dulezidar / Getty Images

For most of us, bitcoin is more than a little confusing. Does it work like real money? Is it physical or only online? And how do you even use it? Cryptocurrency is still fairly new and still very strange to many. Even adults who are pretty savvy with financial know-how can struggle to understand how it works. So, we decided to put ChatGPT to the test with this prompt: “Explain bitcoin to me like I’m 12 years old.”

Here’s what ChatGPT said when I asked it to explain bitcoin like I’m 12. 

ChatGPT started strong with something every tween can relate to: video games.

“Imagine you have a video game where you collect special coins, and every time you get one, it’s recorded in a notebook that everyone playing the game can see. No one can erase or change the notebook without everyone else agreeing,” the AI explained.

Then ChatGPT connected the video game analogy to real life: “You can’t hold it in your hand like a dollar bill, but you can use it on the internet to buy things or trade it with people.” This sums it up perfectly. Bitcoin is digital money that lives on the internet. 

ChatGPT tackled the most confusing parts of bitcoin with kid-friendly explanations:

No bank needed: “Normally, banks keep track of who has how much money. With Bitcoin, there’s no bank. Instead, thousands of computers around the world all share a copy of the notebook that tracks who has which coins.”

The blockchain: “This super secure notebook is called a blockchain. Every 10 minutes, it gets a new page (called a block) filled with updates — like who sent Bitcoin to who.”

Mining: “People called miners use powerful computers to solve really hard math problems. When they solve one, they get a new Bitcoin as a reward, kind of like digging up buried treasure.”

Scarcity: “There will only ever be 21 million Bitcoins. That’s it. No one can make more, which makes them kind of rare — like limited-edition trading cards.”

Bitcoin’s scarcity is what gives it its value. To make this point clear, ChatGPT explained by using something kids can really relate to: limited edition trading cards. Just about any middle schooler could follow this point, because trading cards are something they can engage with right away.

The AI explained: “It’s kind of like if Pokémon cards could be used to buy snacks, and everyone agreed which ones were real using a magical book.”

Putting it this way makes bitcoin ultra-relatable. “Let’s say you’re trading Pokémon cards at lunch. You write it down in a big shared notebook that the whole school uses to keep track of trades. That way, no one can say later, ‘I didn’t agree to that!’”

ChatGPT nailed this explanation. These analogies made bitcoin easy to grasp without dumbing it down. Not only that, its explanation even covered important details like blockchain technology, bitcoin mining, and scarcity — all in language a 12-year-old (not to mention adults) could understand.

Have you been struggling to understand cryptocurrency yourself? Maybe a kid-friendly explanation from ChatGPT is exactly what you need. Sometimes when it comes to complex financial concepts like bitcoin, the simplest explanations are the most effective.