Originally posted on BrianByExperience.
I can finally describe Crypto coins in a way that is understandable by everyone. You don't know how hard it is to describe something that is purely tech in a non-tech means.
Crypto coin is not property or currency in the traditional sense. It isn't tangible or replicable via casting, printing. Meaning I cannot grab a sheet of paper and draft a new crypto coin and pass it around. Also, you cannot mint a crypto coin through a forge and smelting precious metals.
Crypto coins are a promise of unique value. That is to own a coin, or a part of a coin means that you own something that is very difficult to create a fraudulent copy of and keeps a log of transactions of its activities.
So how does crypto coins have value? They are valued at their uniqueness. There are a finite number of copies of crypto coins, and creating a new crypto coin is painfully difficult, not to ignore expensive. The number of calculations required for a single coin is counted in Terra Hashes per seconds. That is 1,000,000,000,000,000 calculations per second. Meaning it is time-consuming and expensive to mine a new coin. But we know that once this coin is mined, we now can see that it is retaining a value of one of itself. If the coin was easily counterfeited, then it could become valued at 0.5 of itself, and get worst, as the counterfeits are mass produced and distributed.
How is a coin valued against some recognized currency? If you are going to use a coin to buy a service from someone who will only do business with crypto, then you have to work with a vendor that will sell the coins, which then the vendor will be trying to get the most return on the coins or fractions of coins that they own. The common way that the value is established is by the average purchase price by the market.
This means that if you are buying a coin, and it cost you $3000 per coin, then for that moment that coin is worth $3000. However, if the price goes up, usually due to shortages, or down, usually from surplus, then the value of the coin you are holding is equal to the value.
The return on the value of the purchase also applies the same way. Meaning, if I am selling $100 of things via crypto coin, then I am given the fraction of a coin that represents $100. At $500 a coin, that means that I would be given 20% of a coin. I can then sell that coin in an exchange, and get USD out of it, or keep the coin, and use it for a transaction with someone else that uses crypto coins.
Since crypto coins are not physical, they are held in a virtual wallet. That is a data storage space on a computer. The computer doesn't even have to be your computer. You can have wallet services that handle this storage. There are also phone apps that work as wallets. The critical thing to remember is that a wallet for data, made out of data, has to be properly backed up, and all passwords have to be retained. Most wallets are absolutely gone, and lot, if you lose your password and recovery codes. Keep physical backups of these codes in a VERY safe place.
So think of this as having a checking account that is loaded with some precious metal. You can do business with people who also do business with that precious metal. Your checks are recorded into the ledger of your checkbook. However, is most cryptocurrencies get a unique ledger per coin. If a coin is divided up to several fractions of coins, then each fraction shares the same ledger, which is copied and backed up several times, so that each faction has a full record of every other fraction of that original coin. So how much is that coin, or fraction of a coin valued at? It is valued at the value of the precious metal.
In crypto terminology, that precious metal is the complexity of the encryption and unique value of the ledger. So the value comes from how much do people value a ledge or unique transaction more than they want the value of a hard currency.
This is not a perfect analogy, but without creating a longer narrative, or going technical, this is pretty much the best I can describe now.
