Have a question in mind that you think is so dumb you’re embarrassed to ask it? That’s what we’re here for today!
This bonus post was inspired by a reader who wanted to know “where to ask a dumb question” here on Stock Gumshoe… and while his question was not actually stupid, and I’m happy to see questions pop up in our comment threads anywhere on the site, I thought it would be a great idea to open the floor and be more welcoming for the shy, the embarrassed, or, yes, even the uninformed.
So this is a no-judgement zone… smart people do things we’d call “dumb” all the time: Warren Buffett didn’t invest in Google in 2004, Albert Einstein married his cousin, and I just had to go back and double check that I didn’t call him Alfred Einstein (which I’ve done before, in print). So if you have that question that you can’t ask your stockbroker or your brother-in-law or Twitter without feeling like a dummy, let ‘er rip by submitting it below. I’ll be nice… and we might all learn something.
And yes, the SEC is always watching, so I must remind you that I can’t give personal investment advice… but I’ll try to share whatever opinion or answers I can provide to any investment-related question you’ve got, though if we end up with a lot of them it might take me a little while to answer thoughtfully.
So please, let your questions fly using the friendly little comment box below… and thanks for being the best readers in cyberspace!
(I will moderate the discussion just to make sure we don’t get too much profanity or offensive stuff, or personal attacks, but I’ll use a light hand — you can be mean to me if you like, just don’t be mean to any other participants.)
why doesnt some one expose these Money Press con artists?
Stick around, this is the place where they’re exposed. I agree, most of their stuff is pure crap.
I’m trying to assess the opportunity for an investment in Promis Neurosciences. They are a pre-clinical stage biotech company you have covered, who claims to be developing the first effective treatment for Alzheimer’s. Here are some factors that I am trying to make sense of:
1. Current share price: $0.30
2. Shares outstanding: 246 million
3. Recently raised $7M which will cover expenses through the 1st half of 2019
4. Phase 1 trials for their leading Alzheimer’s drug are expected in 2019
5. Per Promis, the current cost for Alheimer’s treatment in the US is $500B and is expected to triple in 10 – 15 years
Here are my questions:
1. How much more money will Promis need to raise to get to Phase 3 trials and beyond?
2. Are there ways they may be able to raise capital without issuing tens of millions of shares for mere pennies?
3. They claim to be targeting a Nasdaq listing in 2018 or 2019, but wouldn’t they need a minimum $5 share price? (It seems highly unlikely that they would be able to do that before Phase 1 results?)
4. Assuming they develop a best-in-class drug, is it likely to be able to capture enough of the addressable market to offset the share dilution and become a viable long term investment? (I’m assuming it’s a long shot and that’s why the share price is so low, but I don’t want to make assumptions.)
I know this is a very complicated topic and some of my questions can’t be easily answered, if at all. I’m really just trying to fill in some of the many gaps in my understanding of biotech stock analysis.
Alzheimers will never be cured. Most testing is done on mild to moderate, which is virtually impossible to succeed. A good strategy is invest early, let it run, then get out or short before phase 3 readouts…
PROMIS NEUROSCIENCES INC COM
1,100 0.39 $429.00 -$42.95 (-9.10%)Average Cost 0.429
Annual Dividend Amount $0.00
Dividend Ex Date
I Bought 11oo shares and am down 9% got in with some hype and its has fluctuated a bit…it may have upside, here is what i have in terms of research it is currently rated as undervalued:
Analyst Research and Ratings
Though PMN has outperformed its Biotechnology & Drugs peers over the past year, over the last three months it has lagged behind its peers.
Morningstar logo
Morningstar research data
Morningstar Rating 3 stars Q
Quantitative Value Undervalued
Fair ValueQ 0.53 CAD
Last price as of
May 17, 2018 0.39 CAD
Morningstar research data
Quantitative Uncertainty Extreme
Economic Moat —
Market Cap 93.4 M
Country of Domicile Canada
Excitement about Alzheimer’s drugs sometimes spurs big movements in Phase 1 and 2, though so far almost all of them have failed miserably when they get to big cohorts in Phase 3… and if $7 million is enough to cover expenses over the next year, they’re not doing anything very big so I’d keep my optimism in check.
I don’t know anything about the science, I hope it works, but they’re going to need hundreds of millions of dollars to get to the finish line, assuming they aren’t tripped up by bad results along the way.
The risks are obviously and extremely high at this point, because they have not yet tried the drug in a human being — right? So I wish the best for them, but this should be considered like an option on a preclinical compound — if it works and there’s some actual clear positive result from Phase 1, investor attention will likely swarm in and drive the shares far higher, at which time they’ll want to raise a lot more money to go to Phase 2… if it doesn’t work, they’ll either collapse into almost nothing or will continue to try to work around whatever the problem is, and will also need to raise more money, and the stock could easily fall 90%.
R&D stage investment before the company is even ready to begin clinical trials and test it in the first human being should usually be left to venture capitalists and research centers, I think, since they’re likely to be far closer to the science and far more accustomed to the all-or-nothing risk, but if you understand the science well and are prepared for that huge win/90%+ loss scenario, then more power to you. I don’t, so I generally stay away.
And don’t worry about the financials — they don’t matter at this point, other than to keep in mind that they’ll likely need a lot more money next year no matter what happens, and raising that money will either be easy following big success, or extremely dilutive if the Phase 1 trial is not a flag-waving joy… and their market cap is trivial compared to the cost of this clinical trial over the next 5-10 years. The Alzheimer’s “market” is so huge, and demand so high and investor attention so attuned to hope, that the stock will probably trade almost entirely on the clinical trial results from here on out, including rumors and partial results. And, yes, it will probably get promoted by some newsletters along the way when we get close to “catalyst” points in the calendar of drug development.
So I’m not speculating on this one… But man, I hope it works.
Can you recommend any news letter or service like yours in Australia?
Don’t know of any, though I try to cover Aussie stocks and newsletters from time to time.
Thanks Travis, cover some more please.
You use warrants and options quite a lot for your smaller bets. Particularly with warrants, how do you decide when to exercise? If the warrant expires, then it was a complete loss, right?
Correct. I don’t typically exercise, though I have done so occasionally — it’s easier and often cheaper just to sell (and use the proceeds to buy stock if you wish).
I tend to let derivative investments ride on the downside, which is why I keep them small. If they generate exceptionally high returns in the short term, my tendency is to sell enough to return my capital and guarantee a modest profit on the original investment, and let the rest ride as (if) the stock climbs. It is as much a job of managing emotion as it is of massaging the portfolio.
Great thing is you don’t have to exercise! Just sell them if it’s profitable. The only time I would exercise warrants is as follows ( exercise price is above the sales price and I have a strong belief that the stock will increase) otherwise I’d take the loss by selling them. It all has to do with what they are worth and what’s my exposure.I usually buy warrants that are priced cheap to reduce my exposure and it’s worked well. I just hope that a listing of these investments would become available.
Taxes can be a consideration, too — sometimes exercising s warrant or option can let you just set a low cost basis and defer tax liability until you sell the stock, instead of cashing out for a taxable gain.
In your professional (but not legally binding) opinion, if an investor bought a large stake in a stock based on one of the teasers that you have covered for an expensive subscription [for argument’s sake, say the person had never heard of Stock Gumshoe] and the author knew the information provided in the teaser was false (again, FAS, the author made up certain points to enrich the pitch), would that subscriber have legal recourse for an investment loss as a result? Occasionally, you have called out blatant misinformation, so I am curious where that line is between say-anything and legal liability. Also, are these subscription services likely to offer refunds? Just to avoid these situations.
Dunno. They don’t reveal the name of the stock, so you’d need a good lawyer to argue that they were promoting it to you if you didn’t subscribe and pay them… and the first amendment goes a long way.
Most of the publishers used to be really flexible about offering refunds, from what I can tell, but they have largely tightened up on that now and a lot of them really don’t offer refunds when they say they don’t. Whether that holds up when you’re threatening them with lawsuits or not, I don’t know, but certainly all the big publishers have plenty of legal representation telling them where they think the line is.
I would imagine that a person who pays $49, $79 or even $199 is not going to hire a lawyer for several hundred dollars etc and they count on this.
I’ve heard there is a new stock that tracks cyrpto currencies—thus allowing you to use Roth IRA money instead of cash. Do you know its name?
There are a bunch of indirect blockchain plays, though the direct one that has been around the longest is the Global Bitcoin Investment Trust (GBTC).
Haven’t looked at it lately, but it used to trade at a huge premium to the value of the bitcoin it owned.
I’ve been in and out of GBTC for about a year. This is not the first time I hear about the huge premium vs. the value of the coin, but I have to confess that such analysis is over my head and I have (apparently) plenty to learn in this regard.
However, I am willing to share my experience with holding GBTC. I owned just 5 shares for 6 months in 2017. At that time, GBTC’s price ranged from $300+ when I first got it to as much as $2850 per share by year-end. Yup, that’s how hot bitcoin — or it’s hype — was! And in those 6 months, I earned $12,000 (net of commissions).
And then something weird happened in January 2018. Bitcoin crashed around the same time that GBTC did a 91-to-1 stock split. Today, the price range is in the lower teens due to the split. Much more affordable, yes, but the stock’s ability to produce income in one’s portfolio is not even a shadow of what it was like last year. It’s extremely volatile and I’m wondering if the stock has become what I personally nickname “a short-seller’s delight”. Yes?
The G is Greyscale, not Global
Is Ripple crypto coin worth buying?
Not to me, I don’t understand what Ripple buyers would own, or how it would become more valuable in the future.
Ripple has an enormous number of coins in the hands of the founders that could be issued any time. Here is a good article about the subject.
http://www.marketintelligencecenter.com/2018/02/17/ripple-still-water-time-deep-dive-cryptocurrency-still-matters/6/
What annualized compounded return on equity investments should a person reasonably expect from a paid/professional advisor worth their salt after fees over a 15 year period?
Over the past 15 years, or going into the future? With what kinda of restrictions based on your risk tolerance or ability to stomach drawdowns? (That just means, how much can the portfolio fall before you want to sell everything and find a new advisor?).
There’s a nice summary of the historical returns of various asset classes from Raymond James here: https://www.raymondjames.com/melvillewealthmanagement/pdfs/long_term_investment_performance.pdf
That report only goes to 2010, which is actually kind of nice — you avoid the recent phenomenal returns provided by the global easy-money policies. The long-term record of average compound returns of about 10% before inflation for US large cap stocks (about 7% after inflation) is probably a good target to keep in mind.
At current valuations, I’d have expectations going forward of not a lot more than 5% a year after inflation for a portfolio that’s similar in composition to the S&P 500, probably less if you catch me on a curmudgeonly day, just because relatively high valuations should give us relatively low expectations.
If the advisor is providing income from the portfolio as well, or investing in non-equity investments, return expectations should probably be lower still. I wouldn’t go in assuming that the advisor can beat the market after fees, since so few do, but that doesn’t mean professional service isn’t worthwhile for those who want hands-on management, emotional market counseling, or have other priorities like risk aversion or income.
Any thoughts on the bank on yourself systems out there? Seems to be primarily over-funding of certain properly structured whole life policies.
That’s exactly what it is, along with borrowing from your insurance account balance as an alternative to bank financing.
I’d be wary of fees and long-term contracts, and of difficult-to-compare products across different insurance agencies, particularly when sold with opaque commission incentives, but that doesn’t mean they’re evil — just that I’m not expert and not particularly tempted by the idea.
Bank-on-Yourself (‘Boy’) is about borrowing from yr. own life insurance policy rather than a a high street bank. It works so long as you have a max. cash accumulation design and repay yourself with discipline. Key is to find a solid carrier with good loan provisions, ie. zero net-cost loans after 10 years. Needless to say, indexed universal life has performed well over the last 9 years, but the couple agents I know who are true believers use fixed-rate mutual carrier(s). These use an old-fashioned language that is harder to understand than traded stock carriers, and focus on paid-up dividends. If you are concerned about commissions you could get an agent’s license and write a couple on family members too, so long as you know what you are doing. However, the magic of compound interest works better the longer you keep it, so try to start by 30 and live to 90. Lol.
Yes they are whole life policies, no matter how any salesman assures you they are not. As FORMER life insurance salesman, I would recommend buying term life insurance and putting the difference in a reputable index fund.
Do USA REIT’s move / react to the market differently than other REIT’s (ie: are USA REIT’s influenced by different factors than REIT’s in other countries / domained in other countries – for example Canadian REIT’s / Aussie REIT’s / European REIT’s
That’s a good question, but REITs are far less established in most countries than the are in the US… and I’m not really sure. US REITs tend to react pretty substantially to changing interest rate expectations, at least in the short term, and I would assume that’s also true for the yield-focused REITs in other jurisdictions, though other sector-specific dynamics come into play as well (like the weakness in the shopping mall business here of late, or the strong surge in renter demand for apartments starting ten years ago).
Embarrassed and uninformed, I bought warrants not knowing what they were or what to do with them. Now I see that next year they will expire worthless. From another comment I see that they can be exercised but I do not know how that is done.
I bought them at $10.83 BAC/WS/A.
I think those are the ones with a ~$13 exercise price, right? If so, you’re in fine shape and they should be worth at least $17 — warrants do expire worthless if you ignore them, but you don’t have to ignore them… just either sell the warrants at least a few days before expiration, or instruct your broker to exercise them.
Are oil pension checks real?
If you mean the ads pitching something like “Oil pensions” to get you lots of free money, no.
There are lots of income investments in oil-related companies, and that’s usually what they mean in those often-misleading ads — most often they refer obliquely to pipeline MLPs, but also publicly traded oil trusts and even the occasional “regular” oil or oil services company that pays a high dividend.
The average MLP now has a pretty decent yield again, close to 8% (at least, that’s the stated dividend yield for the Alerian MLP ETF (AMLP)), and oil seems to be on the upswing, so that’s a decent backdrop for that idea — we’ll probably see more ads pitching something like “Oil pensions” in the months to come. I haven’t looked closely at any MLPs recently, I do generally worry about their long-term recapitalization needs (some are solid and conservative, I expect, but as a group they pay out most of their cash and don’t set aside capital for depreciation, so need constant refinancing through debt or new unit sales, and a lot of their pipes are getting old… which works well only until it doesn’t)
I sure do like the idea of MLPs paying 8%! HOWEVER, I’ve read about the complicated income tax returns resulting from owning MLPs.
I have a small self-directed ROTH IRA, approximately $40,000. Does it make any sense owning MLPs in my ROTH IRA? Is there any way to avoid that complicated income tax situation? I THINK I remember reading that if the distributions from MLPs total less than $1000 per year there are no complicated tax returns necessary.
From my experience, I have several of them. I have never had to fill out a K-1 (Schedule E) for those in my Roth or IRA, but I do have to fill them out for other investments that send me K-1s. If I were paying an accountant, it would not be worth it, but since I do it myself with tax software, it is just a matter of copying out some numbers for a few minutes from the K-1 onto the form or answering the questions on your tax software.
$ AMLP
My accountant suggested buying AMLP to avoid complicated tax forms, because it’s structured differently than most MLPs.
Wow that is such a good idea.
Ok so this is my question about RE
How can real estate go up every year in and year after
and they call it a great investment when all other income are not growing and in some cases dropping?
To make it more specific, this is what I mean.
People go and buy a house at a price that would not be acceptable if interest rates were what they should be.
So we have these people that buy a house for $400-500k and they justify the price because the payment is less due to low interest rates. Did they ever thought that the taxes on the house they buy is more because of the price?
I. Am talking in NY where I live. People have bought houses for $450-600k and pay $12-18k in re taxes.
How can they justify the worthiness of the house with that kind of taxes? On top of that we have insurance that is another $1500-2500 a year. Some times even more.
What annual salary should they make to have a house in that price range?
In 1985 I bought a house in the village of Southampton (yes the hamptons) 3 bedrooms 2 bath , lr, dr,formal eat in kitchen library room and an a separate one bedroom studio with kitchen living room compo and a full bath for 180k. Taxes $1600 including village taxes. Today they buy these houses for 1-1.5 million tear them down and put up two story mentions and pay 15-20k in taxes a year.
In 1976 I bought a house in a cheaper town in mid Suffolk for $38500 mortgage payment and taxes was $383 a month
I was making back then 35k a year.
And that was the standard of buying your house according to your salary.
So where is the value in today’s market prices is what I want to know. And I ask that because I see people they have their houses for sale but the re agent tell them they wouldn’t put a for sale sign up front.
In the mid time I see houses some boarded up and others in the market for 3-4-5-6 years and still for sale.
For how long? Just wondering
I just don’t get it.
I don’t get it either. In the long run, most traditional single-family houses have appreciated in value at a little better than the rate of inflation… but the housing bubble changed perceptions pretty dramatically starting in the early 2000s, so expectations are far different now and some people clearly stretch to buy houses on the expectation that they will only go up in value over time, despite the lessons of 2006-2008.
In some areas, like New York or San Francisco, there’s no rational real estate market — the wealth disparity has meant that massively cash-rich people at the top of the income scale are buying up everything at massively inflated prices, and those in the middle or at the bottom of the pay scale are squeezing ten people into rental houses. Perhaps higher interest rates will slow things down a bit in the more overheated areas, on average. Rising interest rates can also spur more demand for homes in the short term, though, because of a fear that if you don’t buy today you won’t be able to afford to buy tomorrow.
Odds are pretty good that things will moderate, on average, and in some places real estate is still rationally priced in relation to incomes — but not in a lot of coastal areas or big cities. I wouldn’t buy a house expecting huge returns right now, but I also wouldn’t talk someone out of buying a house that they can afford in a place they want to live for 10 years or more — rents are high, too, and you have to live somewhere.
I don’t understand how the decision is made on the final price of a stock trade. I put in a buy order and “my agent” negotiates with a seller of that stock. What decision rules does each party bring to the negotiation to settle on a price. Of course the question implies the old way where traders on the floor made the trade. Now computers do the deals, but the same question applies. What are the decision rules that apply to settle on a trade price?
If you put in a market order, then you are saying you will buy shares at whatever price anybody wants to sell. No rules! If you put in a limit order, you are saying you will buy but will pay no more than $X. Then you have to wait until someone wants to sell at that price. Rules. Same with sell orders, either you want to sell to whoever will buy no matter the price (market order), or you will wait until someone is willing to pay what you ask (limit). Then there are stop orders, where you are not willing to sell unless the price drops by $X or drops to $Y, and then you are willing to sell.
Mostly there’s no negotiation, it’s all computerized matching algorithms at the exchanges — no one’s really making a decision for most liquid stocks, there are just thousands of buy and sell orders getting matched up at any one time, usually somewhere in the middle of the spread between the posted bid and ask numbers. There’s not nearly as much “surprise” or wiggle room as there was back when stocks were still quoted in eighths, often bid and ask are within a couple pennies of each other.
Does raising the minimum wage do anything other than cause the price of everything to rise? I remember when I worked for minimum wage of $1.25/hour. Now it’s much higher, but there is just as much if not more poverty! It seems as if raising the minimum wage is just political B.S. – Fooling some of the people all of the time! And I vote for Democrats as the lesser of two evils. At least they talk about helping the poor while the others just want the poor to work cheaply for them.
Hi LG, inflation is caused by many things. The minimum wage is not one of the main factors. I don’t know when you earned your $1.25, but because of inflation, the minimum wage is probably worth less today than when you were getting paid that wage (because prices have increased even more than the minimum wage). This is why the minimum wage should probably be indexed to inflation.
The minimum wage has 2 main effects: it helps the wages of those workers who get it, and it slows down job creation of those low wage jobs. These are contradictory effects (one helps poor people, the other hurts it), but most recent studies say that it if it is increased gradually, it helps more than it hurts.
I mostly agree with that, though it’s certainly a fraught issue. I wish we had a much stronger social safety net, with a collective agreement that we can’t accept working people living in abject poverty… but that’s a hard agreement to come to as a nation, and there are definite economic impacts of raising wages, particularly if you do so without any local differentiation ($15 in Boston is grossly inadequate for any adult who lives within a reasonable distance of their place of employment, $15 in a small town in a poorer area may mean that all the restaurants close down).
I think a major driver of this is the decline in corporate responsibility and the reduced tendency of many corporations to share the wealth and the spoils of productivity gains with lower-level employees in recent decades — mostly driven by cost-hacking MBAs and the ridiculous “superstar CEO” trend that has us paying CEOs and other top executives tens of millions of dollars and anointing them with superhuman powers to control the rise and fall of the companies they lead. Cost cutting should not take place only at the bottom of the employment ladder, I think that’s a poor moral choice we’re making as a nation, and probably a poor economic choice over the long term for many short-sighted companies.
Why do stocks like Sprint Corp.(S) and Sirius XM Holdings Inc.(SIRI) trade at a very high volume like tens of millions of shares per day for a long time and have such a narrow trading range? Are they just building a base?
Not sure what you think is happening. Millions of people and businesses are making millions of decisions to buy or sell shares every day. The more people that make those decisions, the higher the volume, and large stable companies like those are popular. For every buyer there is a seller, and for every sale there is a price the two agree on. Over time, if sellers demand a higher price or buyers demand a lower price then the price goes up or down accordingly.
I just looked at their charts and discovered that these 2 stocks are not behaving the same way for the month of May. While Sprint gives the impression that it is just basing, it is actually oversold, and with very poor analyst ratings there does not seem to be incentive for buyers to hold the stock. There’s also an expected merger of Sprint with T-Mobile.
Sirius, on the other hand, has had a wonderful run up this May and is starting to get overbought.
Very liquid low-priced stocks or relatively large companies tend to attract day traders, particularly if they’re attached to ‘stories’ and are well known brands, so it could just be that people are accustomed to selling the top of that trend channel and buying the bottom of it, I don’t really know — don’t do much technical analysis.
What if the doomsday people are correct, and the whole unsustainable thing goes to Hell? What happens to mortgages & car notes? Do we lose our homes & cars? Can the financial institutions really foreclose & repo the majority of the country, or do they go out of business and our payments cease? I have received so many teasers lately that say it is about to implode, and at 22-23 trillion & growing, and with the BRICS maneuvering, etc., etc., where would you & I land?
We can’t foreclose and repossess everything in the country, clearly. Doomsayers profit from the fact that certainty and fear drive attention, and that people who feel a little uneasy, as many folks do these days, are prime candidates to be driven into panic… that’s a good recipe for soliciting subscribers who are looking for clear or comforting answers.
Don’t have any clear or comforting answers here, I’m afraid, but I’d note that life does go on — there are major upsets every few decades at least somewhere in the world, and people go through substantial financial upheaval… but life goes on. Lots of people still had jobs and fed their families and found places to live and got married in occupied Paris during World War Two, and in Argentina a few years back when the currency was in collapse, and, though some folks are obviously really struggling and I don’t intend to minimize that, in Venezuela today. A financial collapse is not the same thing as Armageddon.
If there is a credit crisis again in the US, I imagine it will be solved with a bad recession, more easing by the Fed, and a further decline of the dollar, and probably a more radical shift in politics and some nasty inflation. But I’m just guessing, we won’t know what’s going to happen until we’ve lived through a good chunk of it — prepare a bit for terrible outcomes, I say, but live in the now.
Sounds like we should invest in pawn shops, car towing companies and repossession companies.
I have a problem wrapping my head around options. Does anyone recommend a book or site that explains this type of investment in simple terms, yet gets into various strategies, and explains those strategies in an understandable manner.
I am confident I can learn about this investment vehicle but I am likely visiting the wrong sites or publications that attempt to educate on this subject.
Thank you for your help.
TD Ameritrade has a complete training on put and call options
Thanks Martin
Funny you should ask. I’m with E-Trade and for the most part of today, I attended their E-Trade Forum online, consisting of 45-minute classes to choose from. Column A listed beginner’s classes and Column B listed advanced classes. Attendees had the ability to choose from either column and whichever I couldn’t attend due to the overlap, I archived for later viewing (available 2 days from now.)
For just a one-day long webinar, there was sufficient material on Options available from either column, ranging from Intro to Options, to how to use them to save broken trades or during a bear market,etc.
I will not be surprised if other brokerage houses are or have been doing the same thing for awhile, and listening to a 45-minute at a time class is easier to absorb than trying to read a book, no?
Travis likes this site as a free tool to learn about options: http://www.cboe.com/learncenter/tutorials.aspx
Why can’t Argentina ever get its act together?
I don’t know. Lots of natural resources, lots of smart people, lots of debt and lots of inept government. Seems like the latest issue is that their reforms have not moved as quickly as markets would like, and money is getting expensive again as the Peso falls more and inflation rages out of control You’re going to need to ask someone smarter than me on this one, I’m afraid.
Though Doug Casey and all those Agora folks talk a lot about spending time down there in their planned community — maybe they can just give the government a few of their stock tips that will go up 10,000% and all will be good?
Please pardon my naivete, but with the barrage of email clogging my Inbox, nobody – and I mean NOBODY – explains how tcryptocurrencies with their hifalutin gains are actually “mined”. I get that these are digitally, not physically, mined – but that’s where straightforward English stops. So what is the definition of “digital mining”? Somewhere in the hype I once came across a blip that hinted that mining involves solving sets of complicated algorithms online. So from this, a “coin” is created?
Is there a kind soul on this thread that can translate this supposed math geek problem-solving skill into plain English so that investors understand what they’re putting money into? Right now, all the hype sounds like a virtual casino with one-armed bandits all promising to pay jackpots, which of course cannot be true.
Yes, the computers are basically breaking a cryptographic code by brute force. They keep trying various combinations until they find one that “hits”, and that represents a bitcoin. As more and more bitcoins are mined, because there is a fixed number (21 million I think), there are fewer remaining and the problem takes longer for the computer to solve … more combinations need to be tried before a winning one is found.
Why thank you for answering in English! May I follow up with a couple more (stupid) questions? Is it just ONE code then, like a safe that everyone’s trying to crack — or several codes? Who put the code there, or how did the code evolve to start with?
So, it’s like there are 21 million codes to be found. Each one found is a bitcoin.The system and constraints were put in place by bitcoin’s creator … it was created by a pseudonym, and no one knows who it really was. All a little crazy, right? Like a house of cards, and as Travis mentions investing in bitcoin is just pure speculation, where you believe you can sell it for more money than you paid to the next person. Nothing there that interests me, because there’s nothing fundamental driving the value. I’m amazed some companies are willing to trade in it. Unlike gold, it has no intrinsic value (other than the fact that the government isn’t controlling it … yet).
Here’s how I see it:
In the general economic model of most cryptocurrencies, “miners” are the computers who actually do the peer-t0-peer verifications that keep the blockchain secure and validate transactions, and the “mining” is that they earn a reward of new tokens or bitcoins or whatever for participating in that network — but they also compete for the right to earn that fee with other computers by working to solve complex math problems more quickly. Mining is basically a way of letting the computers who make the blockchain network possible earn a reward for doing so.