It is no secret that the rich advise other people to invest in crypto curriencies (side note: also hosted by rich people).
Many of them have gained millions of dollars through artificial currency, and are now living a comfortable, luxorious life on the coast of the Bahamas.
On the other hand, uncle Steven from the neighborhood went bankrupt and is now living in his car after investing in IncelCoin.
How did this happen?
First we need to examine how a crypto currency usually functions, so we can get a better understanding of what happened behind the curtains.
A virtual coin... has no value, at first.
Actually, nothing is naturally of value. Value is a term given to something, by humans. The worth of lets say a table is decided by how worthy humans think it is, and how much they would be willing to pay for it.
When a currency just started off, it ultimately has 0 value. Nobody would buy something they know wouldnt give them any value back, as it is, well, a virtual coin.
Only when it is financially aided, it is seen as worthy, thats why often financial aid is given to the currency at first, because theres money to be returned.
Over time, a market will grow slowly, with occasional crashes varying in intensity. Theres more money from more people paid in, the interest rises since the coin is growing, more people buy it. Repeat
Heres an example of how a crypto market works:
Tom has 10 apples. There is an apple shop, just around the corner.
The shopkeeper already has 100 apples. He promises Tom:
You will get an interest rate of 10% if you give me all your apples. Of my now 110 apples you can always ask for 11 apples, or you could wait until theres more apples from other boys, in which case you will get 12 or more apples.
Tom agrees, and his neighbor Brad also gives the shopkeeper 10 apples.
The shopkeeper now has 120 apples, and everyone that gave him 10 apples will get 12 apples now, so that the apples are worth paying for and new customers will pay their apples. Since nobody will ask for the apples at once, he can eat a few maybe, he thinks to himself. Interest rate: 12%
Chad comes along, he asks for his 12 apples, along with his 3 other friends. Now theres 72 apples left. The shopkeeper knows, if he keeps giving away 12 apples to his 10 apple payers, he will have negative apples!
To avoid having negative apples, he now lowers the Interest to 7,2%, meaning every buyer will only get 7,2 apples now. A bad deal, but the owner has to save himself from debt. Now if Tom and Brad are desperate and take the 7,2 apples, the interest will drop further and the market will collapse. If they wait, the owner might get new buyers again and his total amounts of apples will rise again, which raises the interest rate.
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Rich people rarely make money with crypto, they use it as a method to keep their money.
The millionaire living in the bahamas now had 1 billion dollars. He invests 10 million into IncelCoin. Over time his 10 million turned into 11 million! What an easy deal! Now that the rich people have made a million, they cash out all their apples until theres barely any left, you could say.
Uncle Steven invested all his money into IncelCoin. 5000 Dollars. Now its 5500 Dollars, but I need to wait until im a millionaire! 500 dollars may not be much, but I just need to wait and the big sums will come.
The market crashes. He now only has 1000 dollars left. Defeated he goes live in his car eating only water and bread. His advice from rich people was bullshit. His lost 4000 dollars was part of the billionaires million.
Many of them have gained millions of dollars through artificial currency, and are now living a comfortable, luxorious life on the coast of the Bahamas.
On the other hand, uncle Steven from the neighborhood went bankrupt and is now living in his car after investing in IncelCoin.
How did this happen?
First we need to examine how a crypto currency usually functions, so we can get a better understanding of what happened behind the curtains.
A virtual coin... has no value, at first.
Actually, nothing is naturally of value. Value is a term given to something, by humans. The worth of lets say a table is decided by how worthy humans think it is, and how much they would be willing to pay for it.
When a currency just started off, it ultimately has 0 value. Nobody would buy something they know wouldnt give them any value back, as it is, well, a virtual coin.
Only when it is financially aided, it is seen as worthy, thats why often financial aid is given to the currency at first, because theres money to be returned.
Over time, a market will grow slowly, with occasional crashes varying in intensity. Theres more money from more people paid in, the interest rises since the coin is growing, more people buy it. Repeat
Heres an example of how a crypto market works:
Tom has 10 apples. There is an apple shop, just around the corner.
The shopkeeper already has 100 apples. He promises Tom:
You will get an interest rate of 10% if you give me all your apples. Of my now 110 apples you can always ask for 11 apples, or you could wait until theres more apples from other boys, in which case you will get 12 or more apples.
Tom agrees, and his neighbor Brad also gives the shopkeeper 10 apples.
The shopkeeper now has 120 apples, and everyone that gave him 10 apples will get 12 apples now, so that the apples are worth paying for and new customers will pay their apples. Since nobody will ask for the apples at once, he can eat a few maybe, he thinks to himself. Interest rate: 12%
Chad comes along, he asks for his 12 apples, along with his 3 other friends. Now theres 72 apples left. The shopkeeper knows, if he keeps giving away 12 apples to his 10 apple payers, he will have negative apples!
To avoid having negative apples, he now lowers the Interest to 7,2%, meaning every buyer will only get 7,2 apples now. A bad deal, but the owner has to save himself from debt. Now if Tom and Brad are desperate and take the 7,2 apples, the interest will drop further and the market will collapse. If they wait, the owner might get new buyers again and his total amounts of apples will rise again, which raises the interest rate.
-----
Rich people rarely make money with crypto, they use it as a method to keep their money.
The millionaire living in the bahamas now had 1 billion dollars. He invests 10 million into IncelCoin. Over time his 10 million turned into 11 million! What an easy deal! Now that the rich people have made a million, they cash out all their apples until theres barely any left, you could say.
Uncle Steven invested all his money into IncelCoin. 5000 Dollars. Now its 5500 Dollars, but I need to wait until im a millionaire! 500 dollars may not be much, but I just need to wait and the big sums will come.
The market crashes. He now only has 1000 dollars left. Defeated he goes live in his car eating only water and bread. His advice from rich people was bullshit. His lost 4000 dollars was part of the billionaires million.
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