Bitcoin vs. the Dollar: Explained for Kids

Bitcoin and the dollar aren't enemies. They're different tools built for different things, like a hammer and a screwdriver. Your kid doesn't need to pick a side. They need to understand what each one does well and where each one falls short.

The biggest difference between Bitcoin and the dollar is who controls the supply. The Federal Reserve can create unlimited dollars (and regularly does). Bitcoin has a hard cap of 21 million that nobody can change.¹ The dollar is better for daily spending; Bitcoin is designed for long-term saving and sending value across borders without a middleman.

What do Bitcoin and the dollar have in common?

Both are money. Both can be sent to other people. Both can be saved. Both have value because people agree they have value. A dollar bill is just paper with ink on it. A bitcoin is just data on a network. Neither has value because of what it's physically made of. The value comes from the system and the trust behind it.

How is Bitcoin's supply different from the dollar?

The government can create as many dollars as it wants, and it does. The U.S. M2 money supply went from about $4.8 trillion in 2000 to over $21 trillion by 2024.² Bitcoin has a hard cap of 21 million. Nobody can change that: not a president, not a company, not a vote. About 19.6 million exist today, and the last one won't be created until around 2140.¹

Michael Saylor calls Bitcoin the first “absolutely scarce commodity in human history.” As he puts it: “I can create more real estate in New York City, I can create more cars... I can create more gold, I can create more shares of stock... Bitcoin is a scarcity... if the price goes up by a factor of a thousand or a million it is absolutely capped.”³

Who controls Bitcoin vs. who controls the dollar?

The dollar is managed by the Federal Reserve, a small group of people who meet 8 times a year to decide things like interest rates and money supply.⁴ Bitcoin is controlled by its code and a network of thousands of computers. No meetings. No chairperson. No one to call.

Which is easier to use for everyday purchases?

Dollars are accepted everywhere. You can tap your card at any store. Bitcoin is accepted at fewer places, and transactions can take 10 minutes to confirm on the main network.⁵ Newer technology like the Lightning Network makes it much faster (near-instant payments).⁶ For everyday buying, dollars win easily right now.

How does the value of Bitcoin compare to the dollar over time?

In 1970, a dollar bought about 7 times more than it buys today.⁷ The dollar slowly loses purchasing power every year because of inflation. Bitcoin has gone the opposite direction overall: it was worth less than a penny in 2009 and has traded above $60,000 in recent years. But it's not a smooth ride. Bitcoin dropped 77% in 2022 alone.⁸ You need a strong stomach.

Is Bitcoin better than the dollar for sending money overseas?

Sending dollars internationally is slow and expensive. A wire transfer can take 3-5 days and cost $25-50 in fees. Remittance services charge 6-10%.⁹ Bitcoin can be sent anywhere in the world in minutes for a few dollars (or a few cents on Lightning). For the billions of people who send money to family in other countries, that's a real difference.

What is each one better at?

The dollar is better for daily spending, paying bills, and anything where you need stability and wide acceptance. It works. It's everywhere. You know what it'll be worth tomorrow (give or take).

Bitcoin is better for long-term saving (if you can handle volatility), sending money across borders, and holding wealth that no government can freeze or inflate away. It's harder to use day-to-day, but it solves problems the dollar can't. If you're curious how money losing value affects your family, we cover that in why money loses value.

How to explain Bitcoin vs. the dollar to kids (parent talking points)

• “Which one is better?” They're good at different things. Using dollars for spending and Bitcoin for long-term saving is what a lot of people do. You don't have to pick just one.
• “Why can't I buy lunch with Bitcoin?” Some places accept it, but most don't yet. The dollar has been around for over 200 years. Bitcoin has been around since 2009. It takes time for new money to become widely accepted.
• “If Bitcoin goes up so much, why does anyone keep dollars?” Because Bitcoin also goes down a lot. It dropped from $69,000 to $16,000 in 2022. You need dollars for rent, groceries, and bills. Nobody pays rent in Bitcoin (yet).
• “Could Bitcoin replace the dollar someday?” Maybe. But probably not completely. More likely they'll exist side by side, like how you use both cash and credit cards today. Different tools for different jobs. Here's more on how Bitcoin works.

Try this at home

The side-by-side tracker (ongoing, ages 10+). Pick a start date. Put $10 in a savings account and $10 worth of Bitcoin into a wallet or app. Check both once a month and write down the value. After 3-6 months, compare. The savings account will stay almost flat (maybe gained a few cents in interest). The Bitcoin will have moved, maybe up, maybe down. Talk about what you see: “Which one changed more? Which one would you want for buying lunch tomorrow? Which one for saving for 10 years?”

Materials: $10, a savings account, a Bitcoin wallet or app (Cash App, Strike, etc.). Time: 5 minutes/month.

Sources

1. Nakamoto, Satoshi. Bitcoin: A Peer-to-Peer Electronic Cash System (2008)
2. Federal Reserve Bank of St. Louis, M2 Money Supply (FRED)
3. Saylor, Michael. Interview on PBD Podcast, discussing absolute scarcity
4. Federal Reserve, FOMC Meeting Calendar
5. Bitcoin.org, How Bitcoin Works (block confirmation times)
6. Lightning Network, Lightning Network Technical Summary
7. U.S. Bureau of Labor Statistics, CPI Inflation Calculator (1970 to present)
8. CoinDesk, “Bitcoin Price Hits Two-Year Low” (Nov 2022)
9. World Bank, Remittance Prices Worldwide