When we are young, our genes determine whether our melanocytes (pigment cells) produce eumelanin (which leads to brown/black tones in the hair) or pheomelanin (which leads to red/yellow tones in the hair). The melanin gets transported to the keratin producing cells which is why our hair then grows that colour.
When we get older, the melanocytes become less active and this starts meaning that there is less melanin getting to the keratinocytes– hence we loose the colour and start to turn grey. The less active the melanocytes are, the greyer we go!
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