This post will show you how to explain cryptocurrency to a five-year-old.
You might be wondering why you should care about cryptocurrency. After all, isn’t it just another form of money? Well, yes and no. In fact, cryptocurrency has some pretty interesting properties that make it unique.
For example, unlike regular money, cryptocurrency is completely independent of any government or central bank. This means that it’s free from inflation, meaning that its value never decreases over time.
If you’re still wondering what cryptocurrency is and how it is different from digital money, then this explanation of cryptocurrency to a five-year-old can help you figure out what cryptocurrency is and what makes it different from digital money.
You might think it’s impossible to explain cryptocurrency to a five-year-old but we’ll show you that it’s easier than you think. Our team is not short on talent and creativity, so we decided to tackle the challenge and explain cryptocurrency to a five-year-old.
How To Explain Cryptocurrency To A Five-Year-Old
Let’s assume I have one apple in my possession, and I gave you the apple while you’re with me without needing your mom to pass the apple to you; now the apple is all yours to do as you wish with it; that’s called an in-house exchange. In place of an apple, I can give you a dollar bill or just anything.
Now, let’s assume I have given you a digital apple existing on the internet, and I am sharing this apple in an in-house digital exchange (blockchain), (you can assume this digital apple is the same as a dollar bill). How do you know the digital apple is now in your possession, and I didn’t transfer it to your mom or brother, or I didn’t make multiple copies of it for others to download?
Remember, this digital apple ($1) is in my possession, not in your mom’s possession or in a bank, and I don’t need either a bank or your mom to transfer the digital apple to you.
Now I am transferring my digital apple (much like $1 in my physical wallet) in an in-house digital exchange without a third-party interface (banks and they control digital money transfer).
The Blockchain Ledger Explained
Back to the physical apple, let’s assume there are five apples at home in the fridge; I have one in my hands, everybody in the house knows that there are only five apples existing in the in-house exchange.
They know that I no longer have an apple because I transferred my apple to you. Your mom has a record of the transfer, so do I, you, and Billy (your brother).
Back to the digital apple, the in-house digital exchange has a record book called The Blockchain Ledger (more like the ledger book used to keep records of inbound and outbound transactions).
Let’s assume there is only a hundred apple exists on the digital exchange record book (blockchain). This record book belongs to everybody with a computer and internet connection since the blockchain exists online.
Now, I can’t cheat or change the records existing on the blockchain because it is accessible to everyone with a computer and an internet; and my transactions are visible to everyone on the blockchain network. If I have to cheat, then I must change the figures on all the copies of the blockchain ledger belonging to everybody on the network, which is not possible.
Bitcoin Mining Explained
Back to the physical apple, let’s assume Billy is acting as an accountant by keeping records of the transactions taking place at home (in-house exchange); he updates his ledger by recording that I gave you my apple; Billy gets paid a quarter of an apple for keeping proper records of the transactions taking place.
Don’t forget, everybody’s record gets an automatic update from Billy, so I can’t change it from my end because it will no longer tally with your mom, you, or Billy’s record.
Back to the digital apple, some people keep records of all the digital apple transfers happening on the in-house digital exchange (blockchain), just like Billy. These people are called MINERS, and they get paid for validating transactions on the blockchain. These transactions are transparent since the blockchain is visible for all to see.
We can liken the blockchain ledger to a physical ledger containing so many pages; also, a blockchain contains chains of blocks of transactions, and miners get paid per block of transactions they validate.
Back to the digital apple, let’s assume your mom and Billy do not own any apple, but Billy gets ¼ apple as pay from the apples existing in the fridge, and he can choose to sell his apple to your mom, you, or me.
The same thing happens on the blockchain network; now your digital apple is no longer an apple or a $1, but a cryptocurrency! Just as there are different types of apples and fruits, there are different types of cryptocurrencies.
The most popular ones are Bitcoin, Ethereum, Ripple, USDT, Monero, etc. they all have their in-house digital exchange (Blockchain network), which can vary slightly from each other, but still, work on the same principles.
You can own as many types of cryptocurrencies as you want or participate in confirming transactions on the Bitcoin, Ethereum, or other blockchain networks (mine coins) and get rewarded for doing so.
Now, you should be able to explain cryptocurrency to a five-year-old.
Cryptocurrencies are like digital money, but they exist on blockchain networks, not in the bank. Unlike real digital money controlled by banks and people, cryptocurrencies are controlled by computers that make up the blockchain networks.
Unlike banking transactions validated by humans (banking staff), these computers validate all transactions on the blockchain network using computer processing power without needing third parties like banks, corporations, or people.
Hence, miners get paid for using their computing power to verify and confirm transactions on the blockchain network without human input, just computers!