I Asked ChatGPT To Explain Crypto To Me Like I’m 12 — Here’s What It Said
Written by
Laura Bogart
Edited by
Kristen Mae
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If the word “crypto” makes you cross your eyes with confusion, you’re certainly not alone. One of the buzziest terms in contemporary finance, cryptocurrency can feel incredibly difficult to understand. Is it a digital currency? A stock? And why have so many people made memes about it?
Some of these questions are easier to answer than others — especially when using an asset like ChatGPT, which is adept at synthesizing complex information into easy-to-understand terms. Which, for many laypeople, is exactly what they need to get a handle on crypto. And by many laypeople, I mean me — your humble personal finance writer. I decided to ask ChatGPT to explain crypto to me like I was 12 years old, and let’s just say some of the mystery started to lift.
In a Digital Nutshell
I started off with a very simple prompt: “Can you please explain crypto to me like I’m 12 years old?” And my pal ChatGPT came in the clutch, saying that it would explain it to me like we were friends at lunch.
“Crypto (short for cryptocurrency) is like money on the internet, but it’s not printed like dollars or coins. It’s completely digital. You can’t hold it in your hand, but you can use it to buy stuff, save it, or send it to someone — just like money.”
Okay, that makes sense. It even explained where the word “crypto” came from:
“‘Crypto’ comes from cryptography, which is a fancy word for super-secret codes. Cryptocurrencies use these codes to: keep your money safe, make sure no one can cheat or copy it, and let people trust it without needing a bank.”
Thanks, ChatGPT!
Tell Me More
Okay, so, money stays in the bank. Stocks live in your brokerage account. Where does crypto reside? My buddy ChatGPT tells me that crypto lives on the blockchain, which is basically “…like a huge public notebook that everyone can see, but nobody can erase or cheat.” The blockchain keeps track of every transaction (as in who sent what to whom).
“Every time someone sends crypto, it gets added as a new line in the notebook, and everyone agrees it’s real,” said ChatGPT. “Crypto is decentralized, which means there’s no boss, bank or government in charge. It runs on thousands of computers all over the world.”
That makes a lot of sense. I’m starting to get it now. But what can I even get with it? Turns out, a lot. I can buy stuff online, send money to a friend instantly (even if they’re in another country), or hoard it like a dragon with their digital gold. You can even use it in online games or to buy digital art, like NFTs.
Where Does It Get Its Value?
With a stronger baseline understanding of what crypto is and how it works, I decided to ask ChatGPT a follow-up question: Where does it get its value?
My friend gave me a simple answer to start, saying that, in essence, it has value “because people believe it’s valuable and are willing to trade things for it.”
In fact, traditional money works the same way. Fiat currencies like the U.S. dollar aren’t backed by gold or silver — they hold value because people agree they do, and trust that others will accept them in exchange for goods and services.
ChatGPT explained further, elaborating on the supply-and-demand factor that Bitcoin’s creators built into it as a way to increase its value:
“If lots of people want a certain crypto (like Bitcoin), and there’s only a limited amount, the price goes up. It’s kind of like rare trading cards. If only a few exist and everyone wants one, it becomes more valuable.”
Usefulness is another factor, with some cryptos having value because they help run apps, enable smart contracts, or facilitate NFT purchases.
“The more useful something is, the more people want it = more value,” ChatGPT said, adding that people’s trust in the blockchain and overall hype for crypto have also played a role in giving it value.
Bottom Line
Thanks to ChatGPT, I went from a total crypto newbie to someone who actually understands the basics. However, it’s wise to also double — or even triple — check everything you learn from ChatGPT, and use it as a foundation for your own research.
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