Ask ten people what is and you will hear ten answers: the future of money, a scam, a way to get rich, a way to get poor. Most of them skip the boring part, which is how it actually works. This lesson explains that part in plain words, and it ends with the question that matters most before you put any money in: what gives a coin its price?
Before we start: what do you think?
What decides the price of a coin?
✗ A small supply does not create a price on its own; a rare thing nobody wants is still worth nothing.
✗ Running costs do not set a price; the market can value a coin far above or far below them.
✗ A team can set a starting price, but after that buyers and sellers decide.
✓ Right: a coin pays no profits or interest, so its price is only what someone will pay for it right now.
A blockchain is a shared record book
Imagine a notebook that lists every payment ever made with a certain coin: "A sent 2 coins to B", "B sent 1 coin to C", and so on. Now imagine that thousands of computers around the world each keep a copy of this notebook, and they check each new page against each other before they add it.
That is a blockchain. New payments are grouped into "blocks", and each block is linked to the one before it. Because so many copies exist, and because the links are protected by maths, it is very hard for one person to change old pages. Nobody needs a bank in the middle to say who owns what. The network agrees on it.
This also explains a key feature: payments on a are usually final. There is no bank to call and no "undo" button. If you send coins to the wrong address, they are normally gone.
Quick check
Why is it hard to change old records on a blockchain?
Coins, tokens and stablecoins
People use the word "crypto" for many different things. Three words help you sort them.
- A coin is the main unit of its own blockchain. The network uses it to pay the computers that keep the record book, and to pay the for each payment. (On some blockchains this fee is called a gas fee.)
- A token is built on top of a blockchain that already exists. Creating a is cheap and fast. Anyone with basic skills can make one in an afternoon, give it a nice name and a website, and start selling it. That is why there are thousands of tokens, and why many of them disappear.
- A stablecoin is a token designed to keep a steady price, usually 1 US dollar. Whether it stays at 1 dollar depends on what stands behind it, for example real dollars held in a bank. Some have lost their link to the dollar in the past, so "stable" is a goal, not a promise.
None of these words tells you whether something is good or bad. A token can be part of a real project, or it can be a few lines of code with a marketing . You have to check, and the lesson Check before you buy shows you how.
Quick check
What is the difference between a coin and a token?
What gives a coin a price
A share in a company is a part of a business. The business can make profits and pay them out. A pays interest. A flat can be rented out. These things have a price on the market too, but they also produce cash, and that cash gives people a way to judge whether the price is too high.
Most coins and tokens produce no cash at all. They pay no profit, no interest and no rent. So their price comes from one place only: what someone else is willing to pay for them. That willingness can come from real use, from belief in the future, or simply from the hope that a later buyer will pay even more.
This has two consequences.
First, there is no floor. If buyers lose interest, nothing stops the price from falling a very long way, because there is no profit stream for anyone to "buy cheap".
Second, the price on the screen is only the price of the last trade. It is not a promise that you can sell everything you own at that price.
Worked example: 5,000 tokens "worth" $10,000
You hold 5,000 tokens of a small, made-up project. The last trade was at $2.00, so the app shows your tokens as worth 5,000 × $2.00 = $10,000.
You decide to sell all of them. These are the only buy orders waiting on the market:
| Buyers want | At price | You receive |
|---|---|---|
| 1,000 tokens | $1.90 | $1,900 |
| 1,500 tokens | $1.50 | $2,250 |
| 2,500 tokens | $0.80 | $2,000 |
| 5,000 tokens | $6,150 |
You sold everything for $6,150, an average of $1.23 per token. That is $3,850 less than the screen showed, a difference of 38.5%. And after your sale, the last trade is at $0.80, so everyone else's tokens now look much cheaper too.
The same thing happens with the "" you see on crypto websites. Market cap is the last price multiplied by the number of coins. It assumes every coin could be sold at the last price, which is almost never true for small projects. Read it as a rough size, not as money that exists.
Quick check
A token's last price is $2.00 and you hold 5,000. Can you be sure of getting $10,000 if you sell?
So is crypto good or bad?
Neither. A blockchain is a real technology, and some people use coins every day. At the same time, prices can fall a very long way, there is often no one to protect you, and the field is full of scams. The rest of this section explains why prices swing so much, how wallets and exchanges work, and the scams to watch for. If a word is new, look it up in the glossary.
Key takeaways
- A blockchain is a shared record book kept by many computers. Payments on it are usually final.
- A coin belongs to its own blockchain. A token is built on an existing one, and anyone can create one cheaply.
- A stablecoin tries to hold a steady price, but that depends on what stands behind it.
- Most coins pay no profit or interest. Their price is only what the next buyer will pay.
- The price on the screen is the last trade, not what you will get when you sell.
Try this
Pick any coin or token you have heard about. Without looking at its price, write down in one sentence what it is used for and who pays for that use. If you cannot write that sentence, notice that the only reason left to own it is the hope that someone will pay more later.