How Do Cryptocurrencies Work & Gain Value? | Cryptocurrency Explained For Beginners |

Have you ever wondered how cryptocurrencies work and how they gain their value or price?

This video demonstrates a simple thought experiment to show you how the crypto you own, such as Bitcoin (BTC), Ether (ETH) or Ripple (XRP) gets its price. if you're a beginner to crypto and cryptocurrencies, this video is for you!


Cryptography in black and white.

What determines the value of cryptocurrencies?

Since 2008, over 5000 new cryptocurrencies have been created, resulting in a $500 billion digital token market by late 2020.

may seem like a lot of money, but it's nothing compared to the S&P 500, which is worth almost $30 trillion.

The S&P 500 is 600 times larger than the Dow Jones Industrial Average, and it only contains the United States' 500 largest publicly traded firms.

But where did the $500 billion come from?

What determines the value of a cryptocurrency?

Jenny will be the one to answer to that.

Jenny is the brains behind the cryptocurrency New Crypto Coin.

With a maximum of 1000 coins available, each currency is pre-mined and immediately marketable when it is initially created.

Jenny's bitcoin is worthless because no one has bought it.

John is intrigued by Jenny's cryptocurrency suggestion, so he researches it more.

Jenny's coins are worth $10,000, and he offers to buy them at $20 each.

Jenny offers to buy 500 coins from John and sell them to him on a secondary market.

Following the sale, John upped Jenny's crypto project's entire value, or market capitalization, to $20,000, with each token worth $20.

Jenny is ecstatic because she now owns the remaining 500 coins and has made a $10,000 profit.

She may sell her coins immediately and make a quick profit, or she could wait and see if the price grows over time.

Jenny meets James, who is looking to buy 600 coins for $18,000, and is ready to pay up to $30 each coin.

The currency's true intrinsic value, according to James, is around $100 per coin.

For a profit, James agreed to acquire 300 coins from John and Jenny.

Jenny and John now have a total of $6,000 in coins and a profit of $9,000 each.

James has a total of 600 coins valued $18,000.

Both John and James contributed to the project's value by believing that they could create more value for themselves by exchanging the coin for more in the future.

Because there are 1000 coins accessible in total.

The value of a cryptocurrency acts similarly to a bucket full with water.

Water represents money or wealth flowing into and out of the coin.

Yes, some people sell an exit, but if the cryptocurrency has a compelling purpose to exist in the first place, this will fade with time.

As the number of people contributing extra capital increases, the price of the asset, the water, and the bucket will climb.

At some point, the number of people entering and exiting will be almost equal, and the bucket will be full.

This is when a cryptocurrency's intrinsic worth hits its highest peak.

Any new capital provided sloshes out the edge of the bucket as people exit an exit.

As a result, this concept doesn't just apply to cryptocurrencies; it also applies to fiat currencies, stocks, real estate, gold, and everything else that can be bought or sold.

These assets are distinct in that they are not bound by cryptographically protected code.

There is always new gold mined, new fiat currency created, and the possibility of a company issuing more shares.

Think of these assets as infinitely expanded balloon money.

The balloon in our metaphor is always filling with air, but because the number of units isn't fixed, it just keeps becoming bigger and bigger until it bursts.

People are recognizing that their investment has become so diluted that it is effectively worthless.

This has happened multiple times throughout history, with Germany in the early nineteenth century being the most notable example.

Where banknotes, such as this 10 billion mark note, began to be used as wallpaper by the general people.

This will never happen to a coin with a fixed, predetermined amount of units.

Over the course of a cryptocurrency's useful life, its value is decided by a deal between multiple buyers and sellers.

What criteria do you use to assess a cryptocurrency's utility?

That's something to think about for a future crypto black-and-white.
Be the first to comment