Cryptocurrency Investing for Beginners
If you’ve come to this then you’ve probably caught the Crypto fever going on right now and want to know how you can get in on this sweet action and earn yourself a Lambo. Well look no further because i’m here to teach you about investing in the world of Cryptocurrency. Let’s jump right in.
The Conversation I have a lot:
- “Hey I wanna buy Bitcoin, how do I do that?”
- Me: Do you have any idea what Cryptocurrency is or how it works?
- Them: No.
- Me: Then why are you investing in it?
- Them: Because the price keeps going up and I want to make money.
- Me: You have no idea what you’re doing. Would you throw all your money at a stock you’ve never heard of cause some random person told you to? No. Do some research and find out what the deal is before blindly YOLOing your money.
As you can see, this is not a good way of investing. So let’s go through some of the most popular questions so you can et a better understanding of this.
- What is it?
- Cryptocurrencies are a class of assets much like every other currency in the world, except entirely digital. It’s anonymous, decentralized, permissionless, and entirely virtual. It only exists as computer code on the blockchaiN
- But What does that mean?
- Anonymous – It’s like cash, where the only person who knows the transaction is occurring is you and the person you’re transacting with. No outside observers
- Decentralized – Where most countries have a central bank and a government that handles monetary policy such as issuing new currency, no single entity owns or handles the cryptocurrency. This prevents any one person or entity from messing up the economics or causing chaos and is substantially better for security.
- Permissionless – Much like cash, you are in control of your own finances. You don’t need to rely on anyone else and can do with it what you please without interference.
- Isn’t this stuff just used by Criminals to buy drugs and launder money?
- There are people doing that yes, but the vast majority of people are not. According to various researchers, the most common source of money laundering and illicit purchases is still the US Dollar.
- Does this mean the US Govt. is going to ban it?
- I don’t know. They could, but I am INCREDIBLY skeptical that they will. They could try, but they won’t be successful. Much like Prohibition it would be near impossible to enforce as no one person owns all the Crypto or is responsible for it and they simply can’t just go around and arrest all the people who own it, it would be near if not impossible. There’s also the fact that it presents too much economic potential, and the govt. knows that if they decide to oppose it, all the companies currently setting up shop here are gonna just go overseas to places like Israel, EU, Russia, and China that are much more friendly to it. They won’t take that risk.
- Ok so if I buy this is the price going to go up?
- I DON’T KNOW. Nobody in the world knows what’s going to happen. It could lose 50% of its value tomorrow (although unlikely) or it could go up 100%, by investing in this you’re taking a financial risk akin to investing in the stock market or anything else. I am not a financial advisor, Nothing said here is financial advice and i am NOT liable for anything if your investments lose money. I make my decisions based on the information available to me and try to be as informed and educated as I can, and you should as well.
- So then why should I buy it?
- Because it’s an interesting piece of technology that I think has the potential to radically change the world and our understanding of finances. It could go up 1000x or it could go to 0 and we’re all in the poor house. Read through the rest of this document and you may start to see that this technology isn’t going anywhere because of what it offers.
- Ok I’m in so what do I do?
- Hold your horses, don’t just invest in things you don’t understand cause you’re eager and full of FOMO (fear of missing out). That’s how you end up losing it all. Let’s talk about the underlying technology first
The core of the blockchain relies on two things, cryptographic-security and decentralization. You may have heard the phrase “distributed ledger technology”. What that means is that the blockchain is simply a record of transactions. Imagine your bank. Your bank has a database somewhere with every customer’s information including their balance. This is a centralized service, it’s all in one location. If you wanted to send money to someone else also at your bank their software simply subtracts the amount from your info in the database and adds it to someone else’s and then records the transaction information somewhere. That somewhere being a ledger of-sorts. Cryptocurrency works the same way, except distributed. This means that every person in the network has a copy of this ledger of transactions, and everytime a new transaction occurs, every copy of the ledger gets updated with it. As thousands of transactions occur every second these will get bundled together into what’s known as a block with some extra information including info from the previous block. This block gets added to the “chain” and is permanent. When you say that you own “A bitcoin”, what that really means is that there’s a transaction line somewhere in the blockchain that says someone gave you 1 Bitcoin. There’s no actual coin or value relating to the coins. It is simply a notation that says you own something in theory
Once information is on the blockchain it can never be removed. Only more added. Every transaction contains a transaction “fee”, a small amount added to the transaction that gets paid by the sender, to the person who adds the block to the chain. Think of it like a credit card transaction. The store you are exchanging with pays the credit card company for the ability to take cards, but with this you pay a small fee to process the transaction in exchange for the ability to use cryptocurrency. This fee is independent of the amount being sent, meaning if you send $5 or $5 million the fee should be the same. You can increase this fee to incentivize the transaction to be sent faster, or a lower one if you’re willing to wait for your transaction to be confirmed.
Every time a transaction occurs it propagates throughout the network of people running it (nodes) and they come to a consensus on the current status of the network after every transaction. This is better for security because while a hacker would only have to infiltrate one server at a bank to steal your money, to hack the blockchain they would have to infiltrate thousands of machines at once to create false transaction records
- This video explains it very well: https://www.youtube.com/watch?v=bBC-nXj3Ng4
Does this mean that cryptocurrency is unhackable?
NO it doesn’t. While the underlying technology that allows the network to function is mathematically solid right now, hacks occur all the time on people that own cryptocurrency to steal your funds. Much like someone who steals your phone has access to your credit card info and can make false purchases, someone who steals your crypto wallet information can steal your crypto. However, with enough practical security measures and common sense you should be more than protected. The weakest part of this system is human error.
So can I just sign up with an email and a password like normal?
Kind of. In order to buy Cryptocurrency you’ll need to go through an exchange and set up a wallet.
What is a Cryptocurrency Wallet?
The crypto wallet is the way you interact with the blockchain and send transactions. Without going into too much detail, your wallet is an encryption key that you use to prove that you are the owner of certain coins. The wallet software will take the key and do a lot of math to send and verify the transaction for you. It’s similar to how Venmo deals with your money, you don’t need to know how it works, just your info to log into your account.
When you create a wallet, it will generate the key for you in the form of a “mnemonic phrase”.
This is a 12 or 24 grouping of words that the software uses to generate the keys. Write this down and keep it somewhere safe. With these words you can use any wallet software and access the funds but if you lose it, it’s gone FOREVER.
The wallet also generates what’s known as your address. It’s the identifier associated with your wallet, except unlike venmo where it’s a human readable word, it’s a long string of numbers and letters. The exact format will vary based on the coin you’re using but it should look something like this: 0xaB5409b0E5a66AcC9D63f668414539A60a5917C1
When someone wants to send you money you just give them that address and they send it there. Most if not all wallets will also give you the option to generate a QR-Code for the person to scan. If you want to make a transaction you just scan the code and select the amount and you’re off to the races.
Since the blockchain is public and add-only, anyone can view your address’ current balance and the history of all transactions it’s ever done. Just go to a website such as
And type in your address to see the full history.
Where can I buy Crypto
Well lucky for you there’s a lot of ways you can do that. It’s as easy as putting in your credit card information. Much like regular currencies, to buy crypto you have to go to an exchange that takes your dollars in exchange for Crypto. There are many, such as: Coinbase, Binance.US, Kraken, Gemini, Crypto.com, KuCoin, etc. For first timers I recommend coinbase. It’s as simple as going to their app or Website and making an account and following the steps. It’s at this point that I am required by law to inform you that the SEC considers Cryptocurrencies a security, and you will be required to provide KYC information such as social security number and Photo-ID.
“Now hold on, I thought you said Crypto was anonymous?”
It is. However, when you go through an exchange it is not because the exchange are businesses operating in the US and bound by SEC regulations. If you take the crypto off an exchange and transact with it normally it becomes anonymous in any future transactions. Be aware, different exchanges have different coins. For example, Kraken has several coins not available on Coinbase, and Binance has some not available on Kraken. Finding the right exchange for you is a process based on what you want to buy and the transaction fees. As part of their business model each exchange will take a slight fee for the purchase or sale of all coins. This is usually around ~0.25% – 1% depending on exchange and the size of your purchase. See website for details.
“My friend said he just bought it on Robinhood. Can’t I just do that?”
This is an important distinction. Robinhood is NOT a cryptocurrency exchange, and you don’t really own any cryptocurrency when you buy with them. The key phrase here is “not your keys, not your crypto”. What that means is that when you “buy” on robinhood, they’re just issuing you a statement that says you bought a certain amount of cryptocurrency and they hold it for you. You CANNOT send it to anyone, all you can do is sell it back to robinhood. In this sense you don’t really own cryptocurrency cause you can’t do anything with it. The reason this is different from say Coinbase who does that is that Coinbase and all other exchanges will provide both proof of their reserves and let you send it off the exchange. If you buy bitcoin on Coinbase you can send it off of coinbase to a different address that you own, and do with it what you want. When Robinhood owns all of it and you can’t do anything with it it opens the door to questionable fraud where they can lock you out of your own funds. This is what happened a few weeks ago with Dogecoin and Gamestop, where the price was incredibly high and Robinhood arbitrarily suspended anybody’s ability to buy or sell it. At that point you’re out of luck. This risk is endemic to any exchange but the chances that Coinbase or Kraken or anyone arbitrarily locks you out from trading are incredibly small.
“Alright so I bought some bitcoin, now what do I do”.
That depends. When you buy the crypto like Bitcoin on an exchange like Coinbase, they essentially hold it for you and you can take it off and do with it what you like, much like a Bank and an ATM. If you plan on just holding it and selling it then you have nothing to do, just keep it on Coinbase and go about your life until you want to sell it and transfer it back to your bank account. Be Aware though, you WILL be required to pay capital gains Taxes on your sale if applicable. If you want to spend it then you should consider transferring it to an external wallet. However, this is not recommended for beginners, and only for more advanced users.
Understanding the different coins out there
As you might have noticed, there’s a LOT of different cryptocurrencies you’ve never heard of with wildly differing prices. This is because much like credit cards with different rewards, these currencies all do different things. While they all rely on blockchain technology, they have different uses and features that make them more attractive based on what you want to do. Just because the price is thousands of dollars doesn’t mean that it’s the best and just because the price is a few cents doesn’t mean it’s going to rocket to the moon like Dogecoin.
It’s at this point you’re probably asking yourself 2 questions: Why is bitcoin worth so much more, and why is it that high. Let’s break it down. It’s important to remember that the ONLY THING that determines the price of a coin is Supply and Demand, what someone else is willing to pay for it. Now what they’re willing to pay depends on what you can do with it. Some coins can only be used for simple transfers like Bitcoin and Cardano, some like Ethereum can be used for interacting with blockchain applications, and so on. People should pick the coin based on what they want to do with it. I’ll explain the differences in coins below.
There are some coins listed on exchanges that are known as “tokens”. A token is a special type of cryptocurrency that exists as part of another blockchain and provides some kind of special use or value. It can exist in the same wallet. If you have an ethereum wallet then you also have an ethereum token wallet. Be sure to check that you’re sending the token to the applicable wallet otherwise it will be lost.
Before I get to the descriptions of the different coins it’s important that I explain a few terms.
Scalability – How fast can the network grow to handle an increase in traffic. Blocks in the chain have fixed sizes meaning it can only handle a certain number of transactions. Figuring out how to make this scale to accommodate higher traffic is the single largest issue facing cryptocurrency today because it prevents it from being widely used. If you fee to use bitcoin is $20 and it takes hours to complete then it’s pointless to use for everyday purchases.
Proof of Work – The consensus algorithm behind Bitcoin. To add a block to the blockchain every miner has to solve a computational puzzle at the same time. Whoever solves it first gets to add the block to the chain and gets all the rewards that go with it. This results in a lot of wasted energy expended as miners compete with each-other, and substantially limits the scalability of bitcoin.
Proof of Stake – The Consensus algorithm behind ethereum and a lot of other major coins like Cardano. Is ~95% more efficient than Bitcoin’s Proof of Work because it eliminates the mathematical puzzle needed to add a block to the chain and makes it more difficult to be hacked.
Ether – The core token of the ethereum blockchain. Ethereum is the name of the platform but Ether is the core coin and spending it allows you to interact with all of its applications in addition to being able to be exchanged for goods and services in the real world. The transaction fee you pay with ether is known as “gas”.
Smart Contract – A program built and existing entirely on the blockchain. It operates with complete autonomy and can do things any other program can do. You interact with it by spending your cryptocurrency. It was created for the ethereum blockchain but exists on several now. It is the core of what makes Ethereum valuable and empowers everything including governance, Decentralized Finance, tokens, etc.
Decentralized Autonomous Organization (DAO) – A special type of organization built on the blockchain that allows a community of people to vote on various things related without having to delegate authority to a single trusted actor.
Governance Token – A token that allows you to vote in a DAO. The more you hold the more voting power you have. It is a token just like all others with its own dollar value and transfer properties except its value is derived from the value in voting for something. Governance tokens for Decentralized Lending protocols like Compound, allow you to vote for things such as what interest rates charged and earned should be.
Market Cap – Same as with Stocks. Value of all tokens in circulation => Circulating Supply * Price per Token
Circulating Supply & Total Supply – The amount of coins/tokens currently in supply and the total available supply. Tokens typically have hard caps coded in, but coins can have unlimited supply. Bitcoin for example has a hard cap of 21 million and is currently circulating at around 15 million and creates 900 new ones per day. Ethereum on the other hand, has no set limit and a fixed schedule for creating new coins. Keeping track of the supply is crucial in determining how big the risk of inflation is and where it could be headed.
Initial Coin Offering (ICO) – The first time a coin/token is being sold. Done to raise capital by the company and can be purchased a variety of ways based on the project. Much like an IPO, are much riskier but can mean significant returns.
DeFi (Decentralized Finance) – The core of ethereum and many Smart Contracts. It decentralizes many of the core aspects of finance that traditional institutions use to attract you to them. Decentralized Lenders allow you to loan out your cryptocurrency to others in exchange for interest. You can take out loans in various currencies anonymously and at low interest rates. You can swap coins and tokens in a fast, anonymous, and decentralized way. You can tokenize real world assets such as commodities and stocks and trade them on decentralized exchanges. There is Decentralized Insurance, Decentralized Gambling, Commodities Exchanges, etc. the use cases are endless and growing every day. At the time of writing this there is currently ~$18 Billion dollars in the DeFi ecosystem and growing.
Stablecoin – Another core use case of DeFi. It’s a token whose value is pegged to the value of a real world asset and therefore doesn’t fluctuate. There are many different ones currently doing a very good job of being pegged to the US-Dollar without fluctuations. You may have heard of a few such as Dai, Tether, US-Dollar-Coin (USDC), etc.
Altcoin – Any coin that is not Bitcoin
Memecoin – Any coin whose sole purpose is to be a joke (Dogecoin, Safemoon, Elongate, etc.) and has no actual future or use case beyond being a joke. DO NOT BUY THESE. People promoting them will use words like “deflationary” or “100x in value” but at the end of the day their price changes are almost completely random and they have no future and you will most likely end up losing your money.
Tokenomics – The word used to refer to all questions of the token’s value and growth. Includes market cap, supply, price, growth rate, etc.
FUD – Fear, Uncertainty, and Doubt. This goes away when you are confident in your investment decision that comes from knowing the ins and outs of your research.
FOMO – Fear of Missing Out, the most powerful motivator in getting people to invest more money than they should in projects they know nothing about that are obvious scams or pointless meme coins.
Oracle – A program on the blockchain meant to get outside information. Without them, Blockchains are a closed ecosystem. They can’t reach out into the open internet to get information from API’s like other applications. Oracles are special programs that are meant to solve this by allowing Smart Contracts to get information from outside sources and use it to enhance their functionality. For example, imagine you had a crop insurance policy on the blockchain that said if it snowed more than 3 feet in your city the insurance contract would reimburse you for the loss. You could pay into this contract by sending Cryptocurrency to the contract every month as a premium. An insurance provider would also pay into it just in case. An oracle could reach out to your weather sensor service everyday and see how much it snowed, and if it was enough to trigger the insurance contract then it would feed that information back and automatically release the insurance payout.
Scalability Trilemma – A term coined by Vitalik Buterin, the inventor of Ethereum, used to describe the central problem facing Cryptocurrency today. There are three parts: Decentralization, Security, and Scalability. Getting 2 of them requires sacrificing one. If we didn’t care about decentralization then we could have infinite scalability and security by just using a regular database. If we cared only about Decentralization and Scalability then it would mean sacrificing security and opening up the blockchain to 51% attacks by malicious actors. In its current form, decentralization and security have taken priority over scalability in places like Ethereum. Other chains with claims of higher scalability have chosen to sacrifice decentralization (Solana, Binance Smart Chain, etc.). There are many proposed solutions to this currently being worked on.
51% Attack – The Cybersecurity term for an attack that compromises the integrity of the network. It occurs when a single malicious actor acquires 51% of the total network ability to add blocks. This is because a transaction is considered “confirmed” when 51% of all transaction validating nodes have agreed it is valid. If a rogue actor was able to control 51% of all confirmation power then they could theoretically do anything, including adding fake transactions giving them millions of free coins. All consensus algorithms are built around preventing this attack and the best solution is the subject of heavy debate. In bitcoin this involves having 51% of all mining-power on the network. In proof of stake networks like Ethereum 2.0, this requires owning 51% of all total coins being used to verify transactions, and is thus much more difficult.
“Well Bitcoin’s worth the most so clearly it’s the best and I should buy that right?”
Not necessarily. It’s worth the most but If you’ve ever spoken with me you know that I’m a very big fan of Ethereum, with a very strong distaste for Bitcoin. This is not an unfounded opinion. I don’t know what’s gonna happen to Bitcoin. It could go up to $100k each or a million or it could go to zero. I choose to invest my money in Ethereum because from a technical perspective I believe it is the superior Cryptocurrency, the most likely to see widespread adoption, and has the largest growth potential. This comes from two sources: Bitcoin’s Scalability problem and the ubiquity of smart contracts.
“Bitcoin doesn’t scale?”
No it doesn’t, and if you ask me or most people in the ethereum community they’ll tell you that the bitcoin maximalists are willfully ignorant of this problem. The bitcoin blockchain was revolutionary for its time, literally creating the concept of the blockchain, but it’s not the best. The first mover advantage can only get you so far if you don’t innovate to keep your lead, and the Bitcoin community has no plans to improve. In its simplest terms, because of the way new blocks are created in the bitcoin blockchain at fixed intervals with fixed amounts of size, as more people try to use it to make Bitcoin transfers, the fees will become exorbitantly high and speed incredibly slow. This is because transactions work on the auction model, where your transaction fees incentivize miners to include it in the block, with the transactions with the highest fees being picked up first. At the time of writing this, the average transaction fee per bitcoin transaction is $26.5 and takes around 10 minutes. If you’re moving millions of dollars around it’s quite a bargain but for the average user that’s an outrageous price to pay. On Ethereum that value is currently around $2.61 and 1-3 minutes. Now those values will go up as more people try to use the currencies and vary based on your ethereum transaction, but you can already tell Ethereum is light years ahead of Bitcoin. Ethereum is currently going through their own set of upgrades and a community working very hard to bring those costs down but Bitcoin’s community has no plans to solve this issue. This is often why you may hear about Bitcoin being used as “a store of value” against inflation. This may or may not be true but it certainly shows that it’s limited in its capabilities.
Second is its smart contracts. Bitcoin’s only use is the ability to send Bitcoin from one person to another. It’s very limited. The creation of smart contracts however has nearly unlimited use cases. However, in order to use these contracts you have to pay a transaction fee ONLY in the native currency of the blockchain. For example, even if you’re using the ethereum blockchain to send a token from one person to another, you still have to pay a transaction fee in Ether only. If you’re exchanging Ether for a USD-Backed stablecoin, you’re still paying that transaction cost in Ether. This means that the value of ether is derived not only from its use as a currency in the real world, but because it gives you access to interacting with thousands of Decentralized Applications. The more goods and services you can spend your ether on, the more value it has. Think about it like gift cards vs. dollars. Gift cards are only good at one place but a dollar bill is accepted everywhere. If you could pick between the two you would pick the dollar every time because it’s possibilities are greater than the gift card. You can’t invest a gift card in the bank and earn interest on it.
In terms of Numbers alone it’s growth potential is outstanding. It currently has a market cap of $311 Billion at a price of $2,700/Ether. At a price of $60k/Bitcoin and a market cap of 1.25 Trillion, Ethereum could grow by literally 4x and still be smaller than Bitcoin by market cap. It’s not unreasonable to think it would grow by 3x and still be less than a Trillion dollars. The combined value of its thousands of tokens and applications give it infinitely more growth potential than bitcoin in terms of value so its definitely within the realm of possibility that it will be worth $1T or even $2T or $3 or more. For reference, the total value of the US Stock market is currently $49T and the total world Stock Value is around $95T.
Alright I’m thoroughly sold on Ethereum, but what about everything else. You’ve gotta diversify?
Diversification is important much like everything you invest in. A good crypto portfolio has a healthy mix of Big-Name Coins (Bitcoin, Ethereum, Cardano, etc.), Smaller Targeted Coins, Tokens, even things like NFT’s and Stablecoins.
I’m gonna talk about all of them here and the different types and then I’ll get into the ones I like the most.
Big-Name Coins – These are the heavyweights of the Crypto World right now, I say that because they offer the most utility. They are typically the native blockchain coins that enable smart contracts on things like Ethereum, Cardano, Solana, Polkadot, etc. That also means they have a lot of growth potential and are much broader in scope.
Targeted Coins – These are coins, typically in their own blockchain but who’s use case is much smaller and meant to achieve a specific goal. Monero for example, is a smaller coin whose main selling point is privacy. Polkadot is meant to facilitate inter-chain communication. Nano is about energy efficiency, etc. You would pick the chain based on the context of your transaction. Need privacy? Pick Monero. Want to move funds between blockchains without exchanges? Use Polkadot, and so on and so forth. This is not to say that these coins have any less growth potential but they’re focused on doing certain things very well. A diversified portfolio uses many of these because the odds are that if Crypto truly changes everything, it won’t be a one coin world. Just like how different credit cards offer different rewards based on your purchases and situation, the future of Cryptocurrency is multi-chain, with people using different ones based on their needs in the moment.
Tokens – I talked about these earlier but I want to clarify that they fall into three categories: Utility, Governance, and NFT.
Utility Tokens – Anything who’s ownership and spending empowers the use of a service. Chain Link Token for example, allows you to utilize its Oracle services in exchange for spending Chain Link, and whose growth will occur alongside the rest of the Ethereum platform. Kind of like how when everyone uses AWS, amazon stock grows with them.
Governance Tokens – Also covered above. A token that allows you to vote in a DAO on a platform. The more you hold the more voting power you have. It is a token just like all others with its own dollar value and transfer properties except its value is derived from the value in voting for something. Governance tokens for Decentralized Lending protocols like Compound, allow you to vote for things such as what interest rates charged and earned should be. The importance and ubiquity of the platform affects its cost. The governance token Maker for example, allows you to vote on changes to Dai, the largest stablecoin in circulation, and its importance to the DeFi ecosystem makes the ability to vote on its worth a lot.
NFT’s – You have probably heard about this on the news, in the form of a clickbait-y article about how someone paid 60 Million dollars for a GIF. It stands for a Non-Fungible-Token, a completely unique and non-reproducible token on the blockchain. This can be used to represent a unique asset that has value assigned to the holder. The most common example of this right now is images and gifs. This is where a person will digitize something like a GIF into a token, and then send it to the highest bidder. This token is linked to your address and allows you to prove that you are the owner. If you’ve ever played a card game like Pokemon or Magic the Gathering, imagine digitizing those cards and then selling them on the internet. There’s already a company doing this called Gods-Unchained where all cards are represented as NFT’s that can be easily created and resold or used to play the game.
The most popular kind right now is digital artwork. This operates kind of like regular paintings. The mona lisa is a beautiful painting and anybody can take a picture of it and reproduce it but at the end of the day someone owns it and proving you are the owner means you can do things like resell it or find ways to earn money from it, for example by lending it to museums. There are art galleries right now finding ways to display these NFT’s to the viewing public while crediting their owner and creator.
There are also many non-art related examples. Because NFT’s can be used to represent any real world asset that is unique and non-reproducible. You could digitize say a land ownership registry for your city and all the Deeds to property. When you sell your house you simply send the NFT to the new owner and it allows them to prove they are the owner of the property, cutting out the middleman. You could create a system for concert tickets, where when you buy one on Ticketmaster it’s an NFT sent to your phone and easily-sellable from anywhere with proof of authenticity. You could digitize domain names and web addresses allowing them to be sold as NFT’s, etc. Investing in these is like investing in art. Some of them have value based on what they are and who created them and a lot of them are junk. Filtering through and finding which has value is a skill in its own right and incurs a very high amount of risk, but if you know what you’re doing you can make a lot. Just be careful. Just because the third string Wide Receiver for your favorite football team is releasing one doesn’t mean you should buy it.
ICO’s – I covered this a bit above but I want to talk a little bit more about safe ICO investing. ICO scams and rug-pulls are an unfortunate part of the Cryptocurrency world, and identifying them is important. Just like some IPOs they can be cheap and part of a high-risk high-reward strategy, except they’re not vetted by an exchange. Investing in these requires extra due-diligence beyond the normal coins. Read the whitepaper thoroughly. Is it incorporated and if so, where? US and EU laws consider Crypto Securities so if something happens can someone go after them for securities fraud and other illicit actions? What are the tokenomics? Are the core developers listed by name and identifiable in the real world? What’s the roadmap? How much am I getting? Can i buy it with a credit card or major financial service or do I just have to send them cryptocurrency. Buying an ICO by sending them Cryptocurrency is a totally valid way of funding, but is always a way for them to leave you holding the bag if you don’t do your due-diligence. The ability to buy on things like Coinbase-Affiliate Program or through major financial instruments like Credit Cards and ACH transfers adds to its credibility. Who else is backing this and are major Crypto outlets taking it seriously? Do your thorough research and you won’t have problems avoiding scams.
Coins that I like
Ethereum (ETH) – See Above. I also think that they’re primed for a big expansion in the next few years. Ethereum is currently undergoing a massive upgrade to something called “Eth 2.0”. This is a massive undertaking where they will switch from being Proof of Work Based to Proof of Stake consensus algorithm. It also includes updates such as something called Sharding, which will increase the transactions per second possible on the blockchain as well as many other community scaling ventures like Rollups and SNARK’s. You don’t need to know what those words mean just that they’re new technology meant to help increase the capabilities of the network.
Monero (XMR) – A token focused on privacy over all else. CryptoCurrencies like Bitcoin and ethereum are actually pseudo-anonymous. This means that your transactions can be linked back to your real world identity. For example, when you send Bitcoin from an exchange to an address, the exchange keeps records of you sending it somewhere. If certain addresses are public knowledge because you disclose it somewhere, then it’s possible to trace transactions back to you. Companies and governments are already working on ways of de-anonymizing these transactions. Monero solves this by obscuring all parts of the transaction from outside viewers. In a Monero transaction the sender, the amount sent, and the recipient are all hidden to any outside observers and completely anonymous. It is based on Proof of work, similar to Bitcoin but does include a robust community and several possible solutions to increase efficiency. Market Cap – $5.8 Billion.
Polkadot (DOT) – A Crypto created by a former creator of ethereum Dr. Gavin Wood meant to facilitate a multi-chain world. Its protocols allow info exchange between MANY different blockchains such as trading Ethereum -> Monero or Bitcoin -> Ethereum in one transaction. It is its own coin and its own chain but it’s main use is for inter-chain operability which means it grows alongside all other coins without jockeying for market share.
Nano (NANO) – All about Energy Efficiency and Speed. It has 99% Less energy Consumption than Bitcoin that allows the entire network to be run from a single wind turbine. This is done by a system where you verify your own transactions, which creates 0-fees and near instantaneous confirmations. Its Market Cap is $714 Million which is very Low in the Crypto World and Could at LEAST go $20-25. Has an all-time high at $32
Chainlink (LINK) – The most popular Ethereum Oracle Program currently in use. I covered Oracles above but it’s the fastest growing one and an integral part of many decentralized Applications.
Basic Attention Token (BAT) – Created by Brendan Eich, Founder of Mozilla and Firefox, BAT
Native Ethereum Token of the Brave Browser. The Brave Browser is built on the Chromium Engine making it compatible with all extensions, but with all the ad-tracking software removed to make it run more efficiently and privately. It also includes built in ad-blocking software. It’s value comes from its re-design of the ad process. In our current system when you go to a website and see an ad, the person running the ad pays google to display it and the website gets the profits. Under Brave, it cuts out google and YOU get rewarded for seeing ads. Companies advertise with Brave in showing you ads. You can turn on the feature that shows you a very limited number of ads in the form of subtle banners in the corner of your screen. Every time you see an ad the browser rewards YOU with BAT token in exchange for your viewing. You can use this to support creators and websites you like on platforms like Github, Twitter, Reddit, etc. or just hold it and exchange it for other cryptocurrencies. As of right now it occupies a very small portion of the browser market but that’s because it’s very competitive. However, it is the fastest growing browser in the world and superior to chrome in every way and once people learn about the idea of being paid for viewing ads they’re already seeing it’s a no-brainer to switch.
VeChain (VET) – Combines QR Codes and Asset Tracking with Blockchain permanence and transparency to Protect Against Counterfeiters & Ensure transparency in Shipping. Imagine walking into a store and scanning a QR code. It then scans the blockchain to get all the information about every step in the journey your product took to get to you to ensure its authenticity and safety. It has Major Institutional Backers – Walmart China, PWC, H&M, BMW, etc. It has major Consumer use cases and scalability that allow consumers to reap blockchain technology benefits without having to use actual currency.
Uniswap (UNI) – The Governance token of the Uniswap Protocol. Uniswap is the core of decentralized finance. It allows you to swap Ethereum and thousands of tokens for one another in a decentralized way with no middle-man and low fees. Normal exchanges operate on the Order book model, connecting buyers and sellers. Because of the way the blockchain works, this is not a good model for Cryptocurrency. Decentralized exchanges like Uniswap utilize the liquidity pool model, where people provide their tokens as liquidity for exchanges in exchange for fees. Let’s say I provide liquidity for a pool exchanging Ether for Chain Link. I provide equal amounts of both of them and wait for someone to swap one for another. When making a transaction, 0.03% of the transaction value is paid as a fee to the liquidity providers, distributed based on your percentage of pool ownership and paid in this token. Ownership allows you to vote on things like changing the transaction fees, creating new liquidity pools, etc. There is currently around ~$9 Billion in liquidity locked in Uniswap with about ~$1.2 Billion in daily transaction volumes, and roughly 20% of all ethereum transaction fees being spent daily on Uniswap, making it an integral part of the ecosystem.
MerchantToken (MET) – An ICO going on right now. One of the benefits credit and debit cards have over CryptoCurrency is the ability to charge back in case of things like theft, as all CryptoCurrency transactions are final and irreversible once completed. MerchantToken seeks to build a platform that does two things: Point of Service Terminals for businesses and Escrow Services for E-Commerce. For In-person businesses they’re building software and terminals to ease the process of accepting CryptoCurrency over credit cards at the point of service. If you’re a business accepting Crypto is a great idea. This is because they pay a fee (usually of something like 1%) to the card companies to accept them, this extra cost being passed onto the consumer. By accepting CryptoCurrency the customer pays for the ability to use it, and the savings are passed onto the consumer. The escrow services are fantastic too for e-commerce. You send your money to the escrow contract and it holds it until both sides agree to release the funds without dispute, kind of like eBay. In the event of things like disputes it offers a variety of services including dispute mechanisms and Oracle Services to resolve them, releasing the funds back to the customer if ultimately necessary and penalizing the seller through the use of things like approval ratings and penalties.
Decentraland (MANA) – A blockchain based video game combining NFT’s and its own native currency. Imagine VR-Chat meets Blockchain. In Decentraland your account is tied to your ethereum address. There are plots of land, much like in minecraft. Each plot is represented by an NFT token that can be sold on the open market. You can buy and sell things and play games and do activities by spending the native token MANA. It’s currently still early in production with VR capabilities still a while away but the investment community is very excited about it and it has a lot of potential.
“So I’ve heard a lot of buzz about these so-called Ethereum-Killers like Cardano and Eos, Should I buy them?”
That’s a tough question with no definite answer. Nobody really knows if they’re gonna be able to overcome anything ethereum has built. It’s possible that they could and it’s possible they could go nowhere. The reason that people claim they would be “eth-killers” is their scalability and low fees. It is true that at the moment blockchains like Solana and Eos have lower fees, but that comes from the fact that less people are using them. Ethereum has high fees because every developer is using it as the base of their applications and so they’re fighting for block space. While some developers are using Solana or Eos for their applications, it’s nowhere near as many people using ethereum which means that the desire for block space is much lower, and thus lower fees under an auction model. It’s a very real possibility that as those platforms grow and more people use them they will encounter very similar problems to Ethereum in terms of scalability. Another important factor is the Scalability Trilemma, which I’ve described above. The chains that have claims of higher scalability have done so by sacrificing Decentralization. For example, chains like EOS and the Binance Smart Chain use a “delegated proof-of-stake” (DPoS) consensus model where only a few privileged users are able to add blocks to the chain. This increases throughput as those block producers can run more sophisticated hardware to increase processing speed, but requires placing your trust in more centralized actors. Ethereum 2.0 chooses a regular Proof-Of-Stake model that allows anyone to become a block producer. This reduces the speed but increases centralization and security by making it harder for a malicious actor to control the network. Given as these coins have prices and market-caps nowhere near that of Ethereum at the moment, a smart investment strategy would be to hedge your bets by purchasing slight stakes in several of them, diversifying your portfolio and minimizing your large exposure to a single coin.