This is How I Explain The Value Of Crypto & NFT To My 7 Year Old
My 7 year old knows how to count money. I can give her money and she knows how to get back change when she buys stuffs from the supermarket.
One day, when I was doing research on crypto, she asked me what I was reading.
I was dumbfounded for a moment because I just momentarily could not know what to say to her…so I just said it in a way that she can understand.
For a 7 year old, this is what crypto is…
“When we go to a different country, we use different currency. Crypto is just another currency except that it’s not created by the government of the country.”
She was aware enough to ask…
“If the country government did not print Crypto money, then who does?”
The truth is that anyone can create their own crypto currency but, if no one is using it, then it is useless.
And because anyone can create their own crypto currency, there are now more than 10,000 crypto currencies in the world.
She did not ask further than that because she was only interested up till that point. (For goodness's sake, she only 7.)
But since I have written this far, I might as carry on to the next intuitive question.
“Why Do We Need So Many Crypto Currencies?”
Technically, we do not need crypto currencies because there is rarely anything we need in life that we can get only with crypto currencies.
However, the idea of crypto started out as an idea that we can create a better form of money.
As more people learned about the idea, many started to adopt it by buying the crypto (started with bitcoin) and this cause its value to rise.
So, what is wrong with our current monetary system?
- Because of the incessant printing of money, our dollar is worth less each year. ($1 in 1956 is now only worth $0.10 since the average inflation is 3.6% a year)
Our current banking system is flawed in many ways.
One way it is flawed is that the bank can issue more loans than it has in its deposits.
Most people assume the banks collect deposits first, and then from these deposits, it issues loan.
The real truth is that banks follow a rule called “Fractional Reserve” that allows them to issue 90% loan out of thin air for every 10% deposited.
Is it fair for the bank to issue $9 worth of loan (and makes money from money produce out of thin air) for every $1 deposited when the average folks are suffering from inflation and has no free money to make money with?
About 12 years ago, someone by the pseudo name of Satoshi Nakamoto publish his idea to solve this problem in form of a whitepaper in an online forum.
His idea was that the government is not doing a very good job at keeping the value of our US dollar so why not create another digital currency (since money is mostly digital now) and program it to only print a maximum supply of only 21 Million so that we can prevent the value from dropping.
2. We are being exploited in the banking system
Most relationship managers or sales associates who works for the bank has access to our private data.
They can see our spending habits; they can see how much money we have and all other private information (including our family).
We become an easy target for them to sell bank products that make many people lost money during the 2008 financial crisis.
Satoshi felt that the new money should not have any private information at all except for a way to identify your account with a unique address (bitcoin address), how much was spent and how much is left.
3. Security breach and other flaws of centralized banking system.
Imagine all your important information is stored securely in 1 computer in your workplace, and that computer was hacked.
All your information is being stolen.
Banks suffer an average of 85 attempted serious cyber-attacks a year, and one-third are successful, according to a survey by Accenture.
That is not including all those who worked in the bank and stole the data and sold to 3rd parties scammers.
Satoshi solution was to first make the data chained together to make it hard to hack (thus the term blockchain) and further secure the data by decentralizing it (Having multiple copies of the blockchain stored in different computers around the world).
And to make it transparent to the world, anyone can see all the bitcoin transactions on the blockchain in real time.
So, who are these people who store the blockchain data and why would they do it?
In order to incentivize people to store the data of bitcoin, Satoshi made it viable for them (bitcoin miners) to receive payments in bitcoin via bitcoin mining machines.
As of this article, 19 million out of 21 million bitcoin has already been mined or printed into circulation.
If there are limited bitcoin, why are the prices of bitcoin and crypto so volatile?
Firstly, there are many people who speculate bitcoin.
There are people who borrowed money to buy bitcoin only to sell it later at a higher price to make more money.
On the flipside, there are those who cannot hold when the price goes against them and sell at a lost.
Secondly, there are those who holds lots of bitcoin or any crypto are capable of manipulating the market. (Many are “rug pulls” by scammers)
Thirdly, the exchanges can make more money by manipulating the market.
With over 10,000 cryptos, which one should one buy?
Remember when I shared how each crypto represents a country currency money and the value of the currency is determined by demand and supply?
There are 4 factors that I think determine demand, since the supply of most crypto can be known.
Since anyone can create a crypto as easily as anyone can draw an art and make it an NFT.
What gives value to it then?
- Number of Investors By The Number Of Token Holders
The more people hold a token, means the more people value it. - Number of Utilities That Each Crypto Provides.
The more use case there is for the currency, the more demand there is and thus increases its value.
One of the use case is NFT collection; people who want to collect digital art mostly buys from Opensea, and is mostly transacted in Ethereum (that makes Ethereum in demand).
Just as US dollar is strong because it is the most traded or in demand currency.
You can also track the number of transactions and how much money is flowing into each of the utilities.
The more users and money are in a utility, creates more demand for the crypto.
|eg. One of the attributes of a strong Singapore dollar is the demand for Singapore properties due to the country’s limited land size, high security, peaceful and high quality of living. - Amount Of Money Flowing Into The Crypto Means there is demand for it.
- Number of Mentions about the crypto on social media. The wider the reach, the more people know about it, the more demand there is. You can also track what influencers are saying.
So far, Worldwide Adoption Jumps Over 880% With P2P Platforms Driving Cryptocurrency Usage in Emerging Markets.
Next you might ask…
How is NFT different from Crypto?
The shortest answer is Crypto Currency value is the same (1 bitcoin = 1 bitcoin — thus it is called “Fungible”) while NFT value may not be the same (1 NFT picture is different from another NFT — just like baseball cards or Pokémon cards — thus it is called “non-Fungible”).
Click here for a detailed explanation.
Why should one create their own crypto?
Since creating your own crypto is likened to starting your own country currency, your crypto should…
- Solve a problem that other crypto currencies are not solving.
(Eg. On average, Ethereum can handle 200 transactions per second, whereas Matic can handle 50,000 transactions per second. Ethereum gas fees even today are still in the $8, $10, sometimes $20 range. whereas Matic gas fees are fractions of a penny per transaction.) - Solve a utility problem that current crypto is not solving.
(Eg. Although people can buy and sell ethereum, there are no banking facilities where people can borrow and lend crypto just like in our current bank so Aave was created to solve this problem.
Aave allows Lenders to earn interest on their deposits and borrowers can use their crypto as collateral to borrow a range of altcoins and stablecoins supported within the system.
By owning Aave tokens, it gives you voting governance of the protocol and stake your token earn interest. Borrowers who use AAVE as collateral get a discounted fee. They can also borrow slightly more than others. AAVE holders can get loan information before anyone else if they pay the platform fee.)
Just as Aave solves the banking problem in Ethereum crypto, Meld solves the same problem in Cardano cryptocurrency. - Any utility problem that our current currency has solved but not solved in the crypto currency world. (eg. purchasing property, purchasing insurance etc)
Why should one create their own NFT?
The problem that NFT solves are
- Duplication Of Art
There are many fake ART going around sometimes need an art curator to tell the difference. With NFT, every ART authenticity is easily verifiable on the blockchain because it can be traced back to the original art creator.
2. Creating a global community around a culture (Think Magic Cards, Pokémon Cards etc), club, sense of belonging in the web 3.0 (decentralized internet economy) with current and future benefits for its holders.
And since all NFT holders are verifiable on the blockchain globally, it’s like a limited addition membership club.
Here’s an example below:
Here are some foods for thoughts on creating your own NFT.
- Think of what kind of culture do you want to create that you know will attract liked minded individuals?
- What kind of unique experience can you create and bring to your NFT community of owners?
- How will you grow the NFT brand such that your brand name keeps growing perpetually there by retaining or increasing the value of your NFTs?
Now Imagine…
- Launching your NFT to only 500 owners who have access to your amusement park.
- Every time you launch a new ride in your amusement park and market it, you now will have new NFT buyers to have access to that ride because it offers a unique experience.
- Your original 500 owners can have access to all future rides at a discount and access exclusive events which makes their NFT more valuable.
- Your original 500 owners can also vote on the direction of future rides.
- Your original 500 owners can also have the IP rights to leverage on your popular brand to create their own brand of NFT. (This is the reason why many NFT creators are also collectors of Bored Ape Yacht Club)
- You can further expand the brand of your amusement park by collaborating with other amusement park owners who would like to offer your rides their patrons (in exchange for you promoting theirs).
Did you get any new ideas after reading this? Would love you hear your thoughts.
If you need help brainstorming or create a strategy that works for your NFT projects or collaborate, feel free to book a discussion over at http://www.winstonye.com
