What You Need to Know Before Investing in Cryptocurrency

Blockchain is the tech. Bitcoin is merely the first mainstream manifestation of its potential.

-Mark Kenigsberg

Learn the Basics

When you’re a new investor, cryptocurrency can seem a complicated and overwhelming idea to understand at first. There are so many narratives spun in the mainstream media about it being dangerous, or unstable, or fringe, that it is hard to really grasp the true nature of the technology and what it is capable of. Most people have heard of Bitcoin before, but few still understand how it really works and why it is so important. On this page, I will do my best to try and simplify some of the complexities as much as possible, but will go into greater detail in future blog posts.

First of all, it’s probably easier to understand blockchain technology as a sort of software technology rather than as a sole replacement for currency. It is true that blockchain technology can create very effective digital currencies, but there are still other use cases which makes blockchain tech extremely valuable.

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So, what exactly is blockchain technology then?

Well, the fundamental beauty of Bitcoin and other decentralized networks is that, rather than a single source being responsible for storing all of the network data, the data of the network is shared and verified by thousands of different servers all around the world – sometimes by people like you and me, and sometimes by businesses that focus on “mining”. Often networks will reward users for contributing to the decentralized networks with a small return in crypto – this is often known as “staking”. In this way, decentralized networks have no single point of failure and they can also be incredibly difficult to hack or for a centralized government to attempt to shut down. Most people are drawn to cryptocurrencies because they see it as a means of eliminating corruption, or at least minimizing it, within the current financial systems and world governments.

Generally, with most reputable networks – when a transaction is processed or a coin is minted, the code will be saved in the blockchain forever and it cannot be altered. Every transaction is also recorded on the blockchain forever. The tech is extremely transparent, while also being anonymous (because no names are attached to the transaction data). Sometimes the developers will even hand control of the blockchain over to the community at some point so that the protocol becomes completely decentralized *cough* Cardano *cough*. But all of this is still only scratching the surface of blockchain technology.

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So, what are the possible use cases for blockchain technology?
  1. To Act as a Store of Value – (Ex. Bitcoin) – Bitcoin is a reliable store of value because it is an unalterable deflationary asset with a maximum supply of 21 million coins which are gradually “mined” into existence and every 4 years, the supply created is reduced by half until it eventually reaches its maximum supply cap in 2140. So scarcity is built into its programming and it is unable to be altered without community consent – this is why Bitcoin is such a threat to current fiscal systems which are highly manipulated. On the down side, Bitcoin is quite slow and expensive to transact with due to some scalability issues.
  2. To Act as an Alternative for Daily Transactions – (Ex. Litecoin) – Alternatives to Bitcoin have emerged such as Litecoin which have next to zero fees for transactions and a much higher supply of coins to keep the prices lower. It is often considered the Silver to Bitcoin’s Gold, and it may be boring to some but it has been a top performer in the cryptocurrency industry for the past decade as an alternative to Bitcoin. By no means is Litecoin the next best thing on the market though, I am purely using this coin as an example. Many third generations cryptocurrencies are innovating at unimaginable rates.
  3. To Act as a Solution for the Decentralized Internet – (Ex. Ethereum) – The number two cryptocurrency in the space is much more than a mere store of value or “coin”. It actually acts as a foundation upon which other decentralized applications (dapps) can run on top of. Ethereum is sort of like the Google of the decentralized internet and owning Ethereum means you own a part of the entire network. The Ethereum currency is used as leverage to process transactions on the network and this gives the coin some major utility. A ridiculous number of tokens have been minted on top of Ethereum, all with their own very unique utilities and they all contribute to the network in some way (usually). However, Ethereum is not the only network experimenting with smart contracts – it is merely the first and the largest!
  4. NFT’s! (Ex. Supply Chains, Games, Data Distribution) – There are so many other use cases for distributed ledger technology that crypto “currency” only really scratches the surface. NFT stands for Non-Fungible Token and “Non-Fungible” literally means that one token is unique and cannot be replaced by any other – it is one of a kind! This makes for a novel way of storing data, identities, art, music, legal information etc. NFTs can aid in revolutionizing modern supply chains, the video gaming world (imagine multiple games sharing items) and many other things.

Cryptocurrency and Volatility

If there’s one criticism that you’ve likely heard about in cryptocurrency, it would be that the prices are “volatile” and it makes them dangerous investments; and it is true that the prices are much more volatile then the average stock market because the prices are unregulated and prices can rise or fall quickly! However, investing in Bitcoin or Ethereum is no more dangerous, in my opinion, than investing in Apple or Tesla stock, if you are investing for the long term. Short-term trading will always be somewhat risky because it’s impossible to tell how the market may react in the immediate future. But historically, the major cryptocurrencies increase in value year after year (predominantly Bitcoin and Ethereum).

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Minimizing Risk

It’s also important to remember that blockchain technology is still in its infancy and it is far from perfected at this point. Many of the smaller cap cryptocurrencies which exist today will not exist still in a few years from now. I would be apprehensive to say that any cryptocurrencies are a “sure thing” aside from maybe Bitcoin and Ethereum (at least for the next decade). So try to keep this fact in mind when you are planning the distribution of your crypto portfolio; adjust according to your risk tolerance and always do your research.

Bitcoin is the safest cryptocurrency to invest in because it is supported by major institutions and has proven itself reliable over the course of more than a decade. Ethereum, the second biggest cryptocurrency by market cap, is also a reasonably safe investment with institutional backing and a massive network which runs on top of its blockchain. This means that Ethereum’s success is also the success of hundreds of other crypto tokens and decentralized applications; there’s also a massive network effect. So these two coins often make the bulk of the savvy investor’s risk-adjusted crypto portfolio.

However, the smaller the market cap in crypto, the greater the potential upside – but also the greater chance of losing it all. If you do decide to invest in riskier cryptocurrencies outside of the top 10, then please do this with a much smaller portion of your portfolio; research the developers of the coins or tokens you are investing in, their partners, advisors etc and decide if you agree with their path forward. Avoid coins or tokens with anonymous teams and try to stay wary of the hype train. I will cover tips for micro-cap hunting in greater detail on a later post.

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Finding an Exchange to Buy and Sell Crypto

Some of my personal favorites include, but are not limited to:

Binance (https://www.binance.com/en) – One of the largest and most trustworthy cryptocurrency exchanges on the net. Binance offers the widest range of cryptocurrencies on a centralized network. They also have their own blockchain, the Binance Smart Chain which offers very low fees and unique investment opportunities.

Coinbase (https://www.coinbase.com/) – Another extremely popular platform to buy and sell crypto on. The fees are often a little higher and it is not a personal favorite of mine, however the wallet that they offer is extremely useful as a means of storing very small and speculative cryptocurrencies in which can be extremely lucrative, but also extremely risky.

Crypto.com (https://crypto.com/) – Another one of my favorite exchanges, crypto.com has reasonable fees and sometimes next-to-free exchanges. They are also creating their own blockchain, similar to binance and are working with VISA to offer crypto credit cards to the average joe.

There are many other exchanges like Genesis, Voyager, etc. but choosing the best exchange will all depend on the country that you live in.

Pro Tip: Always keep short-term holds of a few months or less on the big exchanges to protect yourself against possible hacks. Store your long-term holdings on a hardware wallet like Trezor or Ledger for the best protection possible (aka. cold storage). Also, always create and store your wallet seeds somewhere SAFE – on a USB device or written on paper and hidden. Also remember to protect your capital and don’t get wrecked. If you want to gamble on crypto, keep your positions small! Make the most of this amazing opportunity for long term wealth accumulation!

“Rule No. 1 is never lose money. Rule No. 2 is never forget Rule No. 1.”

-Warren Buffet

Note: Thanks for joining me here in this very brief introduction to cryptocurrencies. Remember, buy the red and sell the green! I look forward to going deeper into various topics in the future. Thanks for joining me and let’s howl at the moon, wolf cubs!

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Questions? Comments? Leave them down below!

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