And I mean LITERALLY explain like I’m 5, I literally know nothing of the technical terms and such
In: Economics
There are 2 ways:
Mining – You run a program on a computer that runs a bunch of calculations. If you are lucky the result your computer comes up with “wins” and you are rewarded with crypto currency.*
Reselling – Instead of mining, you buy crypto at a price. Say you spend $10 to buy one “coin”. Then you look around for other people wanting to buy that coin and try to sell it to them for more than $10. Most of this is done using marketplaces similar to how the stock market works.
*Many crypto currencies are trying to move away from this type of setup since it consumes MASSIVE amounts of electricity performing what are essentially busy work calculations with no value. The calculations don’t really mean anything and the results are useless after being checked to see if they “win”.
Today, 1 crypto is worth 1. I buy it.
Tomorrow, 1 crypto is worth 1,5 so i sell it.
My profit is 0.5 crypto.
Price for crypto is rising and falling according to demand and other geopolitical factors.
It’s that simple.
Buy a cryptocurrency and wait for its value to grow. Its value will grow the more people buy it and keep it. Then you sell it for a much higher price than when you bought it.
You find a bigger fool who will buy it from you today for more than you bought it for yesterday.
People make money off of crypto by selling electricity and computer components to the people mining for crypto.
It’s a lot like the gold rushes of history. People selling supplies to the miners made more reliable profits than those going out and searching for gold.
First i buy it at 1 dollar, then i wait till its worth 5 dollars. Then someone else buys it from me. Just like i bought it at one. Its pretty random though, it could go to 5 cents too. Some compare it to gambling.
Cryptocurrency is basically a digital record of who owns how much. You “own” it by having the key (password) that allows you to send it to someone else.
People make money by investing in it simply because of supply and demand, just like any other asset. If I buy a gold ingot today and tomorrow its value becomes greater (due to increased demand or lower supply), I can sell it tomorrow for a profit.
Another way to make money with cryptocurrency is by “mining it”, which means lending some of your computer (today, specialized mining computer) power to the cryptocurrency network. This is how cryptocurrencies work—they are distributed networks that use lots of computers working together to create a secure record of who owns how much cryptocurrency. Miners’ computers guess at a solution (basically how to properly order transactions) until they solve it. The reward for a solution is a predetermined amount of the cryptocurrency, which can then be sold.
Other cryptocurrencies have slightly different technologies as well, but mining is the original, created with Bitcoin.
Here’s a good ELI5 description: https://www.eli5base.com/topic/?title=Bitcoin
Crypto is a zero sum game. Its sort of like paying poker money is just changing hands .
Lets say I find a rock and here is the sequence of events
1. You buy it from me for $1
2. I buy it from you for $5
3. you buy it back from me for $10
4. I buy it from you for $25
5. you buy it back from me for $50
6. I buy it back from you for $100
Crypto folks somehow believe this makes us both money. In fact all that happened was I gave you $99
In the end on average no one made money. Its just money going in circles changing hands.
You made $99 and I lost $99 (but now have this rock)
It’s a pyramid scheme.
Yes, crypto bros, that’s all it is.
When it starts out there is no demand for it (no one knows what it is), so the price is low. People who buy in them get a low price.
As time goes on the hype starts to build. Demand grows, and more people want it. But the supply is kept small. The result is the price jumps up. So the people who bought it at a low price can now sell at a higher price.
People see those people making money, want in on it, so the demand grows even further. But the supply is kept small, so the price continues to rise. This repeats itself several times.
The whole market is based on new people “investing” in it. So owners are heavily incentived to hype the market and get more people to join.
Problem is the human population is finite. So the total market for demand is capped. Eventually there stops being new people willing to invest. Just like the last people to participate in the chain letter sent their dollar to the sender but don’t have anyone sending them anything back, the last buyers of the crypto asset are stuck with something they paid a lot for but no one is willing to buy at a comparable price.
In the end no wealth was produced. It was only shifted from the late adopters to the early adopters.
1: be a sucker who buys coins from someone else
2: find a sucker who is willing to buy at a higher price than you paid
There isn’t really any wealth generated from crypto, it’s just money moving from person to person and the greatest fool loses (the person who buys at peak).
Compare to something like stocks, where there’s a company which either currently pays out a dividend (a portion of their profits) or maybe one day will start paying out dividends. Facebook for example for a long time was a growth stock and recently started paying a dividend. The value of the stock is generally intended to be a reflection of the value of the company and you can measure the current value against their revenue.
With crypto there’s literally nothing but people’s feelings about it’s value. It doesn’t pay interest, it doesn’t pay dividends, there’s no revenue related to it (mining takes money *out* of crypto.
The quick ELI5 is that you can only make money if someone else is losing money.
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