Foreword
From central banks to football clubs, a wide range of industries are embracing digital currencies. Seeing as so many markets are seeing increased adoption of cryptocurrency options, now might be a good time to get involved in the world of crypto.
In less than half a decade, the cryptocurrency market has more than tripled in value; from about $300 million in 2017, to over $1 trillion in 2021. Global crypto markets have gone up by about 300% in the last year alone. World-famous cryptocurrencies, like Bitcoin and Ethereum, have seen explosive growth in recent years, and they will not be slowing down any time soon.
If your aim is to understand the basics of crypto, or brush up on some lingo, we have put together this guide to help you on your way; a brief but concise introduction to the world of blockchains and Bitcoins.
Training wheels
Like any investment option, the cryptocurrency market can be extremely rewarding, but it can also burn you if you are not careful enough. If you want to stay ahead of the game, you will want to get to know the following concepts as thoroughly as possible.
Starting with the basics, cryptographic currencies are digital forms of value; consisting of transactions that are verified by peer-to-peer security. This security takes the form of block chains, which are networks of computers that can independently verify each and every transaction.
Cryptocurrencies do not exist in the real world. A digital ledger (where transactions are recorded) can be examined at any time, regardless of a blockchain’s size or complexity. Absolutely anyone can simply go online and check any one of the billions of transactions out there.
If we compare real world currency (otherwise known as fiat money) to cryptocurrency, fiat currencies also are not tied to commodities like gold or oil , but their value is determined by a central authority. Governments and central banks decide what constitutes legal tender. However, with cryptocurrency, value comes from free market mechanics; you cannot just print more crypto, and tokens are always based on a global cap.
Coins vs. tokens
Compared to tokens, digital coins are a lot more difficult to create. Coins are native to a specific blockchain system, and have a cap on circulation (like Bitcoin). Tokens on the other hand, are built on top of existing blockchains (like Ethereum for example).
As we have mentioned, unlike cryptocurrency’s decentralized model, banks and governments can decide the value of any given fiat currency. Advocates of crypto commonly cite this fact as the reason behind cryptocurrency popularity. However, since the introduction of stablecoins, that dynamic might change to some degree.
Stablecoins are tokens that have been attached to fiat currencies. Usually matched to fiat with a 1:1 ratio, stablecoins were created in the hopes of avoiding the increased value fluctuation innate to crypto. Though these “stable” tokens might alleviate some volatility, it remains to be seen whether or not they can become viable alternatives to regular crypto coins.
Where to start
Seeing as cryptocurrencies do not exist in physical form, you will need to make use of software applications called crypto wallets to store and trade cryptocurrencies. There are two types of wallets available at present; hardware and software wallets.
Hardware wallets are closed systems, meaning they cannot be infiltrated, and online connectivity isn’t constantly required. Software wallets need an online connection, and will often use public exchange platforms as a foundation for their transactions.
Once you have got a wallet up and running, exchanges are a good place to start buying and selling crypto. All transactions require the knowledge of two wallet codes, one for either end of the transaction. Exchanges like Binance offer a variety of payment options, such as debit, credit, and bank transfer methods.
Make sure that your country allows for these financial services. If not, there is also the option of using a Bitcoin ATM. Rapidly growing in number, there are currently over 10,000 Bitcoin ATMs in more than 70 countries across the globe.
Understanding the risks
There are quite a few guides on cryptocurrencies available, but due to the significant diversity of this new technology, your best bet is to learn whenever you can. Like real world stock markets, you have to be willing to not only take an interest, but actually do some proper research if you want to stay ahead of the pack.
No government or corporate influence means no books to cook. Cryptocurrencies have a fixed supply, so there’s no way to just print more if it happens to lose value. To put it simply, when the circulation or value of a fiat currency is too low, banks can simply print more money. While this works as a short-term solution, in the long-term it increases inflation, and eventually devalues the currency
We would rather not ignite a debate on free market manipulation, so let’s just say that cryptocurrencies are devoid of this problem. Banks and governments hold no sway over the value of cryptocurrencies, which is probably why those institutions have started experimenting with crypto coins of their own.
Proactive vs. reactive habits
There are over 7,000 token variations in circulation today, making cryptocurrency the most varied value format in history. Several countries, such as Malta and Singapore, are already embracing cryptocurrencies. Microsoft, PayPal, and Starbucks are some of the major companies now supporting crypto payment options. Central banks, governments, and even hedge funds are joining the cryptocurrency revolution.
Portfolio management can be as intensive or laidback as you like. It is up to you whether you want to stash a few coins for a couple of years, or play the market like stock brokers of old. Try to make data-based decisions. If you are hearing about a crypto from someone else, chances are they have already got a vested interest in that particular crypto.
Consider setting up smart contracts, which are automated transaction processes that activate upon certain conditions being met. In essence this can automate your workflow, and remove the need for intermediaries such as brokers.
At the end of the day, you will have to decide for yourself if investing suits your budget, but that does not mean you have to go in blind. It is worth repeating that you have to do your research before making any decisions. Try to keep in mind that everyone wants their coin to be the most profitable cryptocurrency. Though you may have heard stories of locked wallets and missed opportunities, crypto is like any other currency, you have to mind your pennies if you plan on making it big.
Disclaimer
Investing in securities, cryptocurrencies and other financial products and derivatives involves risks, and there is always the potential of losing money when you invest in securities. You should review any planned financial transactions that may have tax or legal implications with your personal tax or legal advisor.
