Anyone Into Crypto?

[Miopyk]

Can someone explain how a crypto currency is able to generate a profit? What exactly is it invested in, how does it increase in value, who exactly controls them and how do hold them to account when things go wrong? I think I know the answers but would be interested to see if anyone else can tell me something I don't know.

Very simply, just like buying shares, if the value of the share/crypto increases from the price you bought at, you will see a gain in your original investment.
Equally, if the price goes down, your original investment decreases.

Profit or losses are only realized when you sell.

You buy crypto through an exchange, similar to how you would buy a share through a broker.
The most common exchange is Coinbase which is a public listed company.
Their platform is easy to use, but their fees are amongst the highest.

It's a good starting point, though.

I use Binance, but you can no longer deposit funds from most UK banks. There are ways around it, but it's not for the beginner (neither is it illegal!).

Coinbase has its own insurance in the event something goes wrong. However, I am not au fait with the extent of this. I would imagine it is protection in the event they are hacked.
Similar to if a bank experienced similar and your funds were affected.

However, as with your bank details, passwords etc. you are responsible for keeping these secure.

In terms of controls, this depends on how and where you store the crypto you buy.
Some people keep it on the exchange, which is convenient to access but less secure if the exchange was hacked.
Others use "cold storage" in the form of a secure device such as Ledger (www.ledger.com). They transfer their crypto from the exchange to the Ledger device and keep it in a secure location of their choice.

These devices have a passphrase comprising a number of words that enable you to access your crypto should you lose or damage it.
However, anyone obtaining access to the passphrase can also gain access, hence the importance of keeping it secure.

YouTube is a hive of information for understanding crypto but beware of the many "influencers" promoting the next 10X, 50X, 100X wonder coin.
Just like the many forums of individuals promoting a small cap company that's going to be the next Apple, Amazon etc. they also exist in crypto.

The best channel for informative, balanced and educated content is the Coin Bureau (https://www.youtube.com/c/CoinBureau/videos)
His introductions as to how he is not a financial advisor have become legendary.

No one should invest in crypto without understanding the risks and volatility.

Everything you've said makes sense but you've not really answered my questions, how does a crypto make a profit? What does it do to generate value? If I buy stocks or shares I'm betting on the ability of the company I've invested in making a profit by conducting its business. Can you explain what a crypto does to do the same?

[New User]

I am genuinely interested in this question having formed the view that the unit of any crypto currency is intrinsically worth between f-all and the cost of the electricity used to mine it. It is only the scarcity that it becomes ever more expensive to mine as the pool grows that creates a market price - otherwise it would trade at its intrinsic value (i.e f-all).

But how you can create true and lasting scarcity of resource in a connected digital world is beyond my comprehension. As this scarcity factor drives the market value rather than trading the intrinsic value of f-all I still suspect there will be an almighty correction at some future point but genuinely I have nothing against anyone enjoying the ride before that day comes.

[Bazza06]

Can someone explain how a crypto currency is able to generate a profit? What exactly is it invested in, how does it increase in value, who exactly controls them and how do hold them to account when things go wrong? I think I know the answers but would be interested to see if anyone else can tell me something I don't know.

Very simply, just like buying shares, if the value of the share/crypto increases from the price you bought at, you will see a gain in your original investment.
Equally, if the price goes down, your original investment decreases.

Profit or losses are only realized when you sell.

You buy crypto through an exchange, similar to how you would buy a share through a broker.
The most common exchange is Coinbase which is a public listed company.
Their platform is easy to use, but their fees are amongst the highest.

It's a good starting point, though.

I use Binance, but you can no longer deposit funds from most UK banks. There are ways around it, but it's not for the beginner (neither is it illegal!).

Coinbase has its own insurance in the event something goes wrong. However, I am not au fait with the extent of this. I would imagine it is protection in the event they are hacked.
Similar to if a bank experienced similar and your funds were affected.

However, as with your bank details, passwords etc. you are responsible for keeping these secure.

In terms of controls, this depends on how and where you store the crypto you buy.
Some people keep it on the exchange, which is convenient to access but less secure if the exchange was hacked.
Others use "cold storage" in the form of a secure device such as Ledger (www.ledger.com). They transfer their crypto from the exchange to the Ledger device and keep it in a secure location of their choice.

These devices have a passphrase comprising a number of words that enable you to access your crypto should you lose or damage it.
However, anyone obtaining access to the passphrase can also gain access, hence the importance of keeping it secure.

YouTube is a hive of information for understanding crypto but beware of the many "influencers" promoting the next 10X, 50X, 100X wonder coin.
Just like the many forums of individuals promoting a small cap company that's going to be the next Apple, Amazon etc. they also exist in crypto.

The best channel for informative, balanced and educated content is the Coin Bureau (https://www.youtube.com/c/CoinBureau/videos)
His introductions as to how he is not a financial advisor have become legendary.

No one should invest in crypto without understanding the risks and volatility.

Everything you've said makes sense but you've not really answered my questions, how does a crypto make a profit? What does it do to generate value? If I buy stocks or shares I'm betting on the ability of the company I've invested in making a profit by conducting its business. Can you explain what a crypto does to do the same?

Bitcoin, for example, has increased in value due to its limited supply and increased demand as a store of value.
Hence, it generates its value due to these factors as well as its portability, divisibility (up to 8 decimal places) and resistance to counterfeiting.

Ethereum (ETH), the second-biggest crypto by market cap, is a platform for other crypto projects to be built upon. Thus, it generates revenue by the fees charged to transact the platform.
As more projects increase their use of the Ethereum platform, so the amount in fees increases too.

In addition, ETH is regularly burned, so there is less available as time passes and with this brings reduced supply and an increase in value.

There are many projects which have solutions to increase the efficiency of the blockchain and conventional systems that we are accustomed. The anticipation is that these will move to utilise the blockchain and, therefore, bring profit to those providing the solution.

VeChain, for example, provides a blockchain platform designed to enhance supply chain management and business processes more securely and efficiently than current process allow.

[Deleted User 4325]

Bazza,

I'm not having a go, but all you have said and all I have ever read about crypto is about how much money 'some' people are making out of it. Be they those who got in early or those who make money out of the sites trading it/them.

Ultimately crypto come from nothing and produces nothing (unlike shares in companies) and they are not and cannot be guaranteed as currencies issued by national banks are, and again there are still risks in real currencies as history has shown.

I am not a financial advisor and would never profess to be. I work in security but initially worked for a High Street bank many many years ago. I passed my banking exams and have a feint recollection about the principals of banking and it is why I hold my concerns about crypto.

The very best of luck to you but ultimately someone somewhere pays the price for all of this 'wealth' hence my generalized comparison with Ponzi scams.

[Deleted User 4325]

I would also be sceptical about anyone offering insurance against crypto fraud!!! What insurance company would genuinely insure against that???

[Bazza06]

I am genuinely interested in this question having formed the view that the unit of any crypto currency is intrinsically worth between f-all and the cost of the electricity used to mine it. It is only the scarcity that it becomes ever more expensive to mine as the pool grows that creates a market price - otherwise it would trade at its intrinsic value (i.e f-all).

But how you can create true and lasting scarcity of resource in a connected digital world is beyond my comprehension. As this scarcity factor drives the market value rather than trading the intrinsic value of f-all I still suspect there will be an almighty correction at some future point but genuinely I have nothing against anyone enjoying the ride before that day comes.

I'm the first to admit that I do not hold the answers to all the questions posed in this field.

Bitcoin is programmed to be limited to 21 million, of which over 18 million have already been mined.
Of that 18 million, it is estimated that only 14 million are accessible due to holders losing their passwords or devices they are stored on.

Technically, it is possible to increase that 21 million, but would require the permission of the majority of miners, and why would you want to increase the number which will cause the value to decrease?
This why our conventional money is worth less when they continue to print more.

[neilj007]

@bazza - some well articulated arguments here. To my mind, I try to treat it like digital gold....but us oldies have great difficulty in understanding the general concepts around it....but I do understand it from the scarcity perspective, the halving, the stock to flow models etc etc; the deFi perspective; I don't really "get" the NFT's mind you, or rather the value attributed to them..

I just can't deal with it's volatility and that's why I've been in and out a few times not having lost anything but nothing life changing either- give me a classic Porsche anyday (Is a classic Porsche a store of value??)

In some ways, crypto is no different to any currency - it's all backed by confidence...if the confidence goes, the value goes...and the powers that be will certainly try and derail crypto by whatever means

I also worry about EFT's that are now cropping up and the leverage on crypto - it makes it all the more "unpure" if that makes sense and open to manipulation

I certainly wouldn't trust britcoin, or whatever crypto any central bank decides to issue...

[Miopyk]

Very simply, just like buying shares, if the value of the share/crypto increases from the price you bought at, you will see a gain in your original investment.
Equally, if the price goes down, your original investment decreases.

Profit or losses are only realized when you sell.

You buy crypto through an exchange, similar to how you would buy a share through a broker.
The most common exchange is Coinbase which is a public listed company.
Their platform is easy to use, but their fees are amongst the highest.

It's a good starting point, though.

I use Binance, but you can no longer deposit funds from most UK banks. There are ways around it, but it's not for the beginner (neither is it illegal!).

Coinbase has its own insurance in the event something goes wrong. However, I am not au fait with the extent of this. I would imagine it is protection in the event they are hacked.
Similar to if a bank experienced similar and your funds were affected.

However, as with your bank details, passwords etc. you are responsible for keeping these secure.

In terms of controls, this depends on how and where you store the crypto you buy.
Some people keep it on the exchange, which is convenient to access but less secure if the exchange was hacked.
Others use "cold storage" in the form of a secure device such as Ledger (www.ledger.com). They transfer their crypto from the exchange to the Ledger device and keep it in a secure location of their choice.

These devices have a passphrase comprising a number of words that enable you to access your crypto should you lose or damage it.
However, anyone obtaining access to the passphrase can also gain access, hence the importance of keeping it secure.

YouTube is a hive of information for understanding crypto but beware of the many "influencers" promoting the next 10X, 50X, 100X wonder coin.
Just like the many forums of individuals promoting a small cap company that's going to be the next Apple, Amazon etc. they also exist in crypto.

The best channel for informative, balanced and educated content is the Coin Bureau (https://www.youtube.com/c/CoinBureau/videos)
His introductions as to how he is not a financial advisor have become legendary.

No one should invest in crypto without understanding the risks and volatility.

Everything you've said makes sense but you've not really answered my questions, how does a crypto make a profit? What does it do to generate value? If I buy stocks or shares I'm betting on the ability of the company I've invested in making a profit by conducting its business. Can you explain what a crypto does to do the same?

Bitcoin, for example, has increased in value due to its limited supply and increased demand as a store of value.
Hence, it generates its value due to these factors as well as its portability, divisibility (up to 8 decimal places) and resistance to counterfeiting.

Ethereum (ETH), the second-biggest crypto by market cap, is a platform for other crypto projects to be built upon. Thus, it generates revenue by the fees charged to transact the platform.
As more projects increase their use of the Ethereum platform, so the amount in fees increases too.

In addition, ETH is regularly burned, so there is less available as time passes and with this brings reduced supply and an increase in value.

There are many projects which have solutions to increase the efficiency of the blockchain and conventional systems that we are accustomed. The anticipation is that these will move to utilise the blockchain and, therefore, bring profit to those providing the solution.

VeChain, for example, provides a blockchain platform designed to enhance supply chain management and business processes more securely and efficiently than current process allow.

I get all that and I'm really not trying to be obtuse but I'll ask again, how is the value of crypto achieved? What does a crypto do to increase it's value? What is a crypto currency value based on?

[Bazza06]

Bazza,

I'm not having a go, but all you have said and all I have ever read about crypto is about how much money 'some' people are making out of it. Be they those who got in early or those who make money out of the sites trading it/them.

Ultimately crypto come from nothing and produces nothing (unlike shares in companies) and they are not and cannot be guaranteed as currencies issued by national banks are, and again there are still risks in real currencies as history has shown.

I am not a financial advisor and would never profess to be. I work in security but initially worked for a High Street bank many many years ago. I passed my banking exams and have a feint recollection about the principals of banking and it is why I hold my concerns about crypto.

The very best of luck to you but ultimately someone somewhere pays the price for all of this 'wealth' hence my generalized comparison with Ponzi scams.

I don't take any offence, and I'm kind of regretting asking this question

Believe it or not, I also work in security and am the first to draw caution to anyone who mentions a scheme where they can make loads of money for nothing!

Many that have lost money have done one or more of the following:

1) Put money into something they know nothing about
2) Been influenced by someone to buy the next so called 100X "gem" only to find it's a pump and dump scheme.
3) Traded and been stopped out when the market drops - similar to those that spreadbet and can't cover the margin.
4) Panicked into selling when the market drops

I agree that someone will pay the price for Ponzi schemes, but I'm not convinced this is one, and neither am I convinced that the majority of crypto coins out there have a genuine purpose.

I do not wish to offend anyone, and I know this is a very controversial subject.

[neilj007]

Depends who you ask. At $1T, it's the same value as silver. Total value of gold is $11T - who determines that? Global debt is $226T
If you felt inflation was running out of control, would you buy gold? If you felt that GB£ was losing value, what would you move your money into? Crypto is just another option

I read the other day, and I can't quite remember the exact wording, but take the example of the tulip mania....prices collapsed, but we still have tulips. So, is bitcoin worth $60k of $6 or $600k?