In the first days of its launch in 2009, several thousand bitcoins were used to buy a pizza. Since then, the cryptocurrency’s rise to $65,000 in April 2021, after falling nearly 70 percent to $6,000 in mid-2018, has boggled the minds of many people—cryptocurrency investors, traders, or just the curious. missed the boat.
How it all started
Note that dissatisfaction with the current financial system led to the development of digital currency. The development of this cryptocurrency is based on blockchain technology by Satoshi Nakamoto, a pseudonym apparently used by a developer or group of developers.
Despite numerous opinions predicting the death of cryptocurrency, bitcoin’s performance has inspired many other digital currencies, especially in recent years. The success with crowdfunding brought on by blockchain fever has also attracted the unsuspecting public to fraud, which has caught the attention of regulators.
Bitcoin inspired the launch of many other digital currencies, Currently there are more than 1000 versions of digital coins or tokens. They are not all the same and their value varies widely, as does their liquidity.
Coins, altcoins and tokens
Suffice it to say at this point that there are fine differences between coins, altcoins, and tokens. Although altcoins such as Ethereum, litecoin, ripple, dogecoin and dash fall under the ‘mainstream’ category of coins, they are mostly traded on cryptocurrency exchanges, meaning that altcoins or altcoins generally describe something other than mainstream bitcoin.
Coins serve as a currency or store of value, while tokens offer an asset or utility use, such as a blockchain service for supply chain management to verify and track wine products from winery to consumer.
It’s worth noting that low-value tokens or coins offer positive opportunities, but don’t expect the same meteoric growth as bitcoin. Simply put, little-known tokens can be easy to buy but hard to sell.
Before getting started with cryptocurrency, start by learning the value proposition and technology considerations, i.e. 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 no different than an initial public offering or IPO. However, IPOs are issued by companies with tangible assets and business experience. All this is done in a regulated environment. On the other hand, an ICO is based purely on an idea proposed in a white paper by a business – which is still operational and has no assets – looking for funds to start.
Uncontrolled, so buyers beware
The situation with digital currency is probably ‘the unknown cannot be regulated’. Regulators and regulations are still trying to catch up with the ever-evolving cryptocurrencies. The golden rule in the crypto space is caveat emptor, buyer beware.
Some countries are open-minded in adopting a hands-off policy for cryptocurrencies and blockchain applications, while focusing on outright scams. However, in other countries, there are regulators who are more concerned with the negative aspects of digital money than the positive ones. Regulators generally recognize the need to strike a balance, and some are looking to existing securities laws to try to manage the many flavors of cryptocurrencies globally.
Digital wallets: The first step
A wallet is essential to start cryptocurrency. Think electronic banking, but in the case of virtual currency, exclude the protection of the law, so security is the first and last consideration in the crypto space.
Wallets are digital. There are two types of wallets.
Internet-connected hot wallets that put users at risk of being hacked
Cold wallets that do not connect to the Internet and are considered more secure.
Apart from the two main types of wallets, it is worth noting that there are wallets for only one cryptocurrency, while others are wallets for multiple cryptocurrencies. There is also the possibility of having a multi-signature wallet, having a joint account with some banks.
The choice of wallet depends on the user’s choice, purely interested in bitcoin or ethereum, since each coin has its own wallet, or you can use a third-party wallet with security features.
A cryptocurrency wallet contains a public and private key with private transaction records. A public key contains a reference to a cryptocurrency account or address, as opposed to the name required to receive a check payment.
The public key is publicly available, but transactions are only confirmed after verification and validation based on a consensus mechanism specific to each cryptocurrency.
A private key can be considered a PIN code widely used in e-financial transactions. It follows that the user should never disclose the private key to anyone and should not back up this data, which should be kept offline.
It makes sense to have a minimal amount of cryptocurrency in a hot wallet, and a larger amount 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 being aware of malware and phishing.
Different types of wallets are available to suit individual preferences.
Hardware wallets developed by third parties and must be purchased. These devices work like a USB device, which is considered somewhat secure and is only connected when the Internet is needed.
For example, web-based wallets provided by cryptocurrency exchanges are considered hot wallets that put users at risk.
Software-based wallets for desktop computers or mobile phones are mostly free and may be provided by coin issuers or third parties.
Paper-based wallets can be printed in QR code format displaying relevant information about the cryptocurrency that holds the public and private keys. These should be kept in a safe place until required during a cryptocurrency transaction, and copies should be made in case of accidents such as water damage or print data fading over time.
Cryptocurrencies and markets
Cryptocurrencies 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 a trade-off between the parties to the transaction.
Thus, there are many cryptocurrency exchanges located in different countries but with different security practices and infrastructure standards. They consist of anonymous registrations that only require an email to open an account and start trading. However, there are others that require users to comply with international identity verification and anti-money laundering (AML) measures known as Know Your Customer.
The choice of cryptocurrency depends on the user’s choice, but anonymous ones may have restrictions on the permissible limits of trading or may be subject to sudden new regulations in the country where the exchange resides. Minimal administrative procedures with anonymous registration allow users to trade quickly while going through KYC and AML processes, which will take more time.
All crypto trades must be properly processed and confirmed, which can take anywhere from a few minutes to a few hours depending on the coins or tokens traded and the volume of the trade. Scalability is known to be a problem with cryptocurrencies, and developers are working on ways to find a solution.
Cryptocurrency exchanges fall into two categories.
Fiat-Crypto-Currency Such exchanges provide the purchase of fiat-crypto-currency through direct transfers from banks or credit and debit cards, or ATMs in some countries.
Cryptocurrency only. There are crypto-only cryptocurrency exchanges, which means that customers must already own a cryptocurrency — such as bitcoin or ethereum — to “exchange” it for other coins or tokens based on the market rate.
Fees are charged to facilitate the buying and selling of cryptocurrencies. Users should do their research to ensure they are satisfied with the infrastructure and security measures and also determine the fees they are comfortable with as different exchanges charge different rates.
Don’t expect a common market price for the same cryptocurrency on different exchanges It may be worthwhile to spend time researching the best price for the coins and tokens you are interested in.
Online financial transactions carry risks, and users should consider warnings such as two-factor authentication or 2-FA, keep up-to-date on the latest security measures, and be aware of phishing scams. One of the golden rules when it comes to phishing is to never click on provided links, no matter how genuine the message or email is.