In the first days of its launch in 2009, several thousand bitcoins were used to buy pizza. Since then, the meteoric rise in cryptocurrency to $ 65,000 in April 2021, after a staggering 70 percent drop to about $ 6,000 in mid-2018, has baffled many people – cryptocurrency investors, traders or simply the curious who missed the ship.
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 the blockchain technology of Satoshi Nakamoto, a pseudonym apparently used by a programmer or a group of developers.
Despite many opinions predicting the death of cryptocurrency, the performance of bitcoin has inspired many other digital currencies, especially in recent years. The success with crowdfunding brought about by blockchain fever has also attracted those to deceive the unsuspecting public and this has attracted the attention of regulators.
Outside of bitcoin
Bitcoin has inspired the launch of many other digital currencies. There are currently more than 1,000 versions of digital coins or tokens. Not all are the same and their values are very different, as is their liquidity.
Coins, altcoins and tokens
At this point, suffice it to say that there are fine differences between coins, altcoins and tokens. Altcoins or alternative coins generally describe anything other than pioneering bitcoin, although altcoins such as ethereum, litecoin, ripple, dogecoin and dasha are considered the ‘main’ category of coins, meaning they are traded on multiple cryptocurrency exchanges.
Coins serve as currency or a storehouse of value, while tokens offer the use of assets or useful assets, an example being a blockchain supply chain management service to check and track wine products from the winery to the consumer.
It is important to note that low-value tokens or coins offer opportunities to increase, but do not expect similar meteoric increases as bitcoin. Simply put, lesser-known tokens are easy to buy, but difficult to sell.
Before embarking on cryptocurrency, start by studying the value proposition and technological considerations, or commercial strategies listed in the White Paper that accompanies each initial coin offering or ICO.
For those familiar with stocks and stocks, 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, the ICO is based solely on the idea proposed in the White Paper by a company – which has yet to operate and without assets – that seeks funds to start.
Unregulated, so customers beware
‘What is unknown cannot be regulated’ probably sums up the situation with digital currency. Regulators and regulations are still trying to keep up with cryptocurrencies that are constantly evolving. The golden rule in crypto space is ‘caveat emptor’, let the customer beware.
Some countries keep an open mind by adopting a hands-free policy for cryptocurrencies and blockchain applications, while keeping an eye on open scams. However, there are regulators in other countries who are more concerned with the disadvantages than the advantages of digital money. Regulators generally understand the need to strike a balance, and some are looking at existing securities laws to try to control many types of cryptocurrencies globally.
Digital wallets: the first step
A wallet is necessary to start working with cryptocurrency. Consider electronic banking, but without the protection of the law in the case of virtual currency, so that security is the first and last thought in the crypto space.
The wallets are of the digital type. There are two types of wallets.
In addition to the two main types of wallets, it should be noted that there are wallets for only one cryptocurrency and others for multiple cryptocurrencies. There is also the option to have a wallet with multiple signatures, somewhat similar to a joint bank account.
The choice of wallet depends on whether the user is interested in bitcoin or ethereum, because 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 account or cryptocurrency address, as opposed to the name required to receive payment by check.
The public key is available for everyone to see, but transactions are confirmed only after verification and validation based on a consensus mechanism relevant to each cryptocurrency.
A private key can be considered a PIN commonly used in e-financial transactions. It follows that the user should never give away a private key to anyone and make backup copies of this data to be stored offline.
It makes sense to have a minimum amount of cryptocurrency in a hot wallet, while a larger amount should be in a cold wallet. Losing a private key is just as good as losing your cryptocurrency! The usual precautions apply to online financial transactions, from having strong passwords to being wary of malware and phishing.
Different types of wallets are available to suit individual preferences.
Third party hardware wallets that must be purchased. These devices work as a USB device that is considered secure and connected only when needed to the Internet.
Web-based wallets provided by, for example, crypto exchanges are considered hot wallets that put users at risk.
Wallets based on desktop or mobile phone software are generally available for free and can be provided by coin issuers or third parties.
Wallets on paper can be printed with relevant data on cryptocurrency owned with public and private keys in QR code format. They should be kept in a safe place until they are required during a crypto transaction, and copies should be made in the event of an accident such as water damage or printed data that fades 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 it is based on a compromise between the parties to the transaction.
So, there are many crypto exchanges located in different countries, but with different standards of security practices and infrastructure. They range from those that allow anonymous registration that only requires email to open an account and start trading. However, there are others that require users to adhere to international authentication, known as Know-Your-Customer, and anti-money laundering measures (AML).
The choice of cryptocurrency exchange depends on the preferences of the users, but anonymous ones may have restrictions on the allowed volume of trading or may be subject to sudden new regulations in the country of the domicile market. Minimum administrative procedures with anonymous registration allow users to start trading quickly, while going through KYC and AML processes will take more time.
All cryptocurrencies must be properly processed and verified which can take from a few minutes to a few hours, depending on the coins or tokens being performed 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 are in two categories.
Fiat-cryptocurrency Such exchanges allow the purchase of fiat-cryptocurrency through direct transfers from bank or credit and debit cards, or through ATMs in some countries.
Only cryptocurrencies. There are cryptocurrencies that deal only with cryptocurrencies, which means that customers already have to own a cryptocurrency – such as bitcoin or ethereum – to ‘exchange’ for other coins or tokens, based on the market rate
Fees are charged to facilitate the purchase and sale of cryptocurrencies. Users should do a survey to be satisfied with the infrastructure and security measures, as well as to determine the fees that are comfortable for them because different tariffs are charged by different stock exchanges.
Don’t expect the usual market price for the same cryptocurrency with exchange differences. It might be worth spending time researching the best price of coins and tokens that interest you.
Financial transactions online carry risks and users should heed warnings such as two-factor authentication or 2-FA, keep abreast of the latest security measures and be aware of phishing scams. One golden rule for identity theft is not to click on the links provided, no matter how authentic the message or email is.