Explaining COINS and investing in the crypto world

After days of reading, I had not yet seen a succinct explanation (in layman’s terms) of what is the crypto world’s definition of a “coin”.

Then I had a lightbulb moment — when I came up with the definition to explain what a COIN really means in the crypto world !

When the lightbulb went off in my head I had to write down what I had gleaned from all I have read while trying to understand all that is “crypto”. My idea was to try and put these things into perspective for me and maybe for other dummies like me. So here it is.

— — — — — — — — — — — — — — — — — — — — —

A COIN in the crypto world

It’s simple : a COIN in the crypto world is not a round shiny piece of metal we know as a small denomination of a bigger value item such as a paper bill (currency) otherwise known as money.

The crypto community call paper money as we know it, FIAT.

I now know that those in the crypto sphere also think of real world money, or FIAT, as being “For Idiots And Tarados”. Tarados is a Spanish word. Google it.

I remember seeing in IBM’s glossary of terms used for parts contained within its array of products, something that said all there needs to be said about the computer industry’s need to make even the simple thing sound complicated : in the IBM glossary was a thing called an AMD. Many number of the IBM machines they sold have (or had, this was in 1985) this important component and IBM probably charged or still charges a premium for the fact that a machine has an AMD inside. What was the definition of an AMD ? An Air Movement Device. Otherwise known to you and me as a fan. (It was at this point early-on in my time working with IBM that I decided that a long career in the company was not what I sought.)

Keep in mind that computer programmers are generally nice quiet geeks who like to make things up and use strange terms to seem smarter than others and to make things confusing as well, so they retain an air of cleverness, which they deserve, (because they are clever) but wouldn’t it be better without the techo-jargon guys ?

Anyway I digress, back to crypto-world and trying to make some sense from it all.

A COIN in the crypto world is basically = a COMMON OFFER of INVESTMENT*.

If that’s a trademarkable term, then I’m registering here my rights as coiner (no pun intended) of that* phrase.

Explaining investing in the crypto world by buying COINS

These COINS (some are known are ALT-COINS) ARE BASICALLY like “SHARES” offered by companies or teams of people that are CREATING NEW SOFTWARE that runs on one or more forms of operating systems, or platforms, and those platforms in the crypto world are called “BLOCKCHAINS”.

What is referred to as a “SMART CONTRACT” is misleading too, as such a thing may not necessarily be smart or a contract at all. In reality, a smart contract in the crypto world is a simple term for “any piece of software or code that runs on a blockchain”.

THE PRACTICE OF BUYING AN ALT-COIN IS THE SAME AS BUYING A SHARE IN A COMPANY THAT YOU BELIEVE WILL PROVIDE YOU WITH FINANCIAL BENEFIT. (FOR WHATEVER REASONS, ONCE YOU HAVE REACHED THE POINT OF MAKING A DECISION TO PART WITH YOUR HARD EARNED MONEY IN THE HOPE OF EARNING A PROFIT ON THE VALUE OF YOUR INVESTMENT YOU INVEST IN THAT COMPANY BY BUYING A SMALL PORTION OF IT).

A SHARE, IE: A COIN, AKA A “COMMON OFFER of INVESTMENT” IS WHAT YOU HAVE TO SHOW FOR THE MONEY YOU INVESTED IN A COMPANY. YOU INVEST HOPING THAT THE LEAST THAT WILL HAPPEN IS THAT YOU DO NOT LOSE YOUR HARD EARNED MONEY, BUT MAKE AT LEAST A HEDGE AGAINST INFLATION or better still, a profit.

Blockchains ?

There are many blockchains already and more that are being developed. These are often referred to as “platforms”.

Think of a software platform that existed to help programmers use programming languages such as basic, or cobol, or pascal, to develop useful programs. Some of the earliest software “platforms” were used by clever programmers to design clever pieces of software to make our lives easier — like Excel, or MS Word, or Photoshop, or computer aided design programs for architects, or painting programs for artists, or music creation tools for musicians, and the list goes on.

Building on these blockchains, or “platforms” (or clever pieces of software) are clever people making their own clever programs to solve problems. Not all the pieces of software being developed for various “blockchains” or platforms will be clever, or problem solving, or even useful. Nor will all survive. Some are silly things that once the furor and initial interest has passed, will fade or crash into non-existence.

But others will survive and prosper. Think of Microsoft’s Windows or Apple’s own operating system.

Most of the things you use on a daily basis have been built on either platform, or other platforms like Oracle. Fast forward a few decades and then came Apple which gave is the iPhone with it’s own operating system, and then came a competitive operating system called Android. There are many more operating systems or platforms on which a huge variety of useful programs were developed and thousands of new things were made to take advantage of.

Thousands of makers of cellphones can only work because inside it uses the Android operating system for its intelligence. Applications, or apps such as whatsapp, or zoom, or that dating app you use to find your next dinner date were perhaos built on the base of an operating system like Android.

And in the crypto world there are “operating systems” like the Bitcoin blockchain, and the Ethereum blockchain, and the Polygon blockchain amongst others.

When today you book a hotel room through bookings.com, or buy a ticket on American airlines using the any one of a myriad of apps that have essentially replaced the traditional travel agent, you’re using a piece of software coded (developed) by a few smart people that runs on the platform it was designed for.

Now instead of someone designing an app to run on Windows for a PC or on Apple’s operating system to run on an Apple Mac or an iPhone, clever people are developing (coding) software and applications to run on blockchains. And because there are thousands of computers all working together to run the application on a blockchain, if one fails, there are thousands more that won’t stop. This is like providing you with a battery powered radio, but when one battery dies, the radio keeps working, because there are a thousand other batteries all cleverly connected to the same radio and ready and able to provide the radio with the “juice” (information) it needs to keep working. 24/7/365.

Because the developers of new and what they hope will be successful and readily adopted “programs” that run on these blockchains (i.e.: operating systems) need money to fund their growth and further develop their ideas and code their clever (or not so clever) programs, they issue COINS that run on the “platforms” or blockchains they are developing.

COINS = Common Offer of INvestment.

If someone buys a COIN they pay whatever amount is perceived to be the value of that share or coin. When a coin is cheap, it’s because the company hasn’t got a track record of success yet, or has had some failures. When they prove their products are of interest, more people want to by their coins because they see the risk as less and the company as a viable enterprise with potential for greater things to come. When a share or coin has enough value (i.e. high price) the company is perceived to be onto something. That’s what’s called in the traditional world of stocks and shares, a Market Cap value, or capital value. That simply put is the value or price of a share (or “coin”) issued to either individuals or other investors like big corporate investors, multiplied by the actual number of those shares (or coins) that are out there. The bigger a company’s Market Cap is, the better the company is perceived to be at doing what it said is it’s mission to do. Ford is worth 100 billion US$ (its Market Cap is $100B). Tesla is worth 1 trillion US$ (its Market Cap is $1T). Bitcoin is today worth 817 billion US$ (just as with Ford or Tesla or Apple, it’s market cap is the number of “shares” (coins) out there multiplied by the value of each. And as with share values, coin values can rise or fall. A pandemic spreads fear, so people become skeptical and pull money out of the stock market or crypto market, share and coin values drop. Confidence returns, people invest, more demand and less supply means the price of each share (or coin) goes up as more people want what there is less of to buy.

When a development team in the crypto world, develops something, it gets noticed. If it’s good, people speculate on it’s future. They “bet” that it will be a success (solving a problem) and invest in that success buying COINS offered by the company (or development team, perhaps not even structured in the old fashioned form of a company) and watching and hoping to make a profit. When people decide they see a good profit, some will sell. Others will buy those shares (or coins) because they believe that over time those coins (or shares) will be worth even more as the development team/company grows and improves its products and develops even more.

Look at Ford, in the beginning there was just the Model-T. And now ?

People invest using their own risk to reward standard. Some people do not like risk. Others like risk but know they might lose all their money in something that may not work. Some people don’t need quick profits and invest and leave their money in the place (shares of a company or coins in a crypto developer) where they invested it, expecting that their investment will grow over time. These generally are people with enough money to live on a day to day basis who therefore can “invest” the extra money they have that they don’t need to buy food with, or pay their kids school fees with, and hope that they’ve invested it wisely in order to make a better return on their investment that say leaving their money in their bank account earning a miserable 0.01% over year. Imagine, if you had $10,000 in the bank, after 1 whole year the bank would pay you $100 in interest. Nothing basically, but the bank sure uses your money to their advantage by lending it to other for a huge % gain over what they pay you, by providing others access to your money in the form of short term or long term personal loans, or mortgages.

Why “Crypto” ?

When something is very well secured, it is normally crytographically secured. In other words, a clever code has been developed to make something so well disguised, or coded, that if the other person receiving the message does not have the “key” to unlock the code, it will be impossible to decipher the message. So crytography, or crypto, is the term applied to this whole new world of computing. Meaning basically, what goes through the system is very secure, hard to decipher or uncode without the right “key” or information, and therefore safe. Also, a lot has to do with the fact that the information, whatever it is, when sent, is sent not to just one place, or one data base, or one computer that stores the information. No, the same information is sent to a thousand computers, or a hundred thousand computers, or a million computers, AT THE SAME TIME. This means there is no “owner” of the information. It is everywhere. It is distributed among all the computers on the “network” of inter-connected computers all running the same “operating system” i.e.: blockchain.

So with this, because there is no one owner, there is less risk. There are more checks and balances. Because if someone tries to fraudulently alter one record on one computer, it won’t agree with the unaltered and original record on the other 10,000, 100,000, 1,000,000 computers that all have a copy of the unadulterated original record. And when a “strange” exception comes to light, it is quickly flagged and because it may be just one of a million copies of the same record which is different, it is immediately recognized as being and untrustworthy and possibly bad (fraudulent,corrupt, falsified or untrue record) and therefore it is refuted as being true because there are 100,000 or a million or more copies of the same record that all say the same thing and that thing is different to the one record that someone tried to falsify.

So, by having all this decentralized record keeping going on, there are less big “owners” of data, and so less possibility that one entity becomes “big brother” and knows all and has all the power. That’s the key benefit and aim of the whole crypto-blockchain movement. Decentralized, shared information that doesn’t require you to have to trust in the veracity of what one “owner” of the information says is the truth. The information is everywhere, shared across millions of computers and therefore, collectively, verifiable without having to turn to one provider of the information (i.e.: the truth).

Finally, a real-world example

Say you have a car, and you want to sell it. Here’s how it will one day work.

On that car will be a chip. That chip records when the car was made, and where, and has the car’s unique vehicle identification number. The chip then records when it left the factory, how it got to the dealer, when the dealer sold it, for how much, to whom, then when the regular (or not so regular) services were done (because the mechanic uploads that information to the chip along with what was done, and how many miles or kilometers the cars had done at the time of the service). If the car was ever involved in an accident that information will be uploaded to a chip by the insurance provider and repairs noted by the auto repairer and uploaded as well. All this chip does is send all this information out across the blockchain (the interconnected system of millions of computers all running the same software, storing the same information). Like when your teacher photocopied something 20 times, and handed out the paper, one for every student in the class.

SO, now there are millions of computers online that all record the same information about the history of your car you want to sell. Now, you decide to sell the car, but if you try and tell the buyer that it never had an accident, or falsify the information about the accident, the buyer can easily check using an app, for example, about used cars, putting in the vehicle identification number (VIN) of the car you want to sell, and can instantly see all the information which millions of inter-connected computers all share, and compare that to what you are telling him about the car, and decide if you are a truthful and therefore trustworthy seller or not, and whether to buy your car or not.

The possibilities of crypto, coins, blockchains etc are endless. Just like the internet was when that was invented. Just like electricity was when that was harnessed.

Maybe this little diatribe will help others uncode the mind-boggling crypto world. For now, I am off back down into it to try and understand it even more. It is, after all, part of what’s coming and there is no denying that. Russty, out.

— russtyeff@outlook.com