Explain crypto to me like I'm five
<div class="user-question">I'm a bit embarrassed to admit it but I'm still confused what crypto is... Everyone says that you should invest in it but I just don't get it?? What's the point of having crypto? Or is it all just a scam?</div>
Hey there! I know what you're thinking - crypto sounds scary, scammy, and weird, right? But trust me, it’s worth knowing about! But what is crypto, blockchain, or web3? All these buzz words sound confusing but don't fear, I'll explain to you the basics of crypto so that finance bros won't have to 😉
👾 Blockchain
Imagine a big book that everyone can see. Every time someone writes something new in the book, it gets locked in, and nobody can change it. So, if you draw a picture in the book, everyone knows it’s your picture, and no one can erase it or say it’s theirs. This book is like a special journal that keeps track of everything forever. That’s what a blockchain is - it’s a big, super safe book that nobody can change but everyone can see!
👾 Crypto (like Bitcoin)
Now, let’s say instead of using money like dollars to buy cappuccinos, you use special coins that only exist inside this big, safe book. These coins are called cryptocurrency. You can trade them with friends or buy things. In short, blockchain is like a magic journal that can’t be changed, and crypto is the money that lives in it!
Let’s make this super simple⬇️
👾 Bitcoin (BTC)
Imagine Bitcoin is like digital gold. It was the first kind of digital money, made in 2009, and it’s special because people trust it to hold value, just like gold! You can send it to your friends or use it to buy things, and it’s all done on the blockchain book that no one can change.
There is also a finite amount of BTC. When people say there’s a finite amount of Bitcoin, it means that only a limited number of Bitcoins will ever exist - 21 million to be exact. Once that number is reached, no more can be created.
Think of it like this: Imagine if there were only 21 million Birkin bags in the world, and after that, the company stops making them forever. That would make Birkin bags super rare and more valuable over time because people know they can’t just get another one whenever they want. The more people want a Birkin bag, the more valuable the ones that already exist, become.
It’s the same with Bitcoin. Once all 21 million Bitcoins are "mined" (which is like finding them or earning them), no more can ever be made. This makes Bitcoin scarce - kind of like luxury items such as Birkin bags, which get more valuable the rarer they become.
👾 Ethereum (ETH)
Ethereum is like a playground for building apps. It’s not just money, it’s a place where people can create games, apps, and other cool things using codes called smart contracts. You still use money (Ether) to do things, but Ethereum is more about building and using things than just being money.
👾 Solana (SOL)
Solana is like a super-fast train. It’s another space like Ethereum, where you can build apps and do fun things, but it’s super quick and doesn’t cost as much to use. People love it because it’s faster and cheaper than Ethereum, perfect for building and trading lots of things without waiting too long!
So, Bitcoin is like digital gold, Ethereum is a playground for apps, and Solana is the fast train that helps people build and trade things quickly!
👾 Why Are People So Excited About Crypto?
People want to buy crypto because it’s like owning digital money that might become more valuable over time (so basically the same as buying gold or collecting rare luxury items).
1️⃣ People think crypto has value because it’s decentralized, meaning no one person or government controls it. It’s secure and trusted because it’s built using a technology called blockchain, which keeps everything transparent and safe.
2️⃣ Crypto could be a good investment because some coins, like Bitcoin and Ethereum, have become more valuable as more people use them. But, it’s also risky since prices can go up or down very quickly.
3️⃣ People buy crypto to invest, spend it like money, or use it for cool tech things, like apps and games that work on the blockchain.
In short, people believe in crypto because it’s secure, could grow in value, and lets them do new things with money and technology.
Now that you know a little bit about crypto and blockchain, here is a step by step process on how to actually purchase some (and no, you do not have to purchase an entire bitcoin or an entire Ethereum to get started).
👾 So You Want To Invest As Well...
1️⃣ Choose the Right Exchange
Just like investing in the stock market, you need to choose a brokerage or exchange for crypto. This is where you'll buy and manage your coins. It’s crucial to pick an exchange where you own your coins and can transfer them to a personal wallet. If you don't own your own coins, you won't actually get to use them.
Popular options include:
- Coinbase: Secure and user-friendly
- Crypto.com: Another reliable exchange that supports a wide range of cryptocurrencies
2️⃣ Start Small with Partial Investments
You don’t need a fortune to start investing. Many platforms let you invest with as little as $1, and you can buy partial shares of cryptocurrencies. This means, even if you can’t afford one whole Bitcoin (worth around $60,000 as of right now), you can still own a fraction of it and move it to a wallet.
I personally started buying little by little every month following a dollar cost average strategy.
Dollar-cost averaging (DCA) is a strategy where you invest a fixed amount of money into a particular investment, like stocks or cryptocurrency, at regular intervals, regardless of the asset's price into the asset.
3️⃣ Understand the Risks
The crypto market is highly volatile, and prices can fluctuate dramatically, leading to both substantial gains and losses. It’s important to be aware of the risks:
- Volatility: Prices can spike or drop without warning
- Security Risks: Platforms may be hacked or poorly coded, exposing your funds
- Regulatory Issues: Cryptocurrencies are not regulated like traditional stocks, and you may lose funds in the event of a platform collapse (e.g., FTX or Celsius)
Crypto and Blockchain can be a scary place, but it is not always the case if you are well informed. Make sure to do thorough research and always be mindful of where you’re keeping your crypto. Never click on suspicious links, don’t give away your seed phrase, and always, always, always do your own research. PSA - if it sounds too good to be true, it probably is.
A seed phrase is like a special password that helps you unlock and access your cryptocurrency wallet.
Btw - here's how others are doing👀
Do you think crypto is a scam?
🙅45% Yes, I never have & never will invest
👾27% No, I actually invested
🤔28% No, but I wouldn't invest..
Hope this helped & you feel more informed about crypto! Don't be shy - reach out to me if you have any more questions 🤗
xx,
Kristina Tubera
