowly dropping but at increasing rates. This makes bitcoin appear to gain in value.
* The true value of them is based on a very predictable amount of them, divided into the total real value held by them.
* Its game changing features, like instant, unlimited and free global transactions, anonymity potential and permanence (no charge backs), increase its real value to its users.
* As people migrate to them, more aggregate value of higher quality value is held in them. This increases it's exchange rate and attraction. This phenomenon is currently causing speculation that money can be made by riding the climb. It also has caused brief, sharp dips in it's exchange rated value.
* While this accounts for much of its current price fluctuations (volatility), its value is actually following an early investment growth curve similar to any other beneficial new technology. This typically is private because it is scary to novices and it continues until the full adoption levels off (growth plateaus). Both aspects affect price and differing news agendas focus on differing sides.
* While discounting many potentials, some news reports advocate that it is limited to the equivalent of a $15 Billion market. This would translate to an exchange price of $1300 each.
* Other optimistic evaluations place its final market over $100 Trillion (some estimates of the total global currency value), which would translate to a value of over $1 Million each.
* The actual value will most likely be somewhere in between, depending on how it becomes used and people's perception of that utility.
* The overall growth is self supporting because as user base grows, it's utility grows, increasing it's attraction (user base) and further utility.
* At some point soon, other benefits of the network infrastructure that makes its non-corruptible ledger system work, will be introduced into non-corruptible contracts in other areas of the legal system. This will add another viral and self supporting factor to its bag of positive feedback aspects.
* If bitcoin succeeds in staying incorruptible and trusted long enough, it is very possible that it could, at some point in the future, eventually cause the fiat currencies to lose enough trust that they crash to worthlessness. At that point, it could become the only currency to exist.

If the listener has stayed interested and understands all these points, then I feel my work is done. Currently, everyone who has done so has become an avid bitcoin supporter.

Nice job!

Seriously - very well explained, but I am not convinced.

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Nice summary

The thing I'd disagree with most strongly is using the word "instant" to describe transactions. Also, while most transactions are currently free that's in the process of changing. As mining becomes less profitable it's necessary that miners continue to run the mining software because that's how the ledger is updated, so the plan is to change the way transaction fees are handled to make that profitable. See for example https://bitcoinfoundation.org/blog/?p=290 .

A physical form could exist at some point, but not without some trusted authority safeguarding the data in some way. There are various schemes for doing this, but none without a trusted authority.

The use of bitcoin to purchase things is, with very few exceptions, accomplished by selling bitcoins for whatever the local currency is, then using that currency for the purchase. There are services that do this for you, for a fee, but that's still what's being done. This is unlikely to change while the price is so volatile. It would be more accurate to say that bitcoin isn't currently behaving like a currency, but it might eventually.

The explanation of bitcoin's competitors is rosy, especially the line "while all bitcoin's attributes could be said about its competitors, they apply most it it." The only attribute that applies "mostly to bitcoin" is brand strength. More accurate would be to say "bitcoin currently has the strongest brand strength by far among all the digital currencies, although there are many competitors that offer the same technical attributes as bitcoin, and in some cases offer arguable advantages over bitcoin" but that wouldn't be as persuasive for bitcoin.

The transactions aren't recorded by the mining software "nearly instantly" at all. A new block has to be generated. Blocks are, by design, generated approximately once every ten minutes. Below that, "instant, unlimited and free global transactions" is only accurate about "unlimited."

The BOA analysis didn't say it was "limited to the equivalent of a $15 Billion market." That was just a projection for the maximum fair market value at some hypothetical future point if three conditions are met -- ten percent of global e-commerce in bitcoin, competitive in volume with Western Union for that kind of fund transfer, and with a reputation as a reliable store of value comparable to that of silver. Those are some optimistic goals considering that bitcoin isn't remotely close to meeting any of them, but that's not to say that if it ever achieves those goals it can't go on to do even more.

Re: Other optimistic evaluations place its final market over $100 Trillion, which would translate to a value of over $1 Million each. Yeah, people say that. Try to start from the BOA analysis and either explain what they got wrong in the methodology, or plug in numbers making even more optimistic assumptions and see what you get. The downside to having analysts doing serious analysis is that it starts to become obvious that just picking a big number and dividing by 21 million is bogus.

The last line about bitcoin becoming " the only currency to exist" made me laugh. What are you assuming about competing digital currencies? What level of scalability would that imply, and how would bitcoin achieve it?

Would the people who have become avid bitcoin supporters after seeing that presentation have become avid bitcoin supporters if they had a more balanced picture of bitcoin's potential and the obstacles that still have to be overcome?

Good retort

I wasn't trying to be a bitcoin promoter. I was trying to be agnostic in offering both sides or both ends of the ranges involved. I do happen to personally believe it's much more possible than the average person. The reasons behind that are that fiat is vile and slave money. If/when people wake up to this en masse, they really ought to jump ship quickly and in one fell swoop. I see bitcoin as the only strong alternative to them because gold has too many problems and everything else is gamed.

I'll try to address your concerns in somewhat order. I use instant in terms of a comparison to global money transfer now. Today, it takes me a minimum of a whole day to move a couple thousand to another country. It also takes 2-5 full days for much larger amounts. To that, 10 minutes is instant. Regarding a meal purchase, I doubt the norm would be to wait for full blockchain verification before moving on, so the 10+ minute wait wouldn't apply. I could be wrong though.

I don't know of anything yet that could force all transactions to go through a service which would charge a fee. Of course, this isn't the case if people choose to use such a service. If BTC was the native currency on both sides, the transactions should all be completely free. Again, I could be wrong.

I believe that as soon as the adoption rate begins to level off, a majority of the speculation will fade. At that point, it'll stabilize much more and more people will break the dollar (or other fiat) denomination for transactions. Right now, I would guess that most are tying it to the instant exchange rate while some allow for a few minute delay. As we approach stability, people will allow that time frame to extend to a day, week or farther (think "LIBOR RATE AT THE END OF THE MONTH") Certainly, you are correct right now though.

The bitcoin attributes I was referring to aren't the technical ones. I was trying to compare their market attributes, relative to perception, future adoption, disruptive ability and such. If I was explaining to a layman on the street, I probably wouldn't go into any technical details.

The above are merely tweaks in terminology or viewpoint and really have little consequence in explaining to average Joe. However, I disagree that the BoA analysis didn't say that. He did suggest those were the limits as he saw them. He persuaded people to believe those were the correct numbers, especially if they look to him for advice. It was a clear spin of propaganda to cut off any further growth in the speculation market and it worked beautifully, didn't it. It never did top $1300 afaik.

As far as it's ultimate POTENTIAL market, I stand by the top number. BoA did not include any potential in numerous markets and 10% is nothing but a thin air insult. To understand how bitcoin supporters can say this, I would suggest you asking why anyone would transfer money at a cost higher than they needed to if a free option was available. It's the same question as "Why don't we still use ice houses, physical film, whale oil or horse drawn carriages?" The reason is that a new industry made them obsolete and they went away. In each case, the newcomer took 100% of the business. That, or they layered features and came away with 200% or more. To see a starter on how many other markets there are, check out the "bitcoin blackboard 101" series on Youtube. All bets are off in each of them with the unrest in today's world and the benefits of a truly free money.

People almost always ask that inevitable question so I added it. I grant you that this part of the analysis is painted overly rosey, but by this point the listener should be educated enough to evaluate for themselves how likely, possible and realistic it is. ...but that's where the speaker has a bit of evaluation to do on the listener as well, right?

Back to you...

Good points

It's a good point that compared to wiring money, a bitcoin transfer will be much faster. But 10 minutes is just the time for one block. For sizable sums, or where you don't trust the person you're dealing with, the recommendation is six confirmations, or one hour. See the FAQ. For smaller amounts people can choose to wait for only one confirmation, or even none if you know the person you're dealing with or it's such a small amount that the risk is acceptable. That's why a lot of the alt coins are specifically addressing the confirmation time as one of their distinguishing advantages over bitcoin.

I think you misread the BOA report. He didn't say those were the limits, he said *if* it achieved those three very ambitious benchmarks, *then* the max valuation you could justify would be $1300. The BOA report came out after bitcoin had bounced off of $1300, so you can't blame him.

Why would anyone not use bitcoin to transfer funds? Consider what would have happened if you had put your money into bitcoin on December 5 in the USA in order to withdraw it on December 6 when you got to whatever country you were going to. Of course on different days the opposite could have happened but people don't want a gambling component attached to a money transfer service. Ditto for a checking account with money that you need for next week's groceries and rent.

But also you missed the most important point from the BOA analysis. The average amount people keep in their checking accounts is a small fraction of what they spend in a year. So a calculation that assumes that the total amount someone spends in a year would be how much bitcoin they would need -- which is what people are doing when they take one of those large numbers and divide by 21 million -- is based on a bogus assumption. Not to mention that most people don't want to gamble with the money they need for next week's groceries and rent, as I said.

That's why you don't see bitcoin advocates taking the BOA analysis and updating it for more optimistic assumptions. The "velocity" calculation alone takes a lot of the wind out of the most exuberant bitcoin projections, and yet nobody is arguing that some adjustment of that sort isn't needed because obviously it is.

But hey it's back over $800 now, so who knows.