In the first days of its launch in 2009, several thousand bitcoins were used to buy a pizza. Since then, the cryptocurrency’s meteoric rise to $65,000 in April 2021, following its dizzying mid-2018 plunge by about 70 percent to around $6,000, boggles the minds of many people: cryptocurrency investors, traders or just curious that I missed the boat.
How it all began
Please note that dissatisfaction with the current financial system gave rise 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 a developer or group of developers.
Despite the many opinions predicting the death of cryptocurrencies, bitcoin’s performance has inspired many other digital currencies, especially in recent years. The crowdfunding success sparked by the blockchain rush also attracted those trying to scam the unsuspecting public and this drew the attention of regulators.
Beyond bitcoin
Bitcoin has inspired the launch of many other digital currencies. There are currently more than 1,000 versions of digital currencies or tokens. They are not all the same and their values vary greatly, as does their liquidity.
Coins, altcoins and tokens
At this point, it would suffice to say that there are fine distinctions between coins, altcoins, and tokens. Altcoins or altcoins generally describe currencies other than the pioneer bitcoin, although altcoins such as ethereum, litecoin, ripple, dogecoin, and dash are considered in the “mainstream” category of coins, meaning they are traded on more cryptocurrency exchanges.
Coins serve as currency or store of value, while tokens offer asset or utility uses, for example, a supply chain management blockchain service to validate and track wine products from cellar to bottle. consumer.
One point to keep in mind is that low-value tokens or coins offer upside opportunities, but don’t expect bitcoin-like meteoric rises. Simply put, lesser-known tokens can be easy to buy but hard to sell.
Before you jump into a cryptocurrency, start by studying the value proposition and technology considerations, namely the business strategies outlined in the white paper that accompanies every initial coin offering or ICO.
For those familiar with stocks and shares, it is no different than the initial public offering or initial public offering. However, IPOs are issued by companies with tangible assets and a business history. Everything is done within a regulated environment. On the other hand, an ICO is based solely on an idea proposed in a white paper by a company, not yet operating and without assets, that is looking for funds to start.
Not regulated so buyers should beware
“You can’t regulate what you don’t know” probably sums up the situation with digital currency. Regulators and regulations are still trying to catch up with the continually evolving cryptocurrencies. The rule of thumb in the crypto space is ‘warning emptor’, buyer beware.
Some countries are keeping an open mind and adopting a hands-off policy for cryptocurrency and blockchain applications, while keeping an eye out for outright scams. However, there are regulators in other countries who are more concerned with the disadvantages than the advantages of digital money. Regulators generally realize the need to strike a balance and some are looking at existing securities laws to try to control the many flavors of cryptocurrency globally.
Digital wallets: The first step
A wallet is essential to get started with cryptocurrencies. Think online 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 the digital type. There are two types of wallets.
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Hot wallets that are linked to the Internet and put users at risk of being hacked
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Cold wallets that are not connected to the Internet and are considered more secure.
Aside from the two main types of wallets, it should be noted that there are wallets for just one cryptocurrency and others for multiple cryptocurrencies. There is also the option of having a multi-signature wallet, somewhat similar to having a joint account with a bank.
The choice of wallet depends on the preference of the user, whether they are interested only 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
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, similar to the name required to receive a paycheck.
The public key is available for all to see, but transactions are confirmed only after verification and validation based on the relevant consensus mechanism for each cryptocurrency.
The private key can be considered to be the PIN that is commonly used in electronic financial transactions. It follows that the user should never reveal the private key to anyone and make backup copies of this data which should be stored offline.
It makes sense to have a minimum amount of cryptocurrency in an active wallet, while the largest amount should be in a cold wallet. Losing the private key is just as good as losing your cryptocurrency! The usual precautions about online financial transactions apply, from having strong passwords to being alert for malware and phishing.
wallet formats
There are different types of wallets available to suit individual preferences.
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Hardware wallets made by third parties that must be purchased. These devices work as a USB device that is considered safe and only connects to the Internet when necessary.
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Web-based wallets provided, for example, by crypto exchanges, are considered active wallets that put users at risk.
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Software-based wallets for desktop or mobile are mostly available for free and can be provided by coin issuers or third parties.
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Paper wallets can be printed with relevant data about the cryptocurrency held with public and private keys in QR code format. These should be kept in a safe place until they are required in the course of the cryptographic transaction and copies should be made in case of accidents, such as water damage or printed data that fades over time.
Exchanges and crypto markets
Crypto exchanges are trading platforms for those interested in virtual currencies. The other options include websites for direct trading between buyers and sellers, as well as intermediaries where there is no “market” price, but rather is based on the commitment between the parties to the transaction.
Therefore, there are many crypto exchanges located in various countries but with different infrastructure standards and security practices. They range from those that allow anonymous registration that only require an email to open an account and start trading. However, there are others that require users to comply with international identity confirmation, known as Know Your Customer, and anti-money laundering (AML) measures.
The choice of cryptocurrency exchange depends on user preference, but anonymous ones may have limitations as to the scope of trading allowed or may be subject to sudden new regulations in the country of domicile of the exchange. Minimal administrative procedures with anonymous registration allow users to start trading quickly, while KYC and AML processes will take longer.
All cryptocurrency transactions must be properly processed and validated, which can take anywhere from a few minutes to a few hours, depending on the coins or tokens being traded and the volume of the transaction. Scalability is known to be a problem with cryptocurrencies and the developers are working to find a solution.
Cryptocurrency exchanges fall into two categories.
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Fiat Currency These exchanges allow the purchase of fiat currency through direct transfers from banks or credit and debit cards, or through ATMs in some countries.
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Only cryptocurrencies. There are cryptocurrency exchanges that deal only with cryptocurrencies, which means that clients must already own a cryptocurrency, such as bitcoin or ethereum, in order to be ‘exchanged’ for other currencies 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, as well as to determine the fees they are comfortable with such as the different fees charged by various exchanges.
Do not expect a common market price for the same cryptocurrency with different exchanges. It may be worth spending time researching the best price for the coins and tokens that interest you.
Online financial transactions carry risks, and users should heed warnings such as two-factor authentication, or 2-FA, stay up-to-date on the latest security measures, and be aware of phishing scams. A rule of thumb about phishing is not to click on the links provided, no matter how genuine a message or email may be.
