I decided to gift my 5-year-old daughter some AMPL for Christmas. Here's a record of how the conversation went.
Me: Hey! sweetheart, come here.
Daughter: Daddy!
Me: Merry Christmas!
Daughter: Merry Christmas. Did you buy me another gift?
Me: Of course sweetheart
Daughter: yeeeeeeeeah!
Me: I bought you the most special Christmas gift ever. Something you've never had before and that will become more and more valuable, long after now.
Daughter: What's that dad?
Me: AMPL
Daughter: Apple?
Me: No!... A M P L - AMPL
Daughter: Ok! What's AMPL?
Me: Seat down let me show you.
Daughter: (Jumps on my lap, looking intently at the AMPL tokens I held on display on my phone)
Me: AMPL is an elastic cryptocurrency created by the Ampleforth organization.
Me: It aims to reduce inflation and preserve the purchasing power of money. As well as enable a sustainable economy.
Me: Simply put. It is a cryptocurrency like Bitcoin, but with unique and special features.
Daughter: Ok. But what's a cryptocurrency?
Me: Cryptocurrencies are digital money created, stored, and transacted on the blockchain. They don't have denominated physical note bills like the dollar or pound.
Daughter: So, this AMPL is another form of money, like the dollar?
Me: That's correct
Daughter: So, dad, you're saying you bought me money as a Christmas gift? You could just give me the cash. Why some internet money?
Me: Yes! But this form of money is kinda different. Remember I told you it has its own unique features which makes it special?
Daughter: Yes! Dad. You said it's a cryptocurrency. Based on the blockchain. And it does not have a physical version.
Me: Hi! 5. That's absolutely correct.
Me: But this is not some ordinary money. It's as an asset that can both increase or decrease in quantity.
Me: And the price or value can also both increase or decrease.
Me: So that this $1000 worth of it I bought for you could be worth $100,000 or if things go bad with it, $500 in the future.
Daughter: Really? How's that even possible?
Me: It's possible.
Daughter: How?
Me: I'll explain it to you. Please pay attention.
Daughter: Ok
Me: This is how it works.
Me: Cryptocurrencies generally are volatile.
Me: That means that their prices go up and down relative to the dollar.
Me: The same way the price of gas, clothes, toys, etc. changes in the market, relative to the dollar.
Daughter: Ok. So dad. Lemme get this straight (looking at me in the eye)
Daughter: Cryptocurrencies are both currencies for making payment for goods and services.
Daughter: And at the same time, they're also assets that can be bought and sold for cash.
Me: Hi! 5 again. That's my girl. You're absolutely correct.
Me: So generally, if you buy say 1 Bitcoin worth $25,000. It could be worth more or less in a few seconds, minutes, hours, days, weeks, month, or years later.
Me: But your 1 Bitcoin will always remain 1 Bitcoin.
Me: The quantity will not change. But the dollar value can change.
Daughter: Is Bitcoin a cryptocurrency?
Me: Yes! It was the first cryptocurrency ever created.
Daughter: Ok.
Daughter: So only the price of a cryptocurrency is supposed to be changing as people buy and sell it?
Me: That's right
Daughter: But you said earlier that the quantity of AMPL can also change along with the price.
Daughter: Is AMPL not a cryptocurrency? Why does the quantity not also remain the same?
Me: Good questions. Remember I said AMPL is a special type of cryptocurrency with an elastic supply.
Daughter: Yes
Me: What I haven't told you yet is that the cryptocurrency is designed to have a target price of roughly $1.
Daughter: Ok. So the price is supposed to be $1 constant.
Me: Yes. Actually, a dollar and some cents based on some technical shit you shouldn't worry too much about yet.
Daughter: So why is the price not stable at $1 as intended? And why does the amount of AMPL I have, keep changing with the price?
Me: In order to consistently maintain the target price, the token requires a lot of money to be invested in it.
Me: This is called liquidity. The greater the liquidity, the less volatile the price will be.
Daughter: Ok
Me: Yes. And the less volatile the price, the lesser chances that the amount of the token you hold will change.
Daughter: I didn't get that.
Me: Ok. let me explain more.
Me: AMPL is designed to target the price of $1 in 2019.
Me: Based on some mathematics, this target price is recalculated and adjusted daily to account for inflation.
Me: And as I said above, this price is usually about $1 and a few cents.
Me: If the price goes below or above the target price, the system will automatically adjust (increase or decrease) the supply of AMPL in everybody's account.
Me: This increase and decrease in the amount of AMPL people have is called rebasing.
Me: When the price of AMPL is below this target price, the system automatically deducts AMPL tokens from everybody's account or wallet.
Me: This is known as a negative rebase
Me: And when the price is above the target price, the system automatically adds more AMPL tokens into everybody's account or wallet.
Me: This is known as a positive rebase
Me: This is done, with the intention of getting the market to push the price towards the target. And thus achieve some relative stability.
Daughter: I'm following you.
Me: Good.
Me: As people get more AMPL when the price is above the target price, they tend to sell in order to cash out their profits.
Me: This forces the price to go down, as selling pressure overpowers the number of buyers.
Me: When the price goes down and below the target price, smart investors find an opportunity to buy the token at the cheap price and hope to make a profit when the price goes back up towards and above the target price.
Me: All this supply adjustment is done with the aim of getting buyers and sellers to bid the price of AMPL towards the target.
Daughter: wow
Daughter: This is amazing.
Daughter: But I can lose all my AMPL if the price does not go back up towards the target price
Me: You can certainly lose a lot of tokens due to rebasing if the price remains below the target for an extended period. But certainly not ALL.
Me: And the price will eventually go back up towards and above the target price given sufficient time.
Daughter: This is so risky dad.
Me: Yes! It is. Just like everything else in life.
Daughter: But I could lose everything.
Me: No! You can't lose "everything".
Me: All these rebasing and price movements of AMPL is not really the most important thing for you to worry about.
Daughter: Then what is?
Me: The market cap
Daughter: What's marketcap?
Me: The total amount of money that's invested into the cryptocurrency
Daughter: Ok! So how's it the most important thing?
Me: Regardless of the changes in the price and supply of AMPL. Your share of the total marketcap remains the same at all times unless you sell or buy more.
Daughter: Really? How?
Me: If you buy $1000 worth of AMPL right now. Which gives you, for example, 1% of the total marketcap.
Me: Regardless of price changes and all the rebasing, you still have that same 1% of the marketcap.
Me: For example, if you own 1% when the marketcap is $1 million, you will still have 1% when the market cap goes to $50 million.
Me: So, as long as the market cap of AMPL is increasing, your investment will be worth more in the long run. Regardless of whether you have lost or gained more AMPL tokens.
Daughter: Really?
Me: Yes!
Me: For example, you bought 500 AMPL today at $2 each when the total supply is 500,000 and the market cap is $1 million.
Me: Clearly, you have 0.01% of the total supply.
Me: Fast-forward to 2 years and the market cap is $25 million but the price is now at $1.
Me: So many rebases must have happened within this period.
Me: So we can’t possibly project what your balance will be after 2 years but we know you have 0.01% of the market cap.
Me: So your investment should be worth 0.01% of $25 million after these 2 years.
Me: Which is $2,500.
Me: The marketcap is the most impost important metrics for evaluating the performance of your investment in AMPL.
Daughter: I think I understand now
Me: Yeah.
Me: If you want to know the real current worth of your AMPL investment, look at the marketcap.
Daughter: Thank you, dad. I'm gonna keep my AMPL until my 18th birthday.
Me: That would be sweet.
Me: Now let's go help your mom out in the kitchen
Daughter: Ok dad... (runs away)
Do you think she gets it? Let me know in the comments section below.
