Cryptocurrency for beginners

In the first days of the launch in 2009, several thousand bitcoins were used to buy pizzas. Since then, the cryptocurrency’s meteoric rise to USD 65,000 in April 2021, after its stunning mid-2018 drop of around 70 percent to around USD 6,000, has surprised many people – cryptocurrency investors, traders or just those wondering who missed the boat.

How it all began

Keep in mind that dissatisfaction with the current financial system led to the development of digital currency. The development of this cryptocurrency is based on the blockchain technology of Satoshi Nakamoto, a pseudonym apparently used by the developer or development team.

Despite ​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​in recent years. The success of crowdfunding fueled by blockchain fever has also attracted those looking to defraud the unsuspecting public, drawing the attention of regulators.

Except Bitcoin

Bitcoin has inspired the launch of many other digital currencies. There are currently more than 1,000 versions of digital coins or tokens. Not all of them are the same, and their prices vary widely, as does their liquidity.

Coins, Altcoins and Tokens

Suffice it to say for now that there are distinct differences between coins, altcoins, and tokens. Altcoins or altcoins usually describe other than the groundbreaking bitcoin, although altcoins such as ethereum, litecoin, ripple, dogecoin, and dash are considered a “mainstream” coin category, meaning they are traded on more cryptocurrency exchanges.

Coins serve as a currency or store of value, while tokens offer the use of assets or utility services, such as a supply chain management blockchain service to verify and track wine products from winery to consumer.

It’s worth noting that low-value tokens or coins offer growth opportunities, but don’t expect similar rapid growth as Bitcoin. Simply put, lesser known tokens may be easy to buy but may be difficult to sell.

Before diving into cryptocurrency, start by studying the value proposition and technology considerations, namely the commercial strategies outlined in the white paper that accompanies every Initial Coin Offering or ICO.

For those familiar with stocks and shares, this is nothing like an initial public offering or IPO. However, IPOs are issued by companies with tangible assets and a business track record. All this is done in a regulated environment. On the other hand, an ICO is based solely on an idea proposed in a white paper by a business that is not yet operational and has no assets and is looking for startup funds.

Unregulated, so buyers beware

“You can’t regulate the unknown” probably sums up the digital currency situation. Regulators and regulations are still trying to catch up with the ever-evolving cryptocurrencies. The golden rule in the crypto space is caveat emptor, let the buyer beware.

Some countries are keeping an open mind, adopting a policy of problem-free use of cryptocurrencies and blockchain applications, while keeping an eye out for outright fraud. However, there are regulators in other countries who are more concerned about the downsides than the upsides of digital money. Regulators are generally aware of the need to strike a balance, and some are reviewing existing securities laws to try to deal with the various types of cryptocurrencies around the world.

Digital Wallets: The First Step

A wallet is required to get started with cryptocurrency. Think electronic banking, but without the protection of the law in the case of virtual currency, so security is the first and last thought in the crypto space.

Wallets are digital. There are two types of wallets.

  • Internet-related hot wallets that put users at risk of hacking

  • Cold wallets that are not connected to the Internet and are considered more secure.

Besides the two main types of wallets, it is worth noting that there are wallets for only one cryptocurrency and others for multiple cryptocurrencies. There is also the option of having a multi-signature wallet, somewhat similar to a joint bank account.

The choice of wallet depends on the user’s preference, whether he is only interested in Bitcoin or Ethereum, since each coin has its own wallet, or you can use a third-party wallet that includes security features.

Wallet notes

A cryptocurrency wallet has a public and private key with private transaction records. The public key includes a link to a cryptocurrency account or address, as opposed to a name needed to receive a check payment.

The public key is available to everyone, but transactions are confirmed only after verification and confirmation based on a consensus mechanism specific to each cryptocurrency.

A private key can be thought of as a PIN code commonly used in electronic financial transactions. It follows that the user should never disclose the private key to anyone and make backup copies of this data, which should be kept offline.

It makes sense to have a minimum amount of cryptocurrency in a hot wallet, and more in a cold wallet. Losing your private key is as good as losing your cryptocurrency! The usual precautions for online financial transactions apply, from having strong passwords to being aware of malware and phishing.

Wallet formats

Various types of wallets are available to suit individual preferences.

  • Third-party hardware wallets that must be purchased. These devices work somewhat like USB devices, which are considered secure and only connect to the Internet when needed.

  • Web wallets provided by crypto exchanges, for example, are considered hot wallets that expose users to risk.

  • Desktop and mobile software wallets are mostly available for free and may be provided by coin issuers or third parties.

  • Paper wallets can be printed with relevant information about the cryptocurrency owned, public and private keys in QR code format. They should be kept in a safe place until needed during a crypto transaction, and copies should be made in case of accidents such as water damage or printed data disappearing over time.

Crypto exchanges and marketplaces

Crypto exchanges are trading platforms for those interested in virtual currencies. Other options include websites for direct trading between buyers and sellers, as well as brokers, where there is no “market” price, but it is based on a compromise between the parties to the transaction.

Therefore, there are many crypto exchanges located in different countries, but with different security and infrastructure standards. They range from those that allow anonymous registration that only requires an email to open an account and start trading. However, there are others that require users to comply with international identity verification, known as Know Your Customer, and anti-money laundering (AML) measures.

The choice of crypto exchange depends on the user’s preferences, but anonymous ones may have limits on the amount of trading allowed or be subject to sudden new rules in the country of residence of the exchange. Minimal administrative procedures with anonymous registration allow users to start trading quickly, while KYC and AML processes take longer.

All crypto transactions must be properly processed and confirmed, which can take anywhere from a few minutes to a few hours, depending on the coins or tokens being transacted and the volume of the trade. Scalability is known to be a problem with cryptocurrencies, and developers are working to find a solution.

Cryptocurrency exchanges fall into two categories.

  • Cryptocurrency fiat Such exchanges provide for the purchase of fiat cryptocurrency through direct transfers from bank or credit and debit cards, or through ATMs in some countries.

  • Cryptocurrency only. There are cryptocurrency-only exchanges, meaning that customers must already own a cryptocurrency – such as Bitcoin or Ethereum – to “exchange” for other coins or tokens depending on the market rate.

Fees are charged to facilitate the buying and selling of cryptocurrencies. Users should do their research to be satisfied with the infrastructure and security measures, and to determine what fees they are comfortable with as the rates charged by different exchanges vary.

Don’t expect a common market price for the same cryptocurrency with different exchanges. It may be worth spending some time researching the best price for the coins and tokens you are interested in.

Online financial transactions carry risk, and users should consider caveats such as two-factor authentication or 2-FA, keep up-to-date with the latest security measures, and be aware of phishing scams. One golden rule when it comes to phishing is to not click on any provided links, no matter how genuine the message or email is.