And I mean LITERALLY explain like I’m 5, I literally know nothing of the technical terms and such
In: Economics
Daddy gives you and all your friends Monopoly money. You and all your friends telll all the kids at school how cool and better than real money it is because of all the pretty colours and smaller size. Also it’s all kept track of in a special ledger daddy has. You tell them even though it’s really great you will sell it to them for real money just because stores don’t take Monopoly money yet but soon they will.
They believe you and buy it . Then they go and sell that money to a school a few streets over because they actually want real money again too.
This goes on and on until the last school buys up all the Monopoly money but then the rest of the schools all switched to Monopoly money 2.0 and the last school is holding Monopoly money no one wants and they can’t even get back the real money they payed.
At its core crypto tries to provide money without needing to trust individual humans. Anyone can participate as a miner, validator, etc. But that requires safeguards against bad faith actors. With “normal” fiat currencies, societies create governments with people administrating the currency and national banks and they vet the people who work these jobs. They still require safeguards, but it’s much easier to do with people showing up to an office in person than unknown computers on the internet.
So inherently crypto is much less efficient, because of these additional safeguards. This shows in much higher transaction fees, inequities benefiting those already rich, and a severe lack of legal protections (e.g. against fraud).
BUT: Some people with decent wealth are unhappy with their level of wealth and would rather be ultra-wealthy. And so they want to disrupt the world, toppling those currently at the top and take those spots themselves. And one way of doing that is trying to create a new financial system, which they control, and trying to force it on the world, hence crypto currencies.
So how to make money? Same as with any other bigger fool scam: Buy something worthless and hope someone else will buy it for more later. Just as there are some people making money from fraudulent investment schemes. And because crypto has a staggering lack of protections against fraud and makes it harder for governments to tax people, you can also try to make money by defrauding others, laundering money, evading tax, etc.
But that’s about it. As currency or a store of value it’s inefficient, so it makes no sense using it for that.
You can tell a lot of people here are so biased against crypto. It’s sad really how no one here understands the value of self-custody.
There is mining, but you can kind of discount that because it’s an extremely thin profit margin now. Essentially you buy a bunch of expensive specialized devices that can do the calculations much more efficiently than a CPU and you set up a lab where power is dirt cheap and run them 24/7 to make a small profit. Because of the cost of the electricity, this is mostly done in poor countries with cheap electricity. Some people will set up shop in a college dorm or somewhere where they don’t pay for the electricity and do that until they get caught or move out.
Otherwise, the best way to think of it is like beanie babies. You buy a beanie baby for one price and then turn around and sell it for another price. If you sell it for more than you paid for it, that’s a profit. The only money going into the system is money that people put into the system so crypto will continue to go up as long as more money invests into it. (Kind of like a pyramid scheme)
Chapter 1: origin of crypto
There was a super nerd guy whose real name is unknown who proposed that with some computational abracadabra we can make a perfectly safe, anonymous and un-stealable money that would free us from the tyranny of bank system.
The computational abracadabra is called blockchain and it is based on synchronized, very heavy computing tasks that is done by, originally hundreds, later millions of computers worldwide. This is a very power consuming thing (expensive in terms of electricity bill and you needed top computers), but there was a catch. If you did enough computing, you got a digital coin as a reward.
In the beginning this digital coin was worthless but also had all the benefits listed above: anonymous, un-stealable, safe. Perfect money, except no actual value.
Until some nerds decided to playfully poke around and give some value to the toy coin. How did it happen? Well, they started giving actual stuff for toy money. Like, imagine I give you a pizza for monopoly money, then monopoly money all of a sudden gets a value of a pizza. And this is exactly what happened, there was no risk because there was not too much digital toy cash in the world, so a nerd pizzeria owner could really afford giving away a few pizzas for monopoly money.
But as it turns out, once your toy coin has a real value (whatever limited it is), people are incentivized to make more of it and start to buy it. Like, I buy your monopoly money for 5 and use it to buy a pizza that’s worth 10, then I actually save 5, and you get 5 for your otherwise worthless money. And this thinking actually put a real value on the toy coin, and all of a sudden it was worth making it.
This was the origin story of Bitcoin. From then on, the price of Bitcoin is growing based on the common hope that it will be real useful, and as a self fulfilling prophecy cycle, the more it’s worth, the more actual shops start to accept it. This is how some original nerds who just used their computer for fun computing, all of a sudden got millionaires.
Chapter 2: the copy cats and infrastructure
So after Bitcoin got successful and famous, many others figured that it could be done better. It turns out that Bitcoin is not that safe, not that anonymous and not that un-stealable. Let’s make a better version. Some people gets the smell of money and make market for easily buying and selling Bitcoin. All of a sudden there is supporting infrastructure, marketplaces, etc.
It’s like cars and gas stations. Maybe you have the cool invention of cars, but without the infrastructure of gas stations and highways, your car has very limited value.
So there’s now new coins and infrastructure, and anything that has the name cryptocurrency (a new name for Blockchain coin and related shit) automatically gets a lot of money from investors.
This was the second wave of people getting rich of crypto. Already in this wave there were some con men who made huge money by faking some crypto business, just because it became such a buzz word that investors blindly poured money into anything.
Chapter 3, emerging fake cryptos
As the big balloon-like growth of original (real) cryptos reached a plateau, and you could not invent another coin or another support business (like another market or wallet), the market became a boring, business as usual stock market. Value of crypto is now going up and down, so you can buy some, hoping that it goes up a bit and sell. But basically it will never double the value overnight. That fairy tale is over.
Yet there are still con men who sell that tale. People who missed the first wave but know the wonderful stories of smart nerds getting millionaires overnight, want to believe that they are smart too and can get the same thing. And scammers sell this story, you just send me money, and I have this new coin or new algorithm that makes you rich overnight. Sure.
So indeed it really made a third wave of rich, only not the ones that wanted it so much. But certainly some early bird scammers got filthy rich.
Chapter 4: dawn of the scammers and immunity
Criminals follow trends just like other business people, so if one criminal sees that you can do con with crypto, they will do too. That was when all tricksters all of a sudden started selling crypto instead of dick enhancement. So eventually the news in TV changed from “got rich overnight” turned into “got scammed overnight”. As the crypto scam market got saturated, and people developed sone immunity, the huge wave of crypto scamming went down. Most con men went to other business (perhaps back to dick enhancement), some stayed with us fishing for the few that still believe.
Crypto is now with us as a part of life, so you can always buy legit ones, hoping that it goes up a percent, and scammers also will stay with us as a part of the scammer ecosystem.
Just like you don’t give cash to free a Nigerian prince, you should not believe that crypto can make you rich overnight.
The same way people make money with stocks or shares of legitimate companies.
They buy coins (or shares) at a low value, and then sell them to other people after the value goes up.
You used to be able to buy 1 bitcoin for *pennies*. Now 1 bitcoin sells for $50,000. There was a lot of buying and selling that went on between those two values.
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