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CRYTOCURRENCY VS BLOCKCHAIN: For Beginners

CRYTOCURRENCY VS BLOCKCHAIN: For Beginners

Published in WFO Magazine March Issue #3

https://wfomag.co/wfo-2022-mar-issue-3/


WHAT IS CRYPTOCURRENCY?

There are now several different types of crypto asset, and they all serve different use cases. Cryptocurrencies are relatively new digital forms of currency with several critical advantages over fiat currency. By using peer to peer digital currency, the systems are designed to cut out the middlemen, namely banks and governments. This makes transactions in a lot of cases instantaneous and on some chains virtually free. Other assets like Bitcoin, often called “digital gold”, are considered a store of value, and are mostly accumulated for long term appreciation. While Bitcoin is the pioneer and certainly the most widely invested, there are several other cryptocurrencies rapidly gaining in popularity as well. When the limitations of Bitcoin were discovered, more flexible chains like Ethereum were created to have more functionality and paved the way for the smart contracts and things like decentralized finance to evolve. Becoming your own bank is liberating millions in the developing world, who have never before had access to the banking system, but now can through the power of mobile phones, the internet and decentralised finance. It’s easy to see why crypto assets are taking off around the globe and going up in value almost each day. WHAT IS BLOCKCHAIN TECHNOLOGY?

Blockchain is a decentralized distributed ledger that records transactions of data in a verifiable and permanent way. The blockchain is a continuous growing list of records that are linked using cryptography. In simple terms, blockchain is a digital record of transactions that cannot be altered. Blockchain technology has helped spawn a new type of Internet, blockchain is referred to as the Internet of value. When you take a closer look, the uniqueness of blockchain technology becomes blatantly clear. The blockchain is an incredibly unique, ingenious invention.

Blockchain technology can be hard to grasp. To simplify things, picture it as a spreadsheet that is regularly updated and duplicated over and over again across a dynamic network of computers. In essence, this is a blockchain. It’s a database of shared and regularly reconciled information. Rather than being stored in a single location, the information is stored across a network of computers to keep it easily verifiable and truly public. It’s completely decentralized. This type of structure also keeps blockchains safe from hackers as there is no centralized version to corrupt. The sky is the limit when it comes to the benefits of this type of technology.

Delving deeper into blockchains, each one is made up of nodes. A node is a computer that’s connected directly to the blockchain network via a client that relays and validates transactions. Every node joins the blockchain voluntarily as an “administrator” and is incentivized to participate in the network. Since its inception only a few short years ago, there are already hundreds of cryptocurrencies flooding the Internet, and several other applications are already in development. Some examples include:


· File storage · Data and identity management · Intellectual property protection · Supply chain auditing · Land and title registration · Smart contracts · Crowdfunding · Stock trading, and more!


BITCOIN

Created in 2009 by a programmer under the pseudonym of Satoshi Nakamoto, Bitcoin has in no time at all, evolved into nothing short of a revolution. Bitcoin was the first real use case of blockchain technology. Bitcoin was originally designed as a decentralized currency to streamline financial transactions. Payments are sent and directly received peer-to-peer with low transaction costs.

Bitcoin is pseudonymous, which means the coins themselves contain no personally identifiable information, which has made it a hot topic of debate. Addresses can however be completely traced to the extraction point which usually has some identifying information, so Bitcoin is not as private as actual privacy coins like Monero, which cannot be traced. This is how many criminals and hackers end up being caught by authorities when using Bitcoin.

Unlike other traditional forms of currency, Bitcoin and many other cryptocurrencies are entirely virtual and self-sufficient. Rather than having a central authority, new Bitcoins are produced through an ingenious process known as “mining,” which involves the use of sophisticated computers to solve complex mathematical equations. This makes mined coins like Bitcoin incredibility safe and stable and has many benefits over less secure proofs. MINING Traditionally, governments just print more money whenever they want. However, Bitcoins and many other cryptocurrencies aren’t printed at all – they’re mined. Crypto mining is the process of how transactions are verified and added to the blockchain public ledger and is also the process of how new coins are introduced into the circulating supply. It’s a miner’s job to ensure the blockchain stays intact and isn’t tampered with. To do so, they take the information from each newly created block and apply a mathematical formula to transform it into a much shorter, random sequence of numbers and letters called a hash. At that point in time, both the block and the hash are stored at the end of the blockchain. Since the hash of each block is used to help create the next block’s hash, it becomes a digital seal confirming that this block and every subsequent block is legitimate.

Mining has historically come under fire for being a waste of energy. However, crypto mining, especially Bitcoin mining, has become an important part of the green revolution, pushing forward environmentally friendly practices of using renewables, utilizing excess energy waste, and pushing forward innovation including the use of volcanoes to create energy. There are also miners now being integrated into electricity grids and used as moderators to help keep the systems stable. Crypto mining is revolutionising energy production and has the power to help improve and stabilize our grids into the future. HOW TO INVEST IN CRYPTOCURRENCIES: Advice for Beginners

You may think that it is too late to learn about investing in Cryptocurrency; however, that is not true. The Cryptocurrency revolution has just begun! Cryptocurrency provides every type of investor with an incredible opportunity for significant short and long-term gains. However, like any type of investment, there is risk involved. Whether you choose to buy Bitcoin and hold it for the long-haul or regularly trade Ethereum, Litecoin, or other cryptocurrencies for regular earnings and results, the volatility of cryptocurrency markets means risk is inevitable. On the flip side of the coin, it’s volatility that drives profits and ROI. It takes the right mindset to navigate the ups and downs of the cryptocurrency markets, avoid emotion, and come out on top. There are several ways to invest in crypto assets. Let’s go over each to see which investor category you fall into.

BUY AND HOLD

Buy and hold investing is just as it sounds. You simply purchase Bitcoins or another alt currency and hold onto it long-term. It’s safe, easy, and relatively worry-free. This is especially true with cryptocurrencies. Bitcoin alone has jumped from $15,000 AUD in March of 2020 to a whopping $55,000 AUD just two years later, an appreciation of almost 300%. With big-name institutional investors now jumping on board, the sky truly is the limit! There are a number of exchanges that will enable you to Dollar Cost Average with small amounts over time. There are also apps that will round up your daily payments and invest them for you. It is really very simple these days to get started.

DAY TRADING

If you have an itchy finger and can’t keep yourself away from the action, then day trading cryptocurrencies may be the avenue for you. As a short-term trader, you can ride the ups and the downs and profit from each. With the volume and technology available to us today, there is always buying or selling opportunities. Just beware, trading Bitcoins and other cryptocurrencies takes time to learn, commitment, skill, and plenty of mental strength. Learning how to trade any investment is a skill set that takes time and commitment. Finding the right education platform is key to your success. I personally do not day trade, but I do know some great educators that teach people how to become successful in creating cryptocurrency wealth portfolios.

ICOS

ICO stands for Initial Coin Offering, often referred to as token sale or initial token offering. Basically, an ICO is when a group of people believe they have a revolutionary idea for the next best cryptocurrency. They usually do not have the 10 or so million dollars required to launch the project. By offering the sale of a coin, new ventures are able to raise money quickly and without as much red tape as through a formal funding round or company IPO. However, as they aren’t as regulated there have been many that have taken advantage of this and have taken funds and then done a ‘rug pull’ and have stolen all of the money. So while investing in ICOs can be very, very lucrative, you need to have done extensive research top make sure the projects are legitimate.

MINING

While mining can be extremely lucrative, independent miners must now compete against Fortune 500 companies with endless resources at their disposal. Most individual investors will purchase mining equipment that will most often be held in a central location in a ‘mining pool’ to maximise the chances of winning the block. Payments are then made periodically based on the success of the pool. The location of the pool is usually located in an area where electricity prices make mining feasible, the majority now attached to renewable resources.

SHOULD YOU INVEST IN CRYPTOCURRENCY?


If you are unsure on how to invest it is recommended that you consult with a professional financial advisor, but here are some tips for you to consider when doing your research.


• Diversity your risk with dollar cost averaging and have a diverse portfolio.

• Invest through regulated exchanges or professionals.

• Educate yourself on your investments.

• Own your assets, do not keep them on an exchange if you are holding long term.

• Secure your private keys.

• Ignore the noise and don't fall for FOMO.

• Track your results.

• Make rules for taking profits.

• There are scammers in every industry, be aware of scams.


HOW TO KEEP YOUR INVESTMENT SAFE


What is a crypto wallet?


A crypto wallet is where you will store your digital assets. Choosing a wallet to store your investment is a critical decision you will make on this journey. Just as you protect the wallet you hold in your pocket; you must do the same for your crypto wallets. Cryptography is classified into symmetric cryptography and asymmetric cryptography. This Public and Private key pair comprises two uniquely related cryptographic keys that have encoded information.


Private Key: The Symmetric system uses Private keys for encryption and decryption.

Public Key: In Public key, two keys are used; one key is used for encryption, and another key is used for decryption. Asymmetric encryption utilizes a pair of keys like public and private key for better security where a message sender encrypts the message with the public key and the receiver decrypts it with his/her private key.


Crypto wallets are divided into 3 categories: Software, Hardware and Paper. More commonly you will hear people refer to crypto wallets as hot and cold also known as online and offline.


HOT WALLETS


· Desktop Wallet – They are downloaded and installed on a PC or laptop. They are only accessible from the single computer in which they are downloaded. Desktop wallets offer one of the highest levels of security, however if your computer is hacked or gets a virus there is the possibility that you may lose all your funds.


· Online Wallet – These wallets run on the cloud and are accessible from any computing device in any location. While they are more convenient to access, online wallets store your private keys online and are controlled by a third party, which makes them more vulnerable to hacking attacks and theft.


· Mobile Wallet – These run on an app on your phone and are useful because they can be used anywhere (including retail stores). Mobile wallets are usually much smaller and simpler than desktop wallets.


COLD WALLETS


Hardware Wallet – Hardware (“hard”) wallets differ from software (“soft”) wallets in that they store a user’s private keys on a hardware device similar to a USB. Although hardware wallets make transactions online, they are stored offline which delivers increased security. Hardware wallets can support multiple cryptocurrencies. To use it, you simply plug in your device to a laptop or PC, enter a pin, send currency and confirm.

Paper Wallet – These provide the highest level of security. While the term paper wallet can simply refer to a physical copy or printout of your public and private keys, it can also refer to a piece of software that is used to securely generate a pair of keys which are then printed. Transferring cryptocurrency to your paper wallet is accomplished by the transfer of funds from your software wallet to the public address shown on your paper wallet. Alternatively, if you want to withdraw or spend currency, all you need to do is transfer funds from your paper wallet to your software wallet. This process can either be done manually by entering your private keys or by scanning the QR code on the paper wallet.


Hot wallets are considered more unsafe and are easier to be compromised because they are actively connected to the internet, this included exchange wallets. While today’s top exchanges, are much more secure than they were a few years ago, nothing is impervious to every single security concern. The longer your coins remain sitting in exchange, the more at risk they’ll be. When you leave your cryptocurrency on an exchange you do not own the private key. Your investment is stored on the exchanges, and you are trusting the exchange to store your investments safely. When it comes to exchanges the data is stored in their private key, making it more vulnerable to hacker attacks. To keep your investments safe, you should hold them in a “wallet” with your own private key.


Cold wallets are the safest option, and the most recommended way to store assets because the wallet is not connected to the internet and with cold wallets, you own the private keys. With a wallet and private key, you can safely transfer coins owned on the public key to mitigate risk.


Investing in cryptocurrency can be an exciting but daunting experience for a newcomer. Understanding the risks and rewards is important before you make any decisions on investing in the volatile market. Investing in crypto can provide great returns on investment, but also is consider to be a high risk investment. Investors should always DYOR: do their own research before investing in any kind of asset, and only ever invest what you are willing to lose. Investing in crypto means being mentally prepared for the volatility of the market. However, crypto and blockchain are truly the future. It is still very early in its adoption phase and early investors will be rewarded in the long term. There are so many ways to get involved, so start out in whatever way you feel suits you best.



 


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