In the first days of its launch in 2009, several thousand bitcoins were used to buy pizza. Since then, the sharp rise in cryptocurrency to $ 65,000 in April 2021, after a heartbreaking decline in mid-2018 of about 70 percent to about $ 6,000, has stunned many people – cryptocurrency investors, traders or just curious missed the boat.
How it all started
Keep in mind that dissatisfaction with the current financial system has led to the development of the digital currency. The development of this cryptocurrency is based on blockchain technology from Satoshi Nakamoto, a pseudonym apparently used by a developer or group of developers.
Despite many opinions predicting the death of the cryptocurrency, the introduction of bitcoin has inspired many other digital currencies, especially in recent years. The success of crowdfunding caused by the blockchain fever has also attracted those who deceive the unsuspecting public, and this has attracted the attention of regulators.
Bitcoin has inspired the release 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 values vary significantly, as well as their liquidity.
Coins, altcoins and tokens
At this point, suffice it to say that there are subtle differences between coins, altcoins and tokens. Altcoins or alternative coins are usually different from the pioneering bitcoin, although altcoins such as ethereum, litecoin, ripple, dogecoin and dash are considered the “main” category of coins, which means that they are traded on more cryptocurrency exchanges.
Coins serve as currency or a means of storing value, while tokens offer assets or useful uses, such as a blockchain supply chain management service to validate and track wine products from the winery to the consumer.
It is important to note that low value tokens or coins offer opportunities to raise, but do not expect such meteorite increases as bitcoin. Simply put, lesser-known tokens may be easy to buy, but they may be difficult to sell.
Before embarking on cryptocurrency, start by studying the value proposition and technological considerations, namely the trading strategies outlined in the White Paper accompanying any initial coin offering or ICO.
For those familiar with the stock and the shares, this is no different from the initial public offering or IPO. However, IPOs are issued by companies with tangible assets and business experience. Everything is done within a regulated environment. On the other hand, the ICO is based solely on an idea proposed in a white paper by businesses – which are yet to function and without assets – that are looking for start-ups.
Unregulated, so buyers beware
“One cannot regulate what is unknown” probably sums up the situation with digital currency. Regulators and regulations are still trying to catch up with cryptocurrencies, which are constantly evolving. The golden rule in crypto space is “caveat emptor”, let the buyer beware.
Some countries are open-minded, adopting policies to end cryptocurrencies and blockchain applications, while keeping an eye out for outright fraud. Still, there are regulators in other countries who are more interested in the pros than the cons of digital money. Regulators are generally aware of the need to strike a balance, and some are reviewing existing securities laws to try to address the many tastes of cryptocurrencies worldwide.
Digital wallets: The first step
The wallet is essential to start working with cryptocurrency. Consider e-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.
The wallets are of digital type. There are two types of wallets.
Hot wallets that are connected to the Internet, which puts users at risk of hacking
Cold wallets that are not connected to the Internet and are considered safer.
In addition to the two main types of portfolios, it should be noted that there are portfolios for only one cryptocurrency and others for several cryptocurrencies. There is also an option to have a wallet with several signatures, somewhat similar to a joint bank account.
The choice of wallet depends on the user’s preferences whether the interest is only in bitcoin or etherium, as each coin has its own wallet, or you can use a third-party wallet that includes security features.
Notes in the wallet
The cryptocurrency wallet has a public and private key with personal transaction records. The public key includes a reference to the cryptocurrency account or address, as opposed to the name required to receive a check payment.
The public key is available to everyone, but transactions are only confirmed after verification and validation based on the consensus mechanism associated with each cryptocurrency.
The private key can be considered a PIN, which is 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 stored offline.
It makes sense to have a minimum cryptocurrency in a hot wallet, while the larger amount should be in a cold wallet. Losing your private key is as good as losing your cryptocurrency! The usual precautions for online financial transactions apply, from strong passwords to vigilance for malware and phishing.
Different types of wallets are available to suit individual preferences.
Hardware wallets manufactured by third parties to be purchased. These devices work somewhat like a USB device, which is considered safe and is only connected to the Internet when needed.
Web-based wallets provided, for example, by cryptocurrencies are considered hot wallets that put consumers at risk.
Software-based wallets for desktops or mobile devices are mostly free and can be provided by coin issuers or third parties.
Paper wallets can be printed, bearing the relevant data on the cryptocurrency owned with public and private keys in QR code format. They should be stored in a safe place until required during the crypto transaction, and copies should be made in case of incidents such as water damage or printed fading data over time.
Crypto exchanges and markets
Crypto exchanges are trading platforms for those who are interested in virtual currencies. Other options include websites for direct trade between buyers and sellers, as well as brokers where there is no “market” price, but based on a compromise between the parties to the transaction.
Therefore, there are many crypto exchanges located in different countries, but with different standards of security and infrastructure practices. They range from allowing anonymous registration, requiring only email, to open an account and start trading. But there are others that require consumers to comply with international proof of identity, known as “Know Your Customer,” and anti-money laundering (AML) measures.
The choice of cryptocurrency exchange depends on the preferences of the user, but anonymous ones may have restrictions on the degree of permitted trading or be subject to sudden new regulations in the country of residence of the exchange. Minimal administrative procedures with anonymous registration allow users to start trading quickly, while going through KYC and AML processes will take longer.
All crypto transactions must be properly processed and validated, which can take from a few minutes to several hours, depending on the transactions of coins or tokens and the volume of trade. Scalability is known to be a problem with cryptocurrencies, and developers are working on ways to find a solution.
Cryptocurrency exchanges are in two categories.
Fiat cryptocurrency Such exchanges provide 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 cryptocurrencies that only trade cryptocurrencies, which means that customers must already own cryptocurrencies – such as bitcoin or etherium – in order to be “exchanged” for other coins or tokens based on the market rate.
Fees are charged to facilitate the purchase and sale of cryptocurrencies. Consumers need to do the survey to be satisfied with the infrastructure and security measures, as well as to determine the fees that are convenient for them, as different tariffs are charged by different exchanges.
Don’t expect a total market price for the same cryptocurrency with a difference exchange. It may be worth taking the time to research the best price for coins and tokens that are of interest to you.
Online financial transactions carry risks and consumers should heed warnings such as two-factor authentication or 2-FA, be aware of the latest security measures and be aware of phishing scams. One golden rule of phishing is not to click on the links provided, no matter how authentic the message or email is.