Bitcoin gets its own section because frankly, it’s the most famous cryptocurrency out there.  Sure, Ethereum, Cardano and lots of others are worthy projects, but every time bitcoin goes up in price, the alternative cryptocurrencies (commonly called ‘altcoins’) go up too. Every time bitcoin goes down, the altcoins follow. Bitcoin is currently a significant influence on the value of all digital assets.

People who only believe in Bitcoin are referred to as ‘Bitcoin maximalists’ and those that think Bitcoin is outdated in favour of alternatives are known as, ‘Altcoin Maximalists’. In this section we concentrate on Bitcoin.

Simple Question, What Is Bitcoin?

Bitcoin is a digital asset or cryptocurrency which operates without the need of a central bank or government. It uses a peer-to-peer network and software that utilises cryptography when generating coins and validating transactions on its network.

A public ledger records all bitcoin transactions which are stored as blocks and these are also “chained” together for security. Copies of the ledger are held on servers all around the world – not in any central location.

Bitcoin was the first blockchain cryptocurrency. It has since become a currency for investors and not is really used very much as a currency to buy things.  It’s mostly used to transfer money, trade on exchanges and is regularly compared to gold as a store of value.

A Brief History of the Bitcoin Cryptocurrency

Bitcoin was created in 2009 at the end of an economic recession. Its creator, Satoshi Nakamoto, designed it to be an electronic peer-to-peer cash system which could not be controlled by any one organisation or government.

When the whitepaper explaining the concept was published in 2008 to a cryptographic bulletin board on the internet. The curious readers encouraged it’s further development and when Satoshi Nakamoto created the Genesis block (first block on the blockchain) on January 3rd 2009, the first Bitcoins were generated (mined).

Satoshi Nakamoto is notoriously anonymous.  Nobody knows who he is – or who they are. Mr. Nakamoto could be a group of people!

It’s believed however that the author of the whitepaper is British, or was educated in Britain, or was at least taught English using British spellings, double spaces after full stops etc. Even though written in the correct English syntax ( 🙂 ) I’ve personally tried to understand the whitepaper and found it a little too technical. I’m told it’s very clear to those interested in mathematics and cryptography.

How Bitcoin Works

Bitcoins are created as a reward from a complex mathematical process called ‘Mining’. Lots of computer systems are working at this although there will never be any more that 21 million bitcoin mined. At the moment, there are around 19 million coins and it will take approximately 120 years to mine the rest.

The term Blockchain refers to the viewable ledger that stores all bitcoin transactions. All of them are traceable – every single one.  The idea that criminals use bitcoin to be able to hide their naughty deeds is ludicrous since each bitcoin transaction is recorded on a public ledger – many, many criminals have been caught because they failed to remember this, and because the tools to interrogate the blockchain ledger are becoming more and more sophisticated.

When Bitcoin was originally released, Satoshi Nakamoto ensured that specific parameters were set and that these couldn’t be changed without mass consensus (i.e. by bitcoin miners on the network – at least 51% of them).  Those parameters determine how many bitcoins could be mined, how they could be created, transferred and stored. Since there will only ever be a finite amount, bitcoins are regarded as a scarce resource.  Although regularly compared to gold, bitcoins are, in fact, even scarcer since gold as gold veins are discovered regularly (which may explain why the gold price has stayed at roughly the same over the last 10 years).

Bitcoins are stored in wallets which, to me, are rather like an email account. Bitcoin wallets have a Public Key and a Private Key.  The public key of your bitcoin wallet is like an email address (tonys_bitcoin_wallet@internet-crypto.com) and the Private Key would be like the email account password.  You would be ok with letting people know your address (or Public Key) but you would never let anyone see your email account password (Private Key). If you wanted someone to send you some bitcoin, you would provide your public key rather than the private key. This is perhaps an oversimplification but hopefully, it should make it easier to understand.

Secure storage of your cryptocurrency is very important, especially when you consider that there are no cryptocurrency banks! Although this is considered a positive thing by most cryptocurrency advocates, it can be concerning when you realise that only you can be responsible for securing your cryptocurrency fortune.  If you lose your wallet or forget the keys, or send the currency to the wrong address, you will lose your currency.

It’s estimated that of the 19,000,000 bitcoin out there, at least 3,500,000 have already been lost forever (that’s over 100 Billion dollars worth!).  Mind you, for the first few years, bitcoin didn’t have much of a value and there was little concern for security and custody of the coins.

Bitcoins are created by miners as a reward each time they solve a complex mathematical equation.  Strictly speaking, the ‘equation’ is actually complex computers guessing the answer to a mathematics problem – they do this at huge speeds in the hope that they can beat other miners to get the answer. If they get the answer right, they are rewarded with a specific amount of Bitcoin which they can then trade or hold in their wallets. Meanwhile a block is created and consensus from other mining operations is achieved (i.e. the block is validated) and the block is written to the blockchain.  This mechanism of consensus is known as ‘Proof of Work’.

You could become a bitcoin miner yourself but the bitcoin mining computer systems (also known as ‘nodes’) are very powerful and expensive to run. They use huge amounts of electricity – some bitcoin mining operations use as much electricity as a city!

Currently, around 450 new bitcoins are rewarded each day to many mining operations spread all over the world. And because around 144 blocks are created on the bitcoin blockchain (each day).  This equates to 3.125 Bitcoins per block.

It hasn’t always been 3.125 bitcoin per block.  Satoshi Nakamoto built into the code a ‘condition’ that for every 210,000 blocks created on the blockchain, the value of bitcoins rewarded should be cut in half.  It takes approximately 4 years to create that many blocks and the next one is due in 2028.  The rewards for creating a block will then be cut from 3.125 to 1.5625.  Eventually, the reward will go to 0 (it’s estimated that this will take around 120 years).

Bitcoin, Cryptocurrency to the Moon

Bitcoin halving’s have happened three times so far and every time they do, the currency becomes more scarce – when this happens, price goes up considerably.  Notably, the price never returns to the previous cycle highs, it just goes higher.  Some say that in the next few years, certainly within our lifetime, bitcoin will reach over $1,000,000.

Because most cryptocurrency enthusiasts view bitcoin as a store of value, you wouldn’t use it as a currency to, for instance, buy a coffee. Bitcoin is more valuable than your fiat currency. This is because it increases in value over time in comparison to fiat assets. We should use fiat money to to pay for things as this is an inflationary asset, it de-values over time. Fiat cash is for spending, bitcoin is for saving.

The reason Bitcoin is so volatile (it can have price swings of 20% – 80% up or down!) is because the market is still immature.  A lot of investors expect to buy cryptocurrency and get-rich-quick. Although there are an estimated 100,000 wallets with more than a million dollars worth of bitcoin in them, most people behave very poorly when they invest in cryptocurrencies.  They buy when everyone else is buying (when the price is near the top) and sell when the price starts to drop rapidly. This adds to bitcoins volatility.

As the market matures, such volatility is expected to get better in the next few years as more people become familiar with the technology and the currency but until then, we will continue to hear terrible stories of people who invested poorly and have lost all their money.

Interesting facts about the Bitcoin Cryptocurrency

There are lots of interesting facts about Bitcoin as it has increased in value over the years;

• • HODL is a term that was started by a bitcoin investor who posted on a bulletin board that he would hold onto his bitcoin for dear life!  He mistyped the word hold and the term has stuck.  If you hold bitcoin (in fact any cryptocurrency) for the long term, you are known as a hoddler.
  • Headline: 2019 “Bitcoin will soon be worth zero” – New York Post (Value at the time: $7,995).  When you consider that bitcoin subsequently went down by almost $4000 dollars, The New York Post may be forgiven for it’s doom-and-gloom headline.  At the time of writing this article, we are at the start of a bear market and the press are writing similar types of headlines.  Bitcoin has crashed almost 60% and in now valued at a poultry $30,000 (down from a recent high of $69,000).
  • In 2009, Satoshi Nakamoto generated the first bitcoin block (Genesis Block) in the blockchain and to mark the historic event, he recorded in the block, a headline from the London Times, “The Times 03 Jan 2009, Chancellor on Brink of Second Bailout for Banks.”
  • In 2009, if you mined a Bitcoin cryptocurrency block it could have been done on any old cheap computer and you would have been rewarded with 50 Bitcoins.  In 2013 it became a little more competitive as the price of bitcoin increased – rewards were cut to 25 Bitcoin.  In 2017 the rewards for creating a block dropped to 12.5 and today they stand at 6.25.  In 2009 bitcoin was worth a fraction of a cent.  In 2013 it was worth about $1000, In 2017 it shot up to just under $20,000.  Last halving, Bitcoin rose to over $65,000.
  • On May 22nd of 2010, Laszlo Hanyecz paid 10,000 BTC for two Papa John’s pizzas, which cost about $41. If those pizzas were bought today, they would cost more than $300 million. May 22nd is now known by cryptocurrency fans as ‘Bitcoin Pizza Day’.
  • You can buy fractions of a bitcoin.  A Satoshi is a 100,000,000th of a bitcoin.
  • In 2020 The average cost of a home was $250,000 or 400 Bitcoin. In 2024 the average cost of a home is $460,000 or just under 5 Bitcoin.
  • The only known Bitcoin bug: On 15 August 2010, the vulnerability was spotted after it was exploited by creating billions of bitcoin in two separate accounts. Within hours, the transactions were spotted and the bug was fixed and the blockchain was updated with a new version of the software. It was the only major exploit in the history of bitcoin.
  • Bitcoins don’t actually exist (either digitally or physically).  Only their transaction information exists on the Bitcoin blockchain.  When coins are minted (as a reward for the creation of a block), the Bitcoin software and consensus mechanism rewards the miner by creating and recording a transaction that deposits bitcoin in the miners bitcoin wallet address.  No actual bitcoins are sent, a transaction is simply recorded on the blockchain.
  • Bitcoins don’t have serial numbers or denominations etc. since the only reason that they exist is to form part of a financial transaction. You will never be able to list all the bitcoins in your wallet.  You can however trace every financial transaction to and from any wallet as all transactions have been recorded to and from every wallet since the very first bitcoin was minted.

In section seven we will look at the considerations you need to address before you begin the process of investing in cryptocurrencies: Investment in Cryptocurrencies – Basic Awareness.

This article is copyright 2024 by Tony Fawl, CryptoNET.

This page is part of the How to Crypto Web Series, an awareness course for beginners interested in blockchain projects and cryptocurrency investment. Please checkout the Bibliography and Glossary of Terms pages for other useful resources and links. To find out what we do, take a look at the About Us page.

Disclaimer: CryptoNET.org.uk is not a registered investment, legal or tax advisor or a broker or dealer.  All investment/financial opinions expressed by CryptoNET.org.uk are from the personal experiences of the owner of the website and are intended as educational and entertainment material. Best efforts are made to ensure that all information is accurate and up to date but we would still recommend that you do your own research before making investment decisions. 

If you have found this page useful, please consider a small donation to help keep the site funded:

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Thank you.

When reading about cryptocurrency, you may have heard the term “Web3”, especially in the context of digital assets.  Before I can explain what Web3 is, we should briefly confirm our understanding of Web1 and Web2.

In layman’s terms, Web1 was a read only version of the World Wide Web.  Web pages in the late 1990’s were Web1. If you wanted your own website, you would create a web page of text and graphics with clickable links to further information etc.  It was a little cumbersome and slow and you needed to learn html programming and upload information (i.e. your web-pages) to a web server so that others could see them.  Businesses used Web1 to showcase their products and Web1 websites were like electronic on-line brochures.

Figure: This is a picture of John Legere from AT&T Asia-Pacific taken from an interview where he talked about the company’s new internet service (Oct. 10, 1995). OMG, I used to have a tie like that!  Image Credit: PAUL WAN/SOUTH CHINA MORNING POST VIA GETTY IMAGES

Web2 is very similar – but it’s more dynamic and interactive.  It requires higher bandwidth and more powerful computers to use. Web2 lets us write information to the internet without having to know HTML programming.  We can blog, buy on-line, leave messages with pictures and videos that we can upload for all to see using services such as YouTube, Facebook, Twitter etc.

We can manage our finances at online banking websites and shop online at places like Amazon etc. Web 2 uses centralised data-centres which are considerably more powerful than the servers used to host the older, more static websites. HTML is an almost  archaic language by today’s standards – websites are written dynamically and generated new every time the page is visited. While we benefit from more functionality and ease of use, we now suffer less control over the information that we upload and communicate.  Who owns the pictures you upload to Picassa or the videos of your family holiday you upload to Facebook? Some of us have concerns about the security, intellectual property ownership and privacy of the information we currently communicate with Web2 websites.

Web3 allows us to do all the things we can do with Web2 but importantly, significantly, it uses decentralised technologies to encode embedded, financial and legal privacy protection into our transactions.  We now have the ability to read, write and own our data.  

We have the opportunity to move our information and digital currency around freely without interference from corporate, financial or government institutions – or thieves.  Web3 lets us to prove that we own our data without a costly professional legal team and it allows us to store and send our money to anyone in any part of the world without the need of a bank – we are our own bankers!

Web1 -> Web2 -> Web3  =  Read-Only -> Read-Write -> Read-Write-Own

Cryptocurrency Web3 Examples

Lets stop for a moment and consider how this is useful.  How will this technology put more people in control of their future? Here are just three examples of financial freedom enjoyed because of cryptocurrency:

Example One. Miguel Zonte in the USA is able to send money to his family in El Salvador using bitcoin.  Because it is almost instantaneous and because bitcoin is legal tender in El Salvador, his family (who unfortunately aren’t eligible to have bank accounts) are able to receive the money via mobile phone and use it without paying high US money transfer costs (these can sometimes as much as 30%).  His family are able to receive those funds without waiting (sometimes days) for the bank to confirm the movement of money from one account to another. Miguel’s family are considerably better off because of crypto.

Billions of people are set to benefit: There are almost three billion people in the world without a bank account. Many are shut out of the economy and forced to work in poorer paying jobs (despite their level of education and status) and unable to get credit (i.e. mortgages, credit cards etc.) or use a debit card.  Crypto is providing a solution – all they now need is a phone to be able to receive and transfer crypto quickly and legally. 

Example Two: Freedom for Larmina in Afghanistan.  Larmina had suffered for years at the hands of an abusive and controlling husband. However, because she had a blog and because she received donations in bitcoin, she was eventually able to save enough to divorce her husband and escape abuse and hardship.

Having access to, and being able to generate, your own funds is something that many of us take for granted. Cryptocurrency is the only solution for a great many people and something which is being increasingly facilitated and encouraged. Bitcoin may be outlawed in some countries (like China) but even that cannot be effectively enforced because cryptocurrency is difficult to manipulate.

Example Three: Protection from financial abuse by their government; Freedom Convoy 2022: In 2022, Truckers protesting against Covid-19 restrictions in Ottawa demonstrated peacefully at numerous locations across Canada. Unfortunately within days, some demonstrators found that their bank accounts had been frozen and Canada’s Prime Minister Justin Trudeau, invoked the Emergencies Act to include cryptocurrency transactions. The Ontario Superior Court of Justice sent Nunchuk, a self-custodial Bitcoin wallet, a “Mareva Injunction” ordering the company to freeze and disclose information about the assets involved in the Freedom Convoy 2022 campaign.

In an official response to the Ontario Superior Court of Justice, Nunchuk replied, “… it is a self-custodial, collaborative multisig Bitcoin wallet” and that they are a “software provider, not a custodial financial intermediary.” They went on to add:  “We do not collect any user identification information beyond email addresses. We also do not hold any keys. Therefore, we cannot ‘freeze’ our users’ assets. We cannot ‘prevent’ them from being moved. We do not have knowledge of ‘the existence, nature, value, and location’ of our users’ assets. This is by design.”

If you have the crypto in your wallet, nobody can take it away from you – not even your government – If you are the owner and have sole access to your private wallet key, it means that it’s your crypto, if not, then it’s not your crypto! Most people recommend that you transfer your cryptocurrency into a hardware wallet (offline storage).  This will give you the most protection and security against theft and abuse.  See the section on Crypto Security, Protecting Digital Assets.

In section four we will take a look at the difference between the types of digital asset: Coins, Tokens & Layers.

This article is copyright 2022 by Tony Fawl, CryptoNET.

This page is part of the How to Crypto Web Series, an awareness course for beginners interested in blockchain projects and cryptocurrency investment. Please checkout the Bibliography and Glossary of Terms pages for other useful resources and links. To find out what we do, checkout the About Us page.

Disclaimer: CryptoNET.org.uk is not a registered investment, legal or tax advisor or a broker or dealer.  All investment/financial opinions expressed by CryptoNET.org.uk are from the personal experiences of the owner of the website and are intended as educational and entertainment material. Best efforts are made to ensure that all information is accurate and up to date but we would still recommend that you do your own research before making investment decisions. 

Knowing the difference between Cryptocurrency Coins, Tokens and Layers will help you identify specific areas when targeting your investments.  It’s also really useful when listening/watching media about crypto.  We also need to know how they came into being and what is meant by mining a coin.

First though, lets looks the question most beginners ask about coins and tokens, “What is the difference between a Coin and a Token?“

Typically, a cryptocurrency Coin is a currency that uses its own blockchain (e.g. Bitcoin (BTC), Litecoin (LTC) & Ethereum (ETH)). For the most part that’s basically all they are about.  The coin is exchanged for goods and services just like any other currency but these times, there are instances where we need more functionality from our currency. 

Cryptocurrency Tokens are normally created on someone else’s blockchain.  An example of a token is the Basic Attention Token (BAT) which utilises the ecosystem on the Ethereum blockchain.  There are many more Tokens than there are Coins since it is much more difficult to develop a proprietary blockchain network than it is to simply use one that already exists.  Tokens are most commonly associated with the ability to include smart contracts.  These add considerable power to financial transactions and services on the blockchain and help secure transactions from interference and malicious third parties.  So, we should also define them more clearly.

Smart Contract (definition from IBM.com): “Smart contracts are simply programs stored on a blockchain that run when predetermined conditions are met. They are normally used to automate the execution of an agreement so that all participants can be immediately certain of the outcome, without any intermediary’s involvement or time loss.”

Smart contracts are a tremendous innovation and are one of the main reasons why cryptocurrencies are destined to require less interaction with banks.  such contracts enable trustless transactions between people.  I don’t need to trust someone when I exchange Bitcoin for Ethereum, I rely on the smart contract to handle the transaction competently and honestly.  It’s really that simple!

Blockchain Layers are a little more difficult to define.  Essentially, the two main layers are rather unimaginatively called: Layer 1 and Layer 2:  

Layer 1  

This is the ‘root’ or ‘base’ layer – it manages the key elements of the blockchain such as its immutability, security (e.g. validity and consensus protocols) and all the necessary parameters that keep the blockchain running. 

Layer 1 blockchains can validate and finalize transactions without the need for another network. They can have more complicated features too, such as smart contracts which enable decentralised autonomous applications to run on them.

Examples of Layer 1 Coins are:

Polkadot	Elrond	Solana	Binance Smart Chain	Ethereum

Layer 2 

These are the overlapping applications and protocols that sit on top of the Layer 1 infrastructure. They are typically used to improve scalability and speed by separating out some of the key work elements of the base layer.

The Lightning network is a Layer 2 solution that sits on the Bitcoin Layer 1 blockchain.  It has greatly improved Bitcoin’s speed and operability.

Tokens can eventually become coins when they migrate to their own blockchain (e.g. Binance Smart Chain Coin and Tron). Some of the most commonly talked about Layer 2 tokens are:

Polygon (Matic) Offers fast transactions and applications on Ethereum	Arbitrum Uses Ethereum’s main chain to verify transactions	Loopring Verifies transactions with privacy	Immutable X Specializes in NFT trading at low fees	xDai Chain A decentralised sidechain and stablecoin

There is also a Layer 3 on some blockchains.  Layer 3 is commonly known as the application layer of the blockchain.  It would contain the DEFI (Decentralised Finance) Applications and the Gaming and Metaverse ecosystems.  A good example of a Layer 3 would be Uniswap, a decentralised exchange enabling users to buy and sell (by swapping) a very large range of different cryptocurrencies.

I should also mention Layer 0.  This is the layer that everything sits on.  A good example of a Layer 0 is of course, the internet.  Most of the news you will hear about blockchain ‘Layers’ will concern Layer 1 and Layer 2.  Layer 3’s can come and go without affecting the base blockchain but if there was a problem with the Layer 1 or 2 of a blockchain it would have serious consequences for users trying to access currency or data information.  Changes to Layer 1’s and 2’s are taken very seriously with security being a key concern and as a result they can take years to implement.

Mining & Consensus Mechanisms

Mining is the process that is used to create and validate new coins and transactions on the blockchain. In the case of Bitcoin, anyone can become a Miner provided they can afford the huge costs of powerful computers needed – and provided it is legal in that country (e.g. Bitcoin mining is illegal in China). The Bitcoin miner will solve a complex mathematical problem in order to verify and validate a new block on the bitcoin network.  They can also validate individual bitcoin transactions. If they do this effectively, miners are paid in bitcoins (BTC).      

There has been a lot of bad press lately about the environmental cost of mining bitcoin.  Some of the mining installations use more power than some small towns and cities and the carbon footprint of such installations is considered very high.  If you dig a little deeper though, you will see that mining companies are desperate to find the lowest cost of power for their mining operations and invariably, this is in the form of renewable energy – especially off-peak energy that would normally go to waste such as a hydroelectric power station or by using ‘stranded’ natural gas that would otherwise have been flared. The president of El Salvador wants to set up a mining facility that utilises the power from a volcano!

Bitcoin mining is becoming greener each year and many of the doom and gloom environmental reports have been debunked (see the CNBC report, the article from CATO or the report by Forbes Magazine ).

Consensus Mechanisms

There are protocols that are used in the recording and validation of crypto currencies that are mined and these are known as ‘consensus mechanisms’.  Consensus is not done in the same way for all blockchains, some utilise complicated calculations such as bitcoin and some use nominated validators.  Consensus must be self-regulating and incorruptible as it involves adding/deleting/updating transactions and the responsibility for maintaining the ledger on the blockchain. There are many types of consensus mechanisms.  The two most talked about are ‘Proof of Work’ and ‘Proof of Stake’.

Proof of Work  

Investopedia states that, “Proof of work describes the process that allows the bitcoin network to remain robust by making the process of mining, or recording transactions, difficult.” This means that a complicated calculation needs to be solved by the miner before the block is recorded on the blockchain and the miner is paid.

Current mining difficulty levels are so high that only large computer installations are able to solve them. Complexity is built in to ensure difficulty. Only the most powerful computer systems are able to solve the proof of work algorithm and this increases in difficulty the more powerful the computers become.

The very first bitcoins were mined without much competition on small desktop computers about as powerful as our mobile phones (maybe even less powerful!). As more and more computer nodes came onto the network to earn bitcoins, the more complex the calculation needed to become and  the ‘hashrate’ (which is determined by the complexity of the computer calculation needed to confirm a new block on the blockchain) increased. It is said that the higher the hashrate, the more secure the network is from attack. 

Proof of Stake

This is a little more complicated in that they work by selecting validators to append records in the blockchain.  Validators are approved subject to their value status of holdings in the associated cryptocurrency.

Validators are not rewarded with coins but are allowed to charge fees for validating transactions.  The charges are usually quite small but there are a lot of them.

Ethereum’s developers have been trying to combat the present limitations in scalability of Ethereum because as Ethereum-powered decentralized finance (or DeFi) protocols have surged in popularity, the blockchain has struggled to keep up, causing fees to spike.

Their solution has been to build an entirely new blockchain (called ETH2) which should be finished sometime in 2022 (though it keeps getting delayed). The upgraded version of Ethereum will employ a faster and less resource intensive consensus mechanism, proof of stake. Cryptocurrencies including Cardano, Tezos, and Atmos all use proof-of-stake consensus mechanisms which are supposed to maximize speed and efficiency while, at the same time, lowering fees.

This has so far had limited success, Cardano, a very much respected cryptocurrency, is suffering problems with scalability and performance that seems to be holding up it’s adoption.

The first example of Proof of Work was Bitcoin and the first example of Proof or Stake was Peercoin (2012) although the most commonly recognised Proof of Stake cryptocurrency is Ethereum.

There are other consensus mechanisms and it may be that new ones will become the norm in a few years time.  Current consensus mechanisms are either too energy intensive or suffer poor performance.

In section five we go into a little more detail about the types of digital asset and how they are grouped: Cryptocurrency Use Cases looks at Store of Value, Play to Earn, NFT’s, Decentralised Finance and others.

This article is copyright 2022 by Tony Fawl, CryptoNET.

This page is part of the How to Crypto Web Series, an awareness course for beginners interested in blockchain projects and cryptocurrency investment. Please checkout the Bibliography and Glossary of Terms pages for other useful resources and links. To find out what we do, take a look at the About Us page.

Disclaimer: CryptoNET.org.uk is not a registered investment, legal or tax advisor or a broker or dealer.  All investment/financial opinions expressed by CryptoNET.org.uk are from the personal experiences of the owner of the website and are intended as educational and entertainment material. Best efforts are made to ensure that all information is accurate and up to date but we would still recommend that you do your own research before making investment decisions. 

If you have found this page useful, please consider a small donation to help keep the site funded:

[crypto-donation-box]

Thank you.

For some people, Bitcoin is the only cryptocurrency worthy of consideration – such people are known as bitcoin maximalists.  They would use this as a store of value (i.e. to save) because they believe that its scarcity and immutability are worth the investment.  However, blockchain technologies have many uses.  These are not always obvious and some aren’t able to easily demonstrate financial viability.  They are however, definitely worth looking into.  This is a completely new technology and use cases are being defined (pre-development) all the time. 

It’s worth your time to look for new and interesting blockchain ideas and concepts.

Use cases for Cryptocurrencies broadly fall into the following categories:

• • Store of Value
  • Stablecoins
  • Layer 1 Ecosystems
  • Decentralised Finance
  • Non Fungible Tokens (NFTs) 
  • Storage
  • Metaverse
  • Games

This is a scary list for people new to crypto – it’s a scary list for those who have been involved in crypto for years!  They are difficult to keep up with since most are new technologies and still evolving.

Lets look at them in a little more detail:

Store of Value

Besides being a highly efficient form of payment, some cryptocurrencies are an excellent store of value.  Such currencies are designed to be like Gold in that they are (or will be) more scarce over time. There are exceptions, but generally, the more scarce a cryptocurrency, the more valuable it will become. Bitcoin is the leading example of a Store of value cryptocurrency.

Bitcoin has, on average, increased in value by 200% each year since 2009. The reason we pay more for a bottle of milk now than we did 20 years ago is because the value of our fiat currency is less. There is more of it (especially after the COVID pandemic). Commodities that we purchase with fiat currency are just as valuable as they were in the past, but the pound/euro/dollar/yen isn’t, commodities will increase in cost over time if you use an inflationary currency to purchase them.

Depressingly, there are many people studiously saving their fiat currency in their bank savings account which is paying them less than 1% interest.  Since inflation is currently around 8%, they are effectively losing 7% of the value of their savings.

Over the past 10 years, holding Bitcoin has been a proven way to secure the value of your investment with little risk.  What puts people off is bad press and volatility.  Such volatility elevates investment risk to unacceptable levels in the eyes of the average investor.

Stablecoins

This type of coin is designed solely to maintain a stable market price.  Tether is a good example of a stablecoin – it is ‘tethered’ to the US Dollar so it’s value will not change no matter what happens – if inflation devalues the dollar, Tether coins will be devalued along with it.

In recent times it has grown in popularity because it is used as an on-ramp or off ramp trading mechanism for crypto investments.  For instance, I might use my fiat currency to buy USDT (Tether Coin) because it is the only stable pair to buy the crypto token that I want to purchase (see the section on Buying and Trading Crypto).  I would then trade my USDT stablecoins for the cryptocurrency of my choice on the relevant Central Exchange. Stablecoins are obviously more resistant to market volatility than other crypto currencies since they are tagged to fiat currencies (usually US Dollar). Being tethered in this way helps them avoid wild price swings.

Layer 1 Ecosystems

A layer 1 network is another name for a base blockchain. Bitcoin is a Layer 1 protocol as is Polkadot, Elrond, Solana, BNB and Ethereum. They are called layer 1 because they processes and finalizes their own network transactions. They also have their own native token/coin, used to pay for transaction fees (known as gas fees).

A layer 1 blockchain is very difficult to set up.  It involves some very complex programming to ensure it is secure, that is, coins or tokens cannot be ‘double counted’ and that they can be easily transferred between wallets and services reliably.  There are currently around 10,000 cryptocurrency coins and tokens but only a very small proportion are Layer 1.  Most tokens use a Layer 1 blockchain to manage their transactions and smart contracts.  It is much easier and very much cheaper for them to do this.

Layer 1 Coins are considered to be a stable investment because of this.  If their network proves to be secure and easy to use, other projects will want to build on it.  This is the main reason that Ethereum is so popular. It was the first Layer 1 protocol to use smart contracts and makes it very easy to develop applications and services on it’s ecosystem.  Unfortunately for Ethereum, it was one of the first blockchain protocols of this type and suffers from a programming language that, in my opinion is really clunky, difficult and expensive (high gas fees) to use.

DEFI (DEcentralised FInance)

This makes borrowing and lending very much simpler and accessible.  Decentralised finance applications utilise a complex but very logical set of actions called a ‘smart contract’ to enable quick and easy transactions to be completed without the need for banks and other financial institutions.  Low fees, low interest rates and improved accessibility to funds are also greatly improved.

Because cryptocurrencies are cross border, the decentralised borrowing and lending processes can be conducted globally. Remember, there is no one person (or persons) determining your eligibility, this is done logically and without prejudice no matter your skin colour or location or status!

There are new projects setting up that will allow investors to share in the profits as a group for Liquidity Farming and Node production fees.  These services are quite complicated to explain in terms of basic awareness.  Essentially, Node as a Service (NaaS) and DEFI as a Service (DaaS) projects enable investors to group together to own nodes on a network that generate fees from validating transactions and minting new coins. They can also take part in liquidity farming which is a service whereby users invest their crypto in a liquidity pool that is used for buying and selling coins/tokens. in effect, they are lending their money to a pool and gaining interest (sometimes as much as 20%!).

Non Fungible Tokens – NFT’s/Tokenisation

NFT’s have been making the headlines in the press for many reasons lately.  Most of these are for the huge prices being paid for them…..

An NFT a Non Fungible Token (non-fungible means it is unique) is the digital representation of a real-world asset (for instance a painting or a building) or a wholly digital asset (e.g. a photo from a digital camera or a cartoon image). It can be a document, artwork, real estate or commodities,  it can even be the digital representation of a website domain name (like ‘tonyfawl.crypto’).

The concept can even be developed even further.  You could for instance, be an artist that paints a picture that is tokenized (in terms of ownership) to 1,000 tokens.  Those tokens can then be bought and sold as NFT cryptocurrency tokens as part shares in the picture.  

Check this out!

This NFT is part of a picture called Merge.  The Merge image was made by a guy called Pak and was recently sold for a whopping 91.8 million dollars!  Yes, I don’t know why either – it’s not even in colour! It’s strangely upsetting, like watching everyone around me is laughing at a joke that I don’t understand.

Worse still, to make it affordable to the masses, it was sold in little pieces:  

“The NFT Marketplace Nifty Gateway launched Merge which is unique in that buyers are not buying actual NFTs. instead, they are paying for “bulk” tokens that will be combined into dynamic, unique NFT collectibles after the token sale.  Pak’s prominent image and mysterious format clearly appealed to NFT collectors, as a total of 28,984 buyers spent a total of $91.8 million during the two-day token sale. According to final statistics provided to Decrypt (website) by the Gemini-owned marketplace, a total of 266,444 tokens were purchased, with some buyers accumulating (up to) 8,695 tokens. Existing Pak NFT collectors were given early access to the sale and could purchase tokens for $299 each, while the public sale began at $400 per token, with $25 increments every six hours. The final tokens were sold for $575 each.“ (from an article on ultcube.com). 

NFTs are increasing in popularity and although most are completely worthless, all of us are able to create and own them without fear that they can be copied – i.e. that it’s authenticity is not in question. You can copy one of these as much as you like but you will never be able to prove that you own the copyright to the counterfeit because true ownership is recorded on the blockchain).

Other famous NFT’s include:

Cryptopunk #8507 Sold for $23.7 Million	Bored Ape Yacht Club #8817 Sold for $3.4 Million

The two NFT’s above were sold at a high price because they have elements of the picture that are unique to other similar NFT’s.  For instance, the Cryptopunk NFT, #8507 has a clean face and a bandanna – no other cryptopunk has a clean face, they either have a pipe, beard or mask etc. which makes them unique (scarcity adds value – a lot in this case).

The most important thing to remember about NFT tokens is that  they can be transferable and traded very easily – in the same way as currency.  As such, the value of the ‘currency’ can go up and down too.

Shroomz #8923 Available for $17.63	Mr Nutbush: Axie 2805857 I bought it for: $988 It’s currently worth $95

Sometimes however, NFT’s can be very useful!  

This website CryptoNET.org.uk is housed on a cloud server in the United States.  The domain, cryptonet.org.uk costs around £20 per year for me to ‘rent’ – I don’t own it, if I don’t pay the rental fee when it’s due, I loose the domain name.  I pay this fee to a managing agent that secures it for me – they do nothing else other than act as a custodian.

I also have two domains that are NFT’s one is called tonyfawl.crypto which points to this website.  It costs a little more that $20 but it is a one-off fee.  I don’t need to pay it each year, once I have bought the NFT it is mine until I sell it.  

Even more useful, I have another NFT domain called tonyfawl.wallet which is set up so that if anyone wanted to send me some crypto, they could just enter the ‘To’ address as ‘tonyfawl.wallet’ rather than the long and complex crypto address (e.g. 0x706E4aF664183dcD4aF66A515E35ce93E3174aF6688). In my case, this address can accept crypto donations for Bitcoin (BTC), Ethereum (ETH), Avalanche (AVAX), Cardano (ADA), Polkadot (DOT) etc.  Amazingly, as long as I have my NFT wallet domain configured to accept those currencies, I can accept donations from anyone and the currency will be deposited directly into my personal crypto wallet.

I purchased both NFT’s from Unstoppable Domains which has certainly made life a little easier. You need a special extension in your chrome browser to access .crypto domains in your web browser – the facility isn’t ‘built in’ just yet.  But it’s a nice idea – I really hope the facility it is adopted into mainstream browsing.

Another useful aspect of Non Fungible Tokens is {normal asset} tokenization.  This is an easy way to allow global buyers access to products or objects such as houses, painting, statues, documents etc. It’s immutable method of authenticity gives sellers the opportunity to add more liquidity to an otherwise illiquid asset.

A great deal of money was made by people buying and trading NFT’s in 2021.  Alas, the losses from people FOMO’ing in to purchase junk hasn’t yet been calculated – I’d bet it’s considerably more – but who is to say, one mans junk is another mans gold!

Storage

There are some significant problems with the current centralised storage platforms and data centres.  They are very expensive and suffer outages and security concerns.  A decentralised storage option is becoming increasingly more attractive.  

Data can be stored on the blockchain and any of us could rent some spare file space on their hard disk with a service such as Filecoin to earn a passive income. People could then offer to rent your storage space and pay you in the platform’s native currency (in this case Filecoin). 

Metaverse

The metaverse is a virtual world.  You can shop, socialise, take part in leisure, training and even gaming activities.  Paying for these in a native metaverse token. There are some amazing marketing opportunities inside these virtual worlds such as office space, tourism etc. companies like Facebook…. Erm, now called Meta (the Facebook application is still called Facebook, but the company is now called Meta), is already gearing up to take advantage of these opportunities.  

JP Morgan, a prominent US bank produced a paper (Opportunities in the Metaverse).  They stated that, “The elements of a new digital age are converging at scale. The metaverse is the driving force bringing these elements together in a unified, immersive experience.” and they quoted that $54 Billion had been spent on virtual products in the last year alone – that’s almost double the amount that the world spends on music!  

Games (including Play to Earn)

More is spent on Games than the whole of the movie industry. As gaming lines become more blurry (i.e. the increased popularity of, for instance, edutainment), the number of tokens on the gaming blockchains will increase.  For instance, ‘play to earn’ gaming is increasingly popular and Axie Infinity, one of the first, is generating millions of dollars revenue for its users and developers. This game, though currently suffering a bit of a slump, was a lifeline for many players in poorer countries during the pandemic lockdown. They would play to earn money to feed their families and some of the better players became quite wealthy. 

Some experts would go as far as saying that Gaming will be the mechanism that will promote mass adoption of blockchain technology throughout the world.  I’m not sure sure myself but I personally have noticed a steady increase in the adoption of NFT gaming with other projects to bolster their use case and incentivise investment. 

For instance, a blockchain finance protocol (also known as a DEFI protocol) project called THOR Financial has introduced a play to earn game in their ecosystem to help increase the way investors spend their tokens.  This will make the tokens (THOR tokens)  a little more scarce which should have the effect of increasing the price over time.  Such mechanisms may prove popular although game competition is already fierce.  This example for instance has a development team of 6 highly skilled game software programmers and graphics artists, they have even engaged an orchestra to play the music soundtrack.  But, they have a very big hurdle to get over; it takes hundreds of similarly skilled people in other game companies (such as Activision-Blizzard that makes World of Warcraft), to make a good computer game and the Gods of Asgard will cost 10 to 20 times more to play.

I’m not expecting Play to Earn games to take over the world just yet.  The most popular game for instance, Axie Infinity, is actually quite boring except for the earn feature.w

The world is awash with all sorts of Cryptocurrency and Blockchain projects.  Some of a lot of fun, some just plain silly and some others have use cases that will make them invaluable.

Before you dismiss NFT’s and Metaverse as being unworthy, consider that  MacDonald’s have recently spent a lot of money recently to purchase space in the Sandbox Metaverse – presumably to sell virtual Big Mac’s to virtual people who will pay with virtual money.

In section six we look at the most important currency in all of all crypto: Bitcoin – What is it and How Does it work?. We provide a basic history and explanation of the technology and use case.

This article is copyright 2022 by Tony Fawl, CryptoNET.

This page is part of the How to Crypto Web Series, an awareness course for beginners interested in blockchain projects and cryptocurrency investment. Please checkout the Bibliography and Glossary of Terms pages for other useful resources and links. To find out what we do, take a look at the About Us page.

Disclaimer: CryptoNET.org.uk is not a registered investment, legal or tax advisor or a broker or dealer.  All investment/financial opinions expressed by CryptoNET.org.uk are from the personal experiences of the owner of the website and are intended as educational and entertainment material. Best efforts are made to ensure that all information is accurate and up to date but we would still recommend that you do your own research before making investment decisions. 

If you have found this page useful, please consider a small donation to help fund the site:

[crypto-donation-box]

Thank you.

With the huge expected returns publicised in the press over the last few years (Axie, Bitcoin etc.), there are equally important stories of how people have lost their life savings (e.g. Squid Game Token)!  Most people advise that investment in cryptocurrency, that it’s risky but there are ways to mitigate those risks.

This page deals with longer term investment (at least a couple of years) rather than day or swing trading (buy and sell within a day or within a week or two). Cryptocurrency trading requires a different approach as you are typically taking in increased risk based on more complex criteria in a very volatile market.  It isn’t impossible to do, but many experts argue that 60%-80% of all day trades for example, lose money.

If you are new to investing in cryptocurrency, the following points may help you avoid disaster…….

• • For the foreseeable future, Cryptocurrencies will be more volatile than traditional investments in stocks, bonds and precious metals – there will be wild price swings up and down.  You should only invest what you can afford to lose and whatever you do, never borrow to invest in crypto…. NEVER!
    

• • Your investment in cryptocurrency requires you to do some research to find an exchange that is suitable for your needs. This is where you will buy and sell your coins (sometimes called on and off-ramping).  You need to know that you can buy and sell easily and convert back to your national currency without hindrance.  You should test the exchange of your choice before making any significant investments. It’s really important to do this! My favourite exchange for instance, is Binance, but my bank wouldn’t let me transfer money from my bank account to the exchange. Such problems are common. Banks and financial institutions (noticing that money is leaving their customers’ accounts for crypto) are attempting to stop transfer to exchanges to ‘protect’ their users from unscrupulous deals. I personally believe that the real motive for this is to reduce the flow of money to financial institutions outside their control.

• • Store most of your investments in Hard/Cold wallets (see the Security section, Crypto Security – Protecting Digital Assets). Only keep crypto on exchanges when you are looking to make trades.  Exchanges can be hacked and accounts looted. If it’s not your wallet, it’s not your crypto!  Some crypto exchange customers have lost considerable amounts of money.  I transfer crypto to and from exchanges only when I am about to make a trade.  

• • Watch for scammers.  Scammers love crypto because most people don’t do due diligence when investing.  Your investment in cryptocurrency is important enough to carefully undertake your own research before deciding to part with your money. Why do you believe that the team behind your favourite the crypto project are honourable and are you sure that the project will still be around in a year or two?

• • Make sure you have an Investment Strategy and stick to it!

• • Don’t succumb to psychological pressure.  This may sound silly but it’s probably the most important rule.  Don’t suffer from Fear Of Missing Out (FOMO) which will cause you to prematurely invest without doing the necessary research and due diligence work.  And, just as importantly – Don’t sell because of Fear Uncertainty and Doubt (FUD) when the market plummets – don’t have weak hands, trust in your original research and decisions – you will have considered what you need to do in such circumstances, deviating from your strategy (after all that research), is counterproductive.  After an investment in cryptocurrency when the price has dropped significantly, it is very normal for the price to go back up again, we just need patience. Carefully consider the status before exiting your investment.  Bitcoin, as an example, has had numerous crashes (some by as much as 80%!) and always bounced back.

If you think you can do all of the above, let’s look at some cryptocurrency investment options.

Basic Investment – Major Cryptocurrency (currently)

Crypto currencies are usually listed in order of market cap (total value of all the coins minted).  This changes regularly because of popularity, perceived use case and media hype. New currencies and tokens come and go and with over 10,000 cryptocurrencies it can be a difficult job to find the right ones to invest in.

Let’s take a look at some of the most popular by market cap:

Bitcoin (BTC)

Market Cap: $880bn.  This is the most obvious choice as a store of value (i.e. it’s like digital gold). Bitcoin’s price has skyrocketed and it has become a household name. In May 2016, you could buy a Bitcoin for about $500. As of Jan. 3, 2022, a single Bitcoin was priced over $46,000. That’s growth of about 9,200%.

And yet, it’s not been an easy ride for Bitcoin. The number of people in the media that believe it’s a scam is considerable.  This year, I saw a video of a guy asking people if they would rather have a hundred dollars or a bitcoin, a large proportion would rather have the dollars!  Some noteworthy headlines from ‘reputable’ publications over the years show similar sentiments (note the price per bitcoin in 1st Jan of that year (in brackets)):

• • • 2010 “Why Bitcoin can’t be a currency” – The Underground Economist ($0.09)
    • 2011 “So that’s the End of Bitcoin Then” – Forbes ($0.30)
    • 2012 “Wired, Tired, Expired for 2012: Bitcoin” – Wired ($5.27)
    • 2013 “A Prediction: Bitcoin is Doomed to Fail” – The New York Times ($13.30)
    • 2014 “Bitcoin revealed: a Ponzi scheme” – The Washington Post ($770.00)
    • 2015 “Jamie Dimon: Bitcoin Will Not Survive” – Coindesk/Fortune ($313.92)
    • 2016 “R.I.P. Bitcoin.  It’s time to move on” – The Washington Post ($434.46)
    • 2017 “The Great Bitcoin Scam” – Forbes ($997.69)
    • 2018 “The Bitcoin Pyramid scheme continues to collapse” – New York Post ($12,414.75)
    • 2019 “Bitcoin will soon be worth zero” – New York Post ($7,188.00)
    • 2022  On January 1st Bitcoin was worth $47,743.22

Bitcoin has recently been made legal tender (can be used to pay for goods in shops and businesses – by law) in El Salvador with other countries lining up to do the same. Adoption is increasing a a speedy rate but as yet, the super large investment portfolios don’t include Bitcoin.

It’s true  that Bitcoin still has a number of hurdles to overcome in terms of mass adoption, but advocacy has increased considerably in recent months and Bitcoin is widely considered the safest investment potential of all digital assets.  I was interested in getting some Bitcoin in 2013, I decided against it because I couldn’t be bothered.  As many bitcoin advocates will argue, it is never too late to get in.

Ethereum (ETH) 

Market Cap: $445bn.  A Layer 1 crypto with the ability to operate smart contracts.  It’s currently the most popular option for the development of applications including Decentralised Finance.  It is very expensive to buy and sell on Ethereum at the moment because of high transaction fees. There are many other faster and cheaper layer 1’s ecosystems out there.  I should say though, that most analysts believe that Ethereum is a very safe investment currently.

Binance Coin (BNB) 

Market Cap: $72bn.  Binance Coin is the native token issued by the Binance cryptocurrency exchange and trades with the BNB symbol. Binance is the largest cryptocurrency exchange in the world. In 2020, it recorded a high of $3 trillion USDT in total trading volumes. Governments and financial institutions are keen to impose restrictions and regulations on the exchange which can be prohibitive to users wanting to trades. But the fact is, dispite this, Binance is still the most popular exchange because it’s infrastructure is feature rich.  Many new projects are supported and Binance have investment funds of their own to promote projects on their ecosystem.

Tether (USDT) 

Market Cap: $70bn.  This is the most popular stablecoin.  It is linked to the US dollar and mostly used by people like you and me to trade other crypto-currencies.  Many traders are changing to other stablecoins as Tether is mainly backed by debt rather than actual dollars. Despite this, it is still the leading stablecoin in an increasingly competitive area. You would typically buy Tether with your fiat currency in preparation to invest in a cryptocurrency on an exchange.  However, there are an increasingly large number of people buying USDT to invest in DEFI as they would get a better interest rate than their bank.

Cardano (ADA) 

Market Cap: $44bn.  Another powerful layer 1 coin that was one of the first to embrace the Proof of Stake consensus mechanism.  It has recently released its smart contract functionality which will also have cheaper and faster transaction speeds than Ethereum (although it is still struggling a little with performance issues).

These are relatively low risk cryptocurrency investments.  Other higher risk (but with greater expectation of rewards) are some of the small market cap ‘altcoins’:

Dogecoin (DOGE) 

Market Cap: $7.5bn.  The infamous meme coin has no value other than as a store of value.  It was initially developed as a tipping coin that would never gain high value but then declined in popularity and price.  Recently Elon Musk has taken an interest in it and it has regained much of its early popularity.

Dogecoin is widely considered a favourite cryptocurrency investment of Elon Musk who has recently purchased Twitter.  Many expect the coin to rise in value as it is thought the Musk will increase it’s utility and use case as part of his activities regarding Twitter.  Do you own research before investing though, this may just be hype and until we see a good reason why Dogecoin should be valuable, it should continued to be considered a meme-coin.

Cosmos (ATOM) 

Market Cap: $10bn.  This is a cryptocurrency that powers an ecosystem of blockchains designed to scale and interoperate with each other. The team aims to “create an Internet of Blockchains, a network able to communicate with each other in a decentralised way.” Cosmos has a proof-of-stake blockchain consensus mechanism.

Axi Infinity (AXS)

Market Cap: $4bn.  A token that can be earned while playing a game or purchased on an exchange.  This is currently the most popular and most famous ‘Play to Earn’ game. It’s accompanied by the other Axi Infinity token called SLP (Smooth Love Potion). These tokens can be used to create characters in the game or buy items and virtual land.  Price fluctuates depending on the popularity of the game or service and scarcity of its resources.  The price has taken a dive recently and is currently a tenth of the price it was in 2021 and has not been helped by a huge hack that cost the company $650million!

These major crypto currencies are part of 10,000 plus cryptocurrencies.  Some will go nowhere, some were created as scams, some are poorly designed and others are currencies that will make you a millionaire!  The only way to tell which is which is by doing your own research (i.e. trust your own judgement rather than others).  

When purchasing coins, determine your desired risk to profit ratio.  It may be that you want to gamble on higher returns by investing in crypto with a higher risk.  Or you may, like most of us, decide that you simply need a store of value (ideally, that can’t be manipulated by the government or those naughty bankers).

In section eight of this awareness course, we start our cryptocurrency investment journey by looking at developing an Investment Strategy: Developing Your Crypto Investment Strategy.

This article is copyright 2022 by Tony Fawl, CryptoNET.

This page is part of the How to Crypto Web Series, an awareness course for beginners interested in blockchain projects and cryptocurrency investment. Please checkout the Bibliography and Glossary of Terms pages for other useful resources and links. To find out what we do, take a look at the About Us page.

Disclaimer: CryptoNET.org.uk is not a registered investment, legal or tax advisor or a broker or dealer.  All investment/financial opinions expressed by CryptoNET.org.uk are from the personal experiences of the owner of the website and are intended as educational and entertainment material. Best efforts are made to ensure that all information is accurate and up to date but we would still recommend that you do your own research before making investment decisions. 

If you have found this useful, please consider a small donation to help fund the site:

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Thank you.

Your crypto strategy will be one of the easiest things to write and one of the hardest to implement.  90% of us invest emotionally. We FOMO (Fear Of Missing Out) into a trade and we exit a trade because of FUD (Fear Uncertainty and Doubt).  Your Investment strategy will help you avoid these mistakes – but trust me, investment decisions based on FOMO and FUD are very hard to avoid! 

Investment Strategy – Types of Investment

Before I start, I’m seriously not a financial expert and cannot tell you what your strategy should be.  I believe that your investment strategy will be unique to you and one that is only going to be useful only to you.  You will have a different risk tolerance than I do, you are less or more wealthy than I, and you will probably believe in different investments than the ones I believe in.

There are, however, some useful tips that may help you in the development of your investment strategy and take some of the guesswork out of it.  These are a good place to start and make the whole process of developing a strategy less daunting.

You will make money in cryptocurrency by buying when the price is low and selling when the price is high. But, perhaps you would like to get involved in short term buy-low-sell-high Swing or Day trades or even the exciting sounding Scalp Trades which are undertaken minute by minute?  Or, will you make large single investments that you will hold long term.  There are lots of ways to invest in crypto:

Crypto Investment Strategy – Short Term Investments 

Day and Swing trading. This is the buying and selling of cryptocurrencies in the short term.  Day trading, as the name suggests, is when you get in and out of a trade within a day or so. Swing trading is when you buy a crypto currency and wait for the price to go up over a period of a few days or weeks before selling (hopefully at a profit). As mentioned above, Scalp Trades are those that are entered and exited within a few minutes. 

Crypto Investment Strategy – Long Term Investments

This is where you would hold and not sell your investment, perhaps for years!  The term HODL has become popular after an on-line early Bitcoin trader was explaining that he would HODL on for dear life no matter what happened to the price!  In his excitement he mistyped the word HOLD. Hodlers do not make investments for a quick profit.

Your crypto currency portfolio may contain a range of crypto currencies which you would trade on a regular basis and some currencies that you would hold long term.  You need a cash reserve that you use to buy cryptocurrencies (enter your trade) when the time is right.  It will be replenished with the money you earn when you exit your trade. 

Your investment strategy may have a range of crypto currencies which you would hold long term (usually the ones with the least risk).  You may also have riskier, short term  investments in the hope that they would realise a profit more quickly by closing the trade early yet still able to make some money.  Such a strategy would help you grow your portfolio more quickly but at a higher risk.

Crypto Investment Strategy – Three Parts to Your Portfolio

Your portfolio will only contain money that you are prepared to lose – you will not have gone into debt to buy crypto and you would not suffer any significant hardship if all your crypto investments were to crash to zero.  Sure, you would be upset but you would not be in a position to lose your house/flat or suffer financial hardship.

I would therefore suggest that the three elements in your portfolio should be: Long Term investments, Short Term Investments and Cash Reserves.

Your Portfolio Management

First of all, you need to work out how much your portfolio will be worth when you begin investing.  For simplicity’s sake, we will look at portfolio investment values of 1000 dollars/euros/pounds representing a small portfolio and 10,000 and 100,000 representing medium and large portfolios respectively.  Of course these figures are relative, some might consider 10,000 to be a small portfolio.  The determination of classifying small, medium and large portfolios is therefore based on risk tolerance rather than monetary amount.

For instance, if you have a portfolio value of over 100,000, you will most likely want to secure a larger portion in longer term, less risky investments (let’s say Bitcoin or Ethereum).  If you only have 1,000, you are more likely to want to invest it in higher risk investments which would hopefully yield higher returns.  When you take profits from these returns, you will put them in your cash reserves or use them to purchase currencies for the long term holding pot.  This sort of activity is what we mean by portfolio management.

You will regularly manage your portfolio to ensure the same percentage values are regularly maintained.  You would, of course, determine the percentage values based on your own objectives and risk tolerance. The guide below is for indicative purposes only.

In section nine we will take a look at options for deciding on which cryptocurrencies to invest and also include facts and stories of the some of the more unscrupulous crypto projects: Choosing Your Cryptocurrency Investments.

This article is copyright 2022 by Tony Fawl, CryptoNET.

This page is part of the How to Crypto Web Series, an awareness course for beginners interested in blockchain projects and cryptocurrency investment. Please checkout the Bibliography and Glossary of Terms pages for other useful resources and links. To find out what we do, take a look at the About Us page.

Disclaimer: CryptoNET.org.uk is not a registered investment, legal or tax advisor or a broker or dealer.  All investment/financial opinions expressed by CryptoNET.org.uk are from the personal experiences of the owner of the website and are intended as educational and entertainment material. Best efforts are made to ensure that all information is accurate and up to date but we would still recommend that you do your own research before making investment decisions. 

If you have found this useful, please consider a small donation to help fund the site:

[crypto-donation-box]

Thank you.

New crypto currencies and tokens are being created each week. There are lots of opportunities to get in on the action early.  Choosing your cryptocurrency investments at the right time will increase your likelihood of a higher return. Unfortunately investing right at the start means that there is also a greater risk.

ICO’s (Initial Coin Offerings) or ITO’s (Initial Token Offering) are definitely worth considering if you want to try this high risk form of investment.  Websites like the Coinmarketcap ICO Calendar,  Foundico blog and ICOShock are useful sites if you are trying to ‘get in early’.

The safer investments are made once the coin or token is better established.  These, of course,  are likely to be less volatile and more likely to be profitable.  Unfortunately, they are less likely to provide the largest returns. There are some exceptions, but generally, as with stocks, the riskier the investment, the greater the profit – or loss.

Lets look at some of the riskier opportunities:

Cryptocurrency Investments – ICO’s and ITO’s

These are the very earliest stages of investment.  Typically they allow investors to ‘get in’ before the product has even been developed. At this point your cryptocurrency investment is in the team, an idea and its perceived likelihood of becoming successful.

An ITO’s team, if things go their way, can earn huge returns for their investors and if the ‘use case’ is robust enough, send the value of the tokens and coins to unimaginable highs.  I’ve seen returns double, triple and increase by factors of over a hundred making initial investors very rich.  The big investors and venture capitalists will spend most of their time checking out the team behind the project. If they believe in the team, the project is 80% towards achieving their funding goal.  It is by far the most important consideration when researching your investment options. 

The use case is usually published in the form of a whitepaper from the project website.  Going through this very carefully and checking and corroborating each sentence if possible, will help you understand the project and how credible it is.  And, importantly, how will your investment be re-coupled?  What is the likelihood that you will see a return on your investment?

You should always remember that ITO’s can provide some of the biggest returns and the biggest losses.  Some are downright fraudulent in fact, some of the biggest frauds ever mounted were Cryptocurrency Initial Coin Offerings (ICO’s):

	Scam Name	Amount Lost($)
	Pincoin	660,000,000
	Onecoin	350,000,000
	Plexcoin	15,000,000
	Bitcard	5,000,000
	Ebitz	2,900,000
	Bitconnect	700,000
	Confido	375,000
	REcoin	300,000
	Ponzicoin	250,000

Some experts believe that up to 80% of all new coins and tokens are either scams or just don’t have the necessary use case, management team or technology to succeed. Personally, I would call them ‘Chancers’, groups of developers that are simply ‘having a go’ at putting together a project and encouraging investment based on platitudes and lofty ideals but no real substance.  

A few years ago, it was very easy to do this and people were so frightened of missing out (FOMO) on a seemingly sure-fire investment opportunity that they would take a chance and hope for the best. Most cryptocurrencies  just faded away. These token and coin offerings are sometimes called ‘Shitcoins’.

Cryptocurrency Investments – The Prodeum Scandal

Other Token offerings as a cryptocurrency investment are brazen and ruthless. Prodeum.io for instance:

This group raised a huge sum in ETH tokens and engaged legitimate team members – they even paid freelancers from Fiverr to pose with their name on parts of their bodies:

The project was to help manage fruit and vegetable distribution more effectively using the blockchain. Then, suddenly, one weekend, the Prodeum project ‘pulled the rug’.  They closed social media accounts and left investors with a single-page on their website….

A lot of people get hurt by making poor cryptocurrency investment decisions and for many people, investing in digital assets is like staking a new frontier of personal finance. Many reputable organisations wouldn’t invest in cryptocurrency – even if you paid them to – because it suffers such a poor reputation – as did internet in the 1990’s.

Some professional investors simply see this is a better opportunity, they have the opinion that only fools would invest in a cryptocurrency if they hadn’t properly researched it – all it needs it a little bit of extra research:

“Such people deserve to be ripped off, it is they who give cryptocurrency a bad name.”  

“Who in his right mind would give their hard earned cash to a  stranger that said ‘gimme all your money and I’ll make you millions’ without at least checking it out first?”  

Alas, some cryptocurrency projects are very persuasive and thousands of people have been taken in.  Some of those people have lost fortunes!  If you are one of those, please remember that money can be made back, even when you feel that you have lost everything – such things have happened to people who are now millionaires.  And, no matter how dark things get, speaking to someone about it really helps, truly!

Cryptocurrency Investments – Conclusion

It can be argued that if you follow basic principles of investment and carefully negotiate the safe avenues of due diligence and risk management (and frankly, demonstrate some common sense), you will be ok.

Recognise that you will be your own worst enemy when it comes to investment in crypto.  Being an emotional investor is very easy because we want to achieve success.  We are more likely to make allowances for something we want so much at a time when we should be the most sceptical. You therefore need to ensure that you are being as objective as possible when deciding the crypto you want to invest in or the investment amount – typically, the higher the risk, the smaller the investment.

These comments are based on my own cryptocurrency Investments experiences, this is basically what I tell myself when I look to invest in crypto.  It looks easy to do as I write this, experience tells me however, that cryptocurrency investments are actually quite difficult to get right. Before you invest, make sure you undertake your own Due Diligence and Tokenomics research  – don’t trust anyone else.

Which brings me on to the next section where we will go into a more detail.  Section Ten: Investment in Cryptocurrency – Due Diligence

This article is copyright 2022 by Tony Fawl, CryptoNET.

This page is part of the How to Crypto Web Series, an awareness course for beginners interested in blockchain projects and cryptocurrency investment. Please checkout the Bibliography and Glossary of Terms pages for other useful recourses and links. To find out what we do, checkout the About Us page.

Disclaimer: CryptoNET.org.uk is not a registered investment, legal or tax advisor or a broker or dealer.  All investment/financial opinions expressed by CryptoNET.org.uk are from the personal experiences of the owner of the website and are intended as educational and entertainment material. Best efforts are made to ensure that al information is accurate and up to date but we would still recommend that you do your own research before making investment decisions. 

If you have found this page useful, please consider a small donation to help fund the site:

[crypto-donation-box]

Thank you.

Before you invest in any crypto you will need to undertake some research in the currency or token to satisfy yourself that it is legitimate and worthwhile.  This systematic process is called Due Diligence and your investment is at risk if this process isn’t followed.  

Due diligence is the investigation/audit/review that you should undertake to confirm facts or details of a coin or token that you are considering as an investment. Personally, I like to think of the following scenario when I’m about to start  the process: I met this guy in a pub who told me about this crypto token/coin.  It sounds great but I need to check it out properly before I put any money into it or the wife/partner will be very annoyed!

That simple statement should at least make you stop and think a bit.  It’s very easy to jump in armed with nothing but a few positive statements, the promise of making money and a lot of hope.  Reality though is that many people lose money because they didn’t stop to consider the most important steps. 

Some of these steps are obvious and some not so.  The first consideration is by far the most important and Venture Capitalists (people who invest very large sums of money in new start up projects) will base at least half of their decision to invest in crypto on this first point alone!

Quality of the team 

Who are they?  Are their names publicly viewable, can  you check them out on LinkedIn.  If so, what is their experience in the field, are they new to crypto, are their achievements believable, is what they are saying corroborated on other websites?  What makes them so special that they can create such an awesome cryptocurrency that you need to invest in? You should try and get answers to any question about the teams credentials  that you think is relevant.

When researching Cryptocurrency Due Diligence, you are mainly looking to see if the team is public.  If they aren’t, you should ask yourself why?  Is it because they are dishonest?  Maybe they are hiding because they don’t want you to see how much they don’t actually know. Maybe they are a one-man-band or trying to pull off a scam?  A non-public team is difficult to believe in and most people would avoid projects led by such shy people. 

Remember to check the team out – some scams aren’t quite as obvious as the 2018 Ryan Gosling, graphic designer swindle. Miroskii, a blockchain banking startup project, claimed to have raised more than $833,000 from 389 investors. As you can see, the project’s graphic designer, “Kevin Belanger,” was a fake as were the rest of the team – which ran off with the contributors money as soon as they were spotted. Swindlers do actually get away with this stuff so it’s always important to check if the team are who they say they are. 

Quality of the Information

Is it professionally produced and is there sufficient information available to keep your interest? Watch out for pages without tangible facts or proof.  Ones full of platitudes, flowery phrases and buzzwords are typically not trustworthy – how plausible is what they are trying to say? Are they some sort of con-artist or are they genuine (and can you prove it to your partner)?  If they are genuine but can’t articulate what it is they are trying to do, maybe the team is not up to the job and they are not worthy of your investment.  Look for poorly formatted documentation, whitepaper, web pages etc.  If there are a lot of spelling and grammar errors, their code or business ethics may be just as poor. 

It would be good to see clear concise information about the cryptocurrency project presented in a way that looks professional and trustworthy.  It’s surprisingly easy to put up a professional looking website to at least appease some basic form of due diligence, but it’s considerably more difficult to put details of the project in a clear and concise way that can be corroborated.  Imagine you are an auditor – where is the evidence that what they are saying is true? If they can prove it, trust me, they will take every opportunity to do so.

What does it actually do?  

For many people without a technical background, researching such things can be a challenge.  However, you may still be able to get an understanding of the project on social media or blogs posts etc.  It’s important that you believe in the value of what  you are investing in and understand how it works. 

The best way to approach this is to ask yourself ‘what problem does this coin/token solve and how?’?  Usually this can be found in a Whitepaper which will be downloadable from the project website. This is a fundamental part of Cryptocurrency Due Diligence – whatever the project, it should have a whitepaper that you can read.  In fact, projects without a whitepaper should be considered more risky by a high order of magnitude. 

The whitepaper is the window into the project and it should fill you with confidence that what they are trying to do will succeed. 

The first few lines of the original Bitcoin Whitepaper from 2008

A whitepaper needn’t be overly complicated.  The project will appreciate that investors aren’t always so tech savvy.  Well worded whitepaper is a big indicator or a well-formed project. I couldn’t understand the technology when I read the bitcoin whitepaper, but it was still very impressive! – In their defence, it was posted to a cryptography forum full of mathematics nerds (that’s my excuse anyway).

Once you have a clear understanding of what the project does, write it down so that your mum, after reading your description, could understand it enough to make a decision on its worth.  Be as objective as possible, include the good points and the bad points for which you have knowledgeable, carefully considered answers. 

Which brings me on to the next point…..

What do others think? 

Research the project on as many websites or social media as possible, try to see what people like and what they don’t like.  Imagine that your friend is questioning your decision to invest in this, how would you prove to him/her that this is worthwhile.  Better still, imagine he/she is interested and you are explaining the pros and cons of the project to help them make an investment decision.  Stepping back and seeing the project from someone else’s perspective may help you be more objective.

This step is particularly important when trying to determine how the coin/token will be adopted and income/profit generation sustained.  Why will you and other investors remain with the project through thick and thin? Perhaps your friend will not invest in the project and may actually challenge you for investing at a later date if the price drops.  How would you reply to the inevitable challenge, ‘I told you so’?

Active and Vibrant Project Community 

Most crypto projects try to set up a community of followers and investors.  Many have Discord servers, and are active on Social Media.  

Try to find their social media channels and ask questions.  If they are reasonable answers and not just comments from moonboys (fanatics who believe that the price will go to the moon without much knowledge – they are typically full of ‘hopeium’) it should help you on your way in determining the to your investment.  I personally find this a very important part of due diligence for new projects.  A team who are here to stay will want to develop a large community and, as the saying goes, ‘you can fool some of the people all of the time and you can fool all of the people some of the time but you can’t fool all the people all of them all of the time.’  Most projects will have a Discord channel.  It’s a great place to ask questions.  Explain that you are undertaking some cryptocurrency due diligence before making an investment and politely ask your questions.  Normally the people in crypto discord channels are very helpful.

Partnerships and collaborations

It is very likely that the project will need to work with other teams from other projects.  It is even more likely that a reputable team will want to be linked with other reputable projects to help give them credibility.  When I look at these, I generally can’t find many that I recognise and so I need to research each of them too. It’s a laborious process which will also help you understand the technology behind the project, any necessary collaboration and the role of other critical parties.   

An important thing to remember is that anyone can say they are collaborating or in partnership with another project.  For instance, did you know that lead partners in this website are Google and Facebook? – I use Google to search for stuff all the time as part of my cryptocurrency due diligence research for the information on this website and I am in communication with Facebook (a member of their staff sent me an email to say that they didn’t handle partnerships at Facebook and that I should contact another department). 

I’m also thrilled to announce that Mr. Twitter is also likely to sign up as a major player on Wednesday next week!

The Competition  

Hasn’t this already been done?  If so, why is this project better than the others?  For instance:

Ethereum is a Layer 1 Coin with a huge infrastructure and a very good reputation – it was the first major cryptocurrency with smart contract capability.  It also uses a somewhat clunky programming language (Solidity) that isn’t particularly security friendly. At the moment, Ethereum suffers from huge ‘gas’ fees which you need to pay to do business on the Ethereum blockchain.  It also has a number of competitors such as Avalanche, Solana, Cardano, Polkadot and others  – all of which are better than Ethereum in many different ways.  Personally, therefore, I only hold a little Ethereum as I don’t think it is a particularly good ecosystem. I hold most of the others which, in my opinion, are much better. 

The point is, just because a project is the first doesn’t make them the best. It’s important to understand what the competition is and why the project you are interested in is better.

Cryptocurrency Due Diligence is important but it’s only half the work! The next section follows on from this – it’s just as important and deals with the economics of you prospective cryptocurrency investment. Section Eleven: Investment in Cryptocurrency – Tokenomics.

This article is copyright 2022 by Tony Fawl, CryptoNET.

This page is part of the How to Crypto Web Series, an awareness course for beginners interested in blockchain projects and cryptocurrency investment. Please checkout the Bibliography and Glossary of Terms pages for other useful recourses and links. To find out what we do, checkout the About Us page.

Disclaimer: CryptoNET.org.uk is not a registered investment, legal or tax advisor or a broker or dealer.  All investment/financial opinions expressed by CryptoNET.org.uk are from the personal experiences of the owner of the website and are intended as educational and entertainment material. Best efforts are made to ensure that al information is accurate and up to date but we would still recommend that you do your own research before making investment decisions. 

If you have found this page useful, please consider a small donation to help fund the site:

[crypto-donation-box]

Thank you.

Cryptocurrency Investment Tokenomics is the economics of a cryptocurrency coin or token. I.e. all the features that make you want to invest in it. This is much easier to do with a good search engine.  I’m sure you are thinking ‘hang on, Tokenomics, that will surely be in the Whitepaper!?’ and yes, you would be right but even better is to simply type “[coin/token name] tokenomics” into the search engine and see what pops up.

Tokenomics is a bit of a broad term but it’s defined as the study of the factors that impact the demand and supply of tokens for a crypto project.  We will look specifically for the following:

Initial Release Allocation 

Another important consideration for cryptocurrency investment tokenomics is the threat that investors may dump their initial investment once their perceive their profit can be recouped.  For instance, if an initial allocation of 10,000,000 coins was made to a venture capital company it may be that as soon as they reach a point that their original investment was recouped at a profit, they would look to sell all their tokens which may put pressure on the price and drive it down. A large number of institutional investors at the start of a new project is not good.  It would be better to see a larger number of smaller, retail investors at the start so that you could be sure there wouldn’t be too much selling pressure once the project started to become profitable.  

While we are on the subject, many investors will tell you that it is very important to take profits at the right time.  That is, when it is profitable to do so.  The hard part is determining when.  You may be tempted to let your investment ride and hope that the price goes up a lot more.  This is ok sometimes, but it’s good to get into the habit of getting a return on your investment as soon as feasibly possible.  Some suggest that your investment strategy would be based on a % profit value that you should stick to.  Such a percentage would be one that you would be comfortable with while still being realistic.  

Utility

How the coin/token will be used? How useful to the world is this coin/token?  If, for instance, you need to use this token to undertake a task that is important (to you or others) then the coin/token has a use case.  If it is a store of value then it isn’t very useful as Bitcoin is pretty much covered by becoming ‘digital gold’.

Maybe it is simply a token to raise money –  A project raises capital by creating a token that provides voting rights  for the future of the project.  That’s ok if you want to manage the activities as part of a Decentralised Autonomous Organisation (DAO) but not so good if you want to sit back and wait for the token/coin price to go up in value.  You may, for example be expected to be more active and vote on key management decisions).  DAO investments were quite popular towards the end of 2021 but are considered less so in a bear market.

When considering cryptocurrency investment tokenomics you should consider how you will interact with your investment and the project team. It is quite possible that you will be expected to regularly communicate with them and other investors to help shape the progress of the project and provide feedback.  Most projects have a discord channel to help with this. In other cases you may have to pay regular fees to the project (e.g. with DEFI projects). Become familiar with the utility of the coin/token and make sure you are comfortable with how it will work at the start of the project and what your responsibilities will be as the project grows.

Inflationary or Deflationary? 

Bitcoin (BTC) for instance is inflationary (it is minting new coins all the time) but the rate at which it is inflating is decreasing all the time until, in a hundred years or so, no more coins will be minted.  Bitcoin is an engineered cryptocurrency with a fixed, declining inflationary rate. 

There weren’t any Bitcoins until Satoshi Nakamoto mined one because of the proof of work activity (it’s like toiling all day in a bitcoin mine and getting paid for it in Bitcoin).  Subsequent mining activity got much harder and the coins given out as a reward are fewer. As a result, the rewards are worth more.  This is by design.

It is also worth looking at investing in deflationary cryptocurrencies since they have inbuilt mechanisms/processes to become more scarce therefore valuable over time. A good example of a deflationary crypto currency is Binance Coin (BNB) which uses the ‘Buy-back and Burn’ approach. Binance repurchase BNB coins periodically from their pool of investors and then send those coins to an un-spendable wallet address. Initially, BNB had a total supply of 200 million coins. The plan is to burn half of its supply. A recent burn (16th BNB burn) happened in June 2021 and a total of 1,296,728 BNB (roughly $395,000,000) was burned.

Generally, the more scarce the resource becomes following your purchase, the more chance it has of increasing in value.

What is the Circulating and Diluted Supply? 

Circulating supply is simply the amount of coins/tokens that are publicly available to buy or sell.  Diluted supply is the total expected number of coins or tokens that will eventually be released. The higher the Diluted supply, the higher the pressure for downward price movement since the asset will be less scarce over time.

As of April 2022 the amount of Bitcoin in circulation was 19,000,000.  The diluted supply is 21,000,000, there will never be more than 21 million Bitcoins.

The bigger the difference between the circulating and diluted supply, the more chance there is that the price will lower over time.  Scarcity is in important factor in crypto investment – there needs to be a very clear and believable use case for a currency to increase in value as more of it is minted.

Risk Management  

Cryptocurrency Investment tokenomics isn’t an exact science and it’s unlikely that you would have positive answers to all the points above and this may be for many reasons.  For instance, you may be unhappy with the experience of the team.  Or there may have other niggling doubts.  

In such cases, more research will help.  It would be best, at this point to re-investigate the information gained in the Investment in Cryptocurrency – Due Diligence section, ‘What do others think?’ 

One of the best places to get more answers is to check the latest posts on social media and specifically, the project community.  Key places to visit are twitter and Reddit (people love to hate in Reddit but there can be some good articles too). Ask questions in the Discord community if they have one. Don’t be afraid to google your questions, others may have had the same worries and published the answers you seek.

It’s important to mitigate your risks and not invest based on faith.  Aim to be as objective as possible, don’t rely on gut feeling as it can be a fickle friend.

Future Plans.  

It is very rare that a project starts and finishes at the same time – That isn’t as  silly as it sounds – Bitcoin, for instance started with only 50 coins and it wont finish minting until around 2140!  Cardano had a very clear roadmap with set phases and milestones.  

The phases of the roadmap are named after key science and literature figures.  Cardano is seen by investors as a project that is based on important research and development decisions and careful planning rather that the quick exploitation of an idea.  You can see this clearly in the Cardano project roadmap.  The project is considered (despite it’s current performance problems) to be a safe longer term cryptocurrency investment.  It’s future plans are clear.

Future plans may include a plan for additional use cases. It may be that the project (or community if they have voting rights for their token) may have plans to release one or a number of high value applications or hold a significant event (e.g. the burning of a large proportion of tokens etc.).  Additional use cases and detailed future plans increase the case for investment (provided of course, that you believe the project team are capable of delivering them).  

Cryptocurrency Tokenomics – Conclusion

These are just a few of what I would consider the most important tokenomics.  There are many more and it would be better to pay particular attention to those that are important to you.  I’m not an expert, but these are a good start. Can you think of additional tokenomics that would be important to you?

Most experienced crypto advocates recommend that you do your own research.  Cryptocurrency is all new, I’m personally not convinced that anyone can say they are an ‘expert’. One of the worlds most respected scientific societies is the The Royal Society.  I think their motto is useful when it comes to crypto investment, ‘Nullius in verba‘ meaning ‘Take nobody’s word for it‘.

Doing your own research is to help you consider (objectively) if the investment that you are about to make is worthwhile.  You are trying to take the emotion away from the investment process and although much of the above seems laborious, it’s your money to lose.  It’s up to you how much research you undertake.  When it comes to crypto, try to aim for Warren Buffetts (famous US investor) investment principal; “Rule Number 1. Never lose money.  Rule Number 2.  Never forget Rule Number 1.”  

Doing your own research is a no-brainer for all successful investors. Hopefully you have also read through and understood the first part, Cryptocurrency Investment – Due Diligence. I believe you will need to undertake both studies before making any profitable cryptocurrnecy investment.

In section twelve we will stop to briefly take a look at how governments and central banks want in on the action: Are CBDCs Good or Bad?

This article is copyright 2022 by Tony Fawl, CryptoNET.

This page is part of the How to Crypto Web Series, an awareness course for beginners interested in blockchain projects and cryptocurrency investment. Please checkout the Bibliography and Glossary of Terms pages for other useful resources and links. To find out what we do, take a look at the About Us page.

Disclaimer: CryptoNET.org.uk is not a registered investment, legal or tax advisor or a broker or dealer.  All investment/financial opinions expressed by CryptoNET.org.uk are from the personal experiences of the owner of the website and are intended as educational and entertainment material. Best efforts are made to ensure that all information is accurate and up to date but we would still recommend that you do your own research before making investment decisions. 

If you have found this page useful, please consider a small donation to help fund the site:

[crypto-donation-box]

Thank you.

What is Cryptocurrency?

Cryptocurrency is often abbreviated to Crypto. The dictionary definition according to the Oxford English Dictionary is “a digital currency in which encryption techniques are used to regulate the generation of units of currency and to verify the transfer of funds.”

I would add, “, recorded on a distributed public ledger called a blockchain and operating independently of a central bank” (at least at the moment).

Some people consider ‘cryptocurrency’ an out-of-date term.  It is a throwback to the Cryptopunk era of the 90’s and early 00’s in which some very clever people toyed with the idea of using cryptography and automation software to replace corrupt, greedy and incompetent financial and government organisations.  A better term for cryptocurrency today would be Digital Asset.

To many of us, such definitions don’t help us understand crypto very much. John Oliver once defined crypto as ‘Everything you don’t understand about money combined with everything you don’t understand about computers.’  If you are new to crypto, even basic news and information seem to be surrounded by hype, rumour, misinformation and very little fact.  It’s difficult to get an accurate understanding of what crypto is and what it will mean to us in the future.

New terms such as Moonboys, DeFi, Metaverse, Hodlers pervade the digital asset media and if, like me, you are a little older than the age groups that these terms seem to be aimed at, you are fighting a seemingly overwhelming feeling of aggravated isolation.

Cryptocurrency is very new in terms of adoption. 99% of people in the world haven’t embraced it and most, even now, are cynical of its viability and use. ‘Why crypto? Normal money does everything it needs to do – the only problem is that we just don’t seem to have enough of it!’  To the average person, crypto is another fad, it has no use-case or worse, it’s a scam!

Even those of us who have bought Cryptocurrency have invested in it rather than use it to buy things. We buy things with Fiat currency (pound, euro or dollar etc.) which is a promissory note backed by the government (Fiat is a Latin word that means ‘let it be done’ but it’s also quoted as meaning ‘backed by force’).

And yet, in the last 15 years the cryptocurrency movement has begun to challenge how we use currency and is practically showing us how money can be used to enhance our freedoms and lifestyle for the future. The benefits to humanity are reassuring to some and frightening to others.  This is the most disruptive technology since the internet and as you’ll see, it will change our lives.  

What is the Blockchain?

Cryptocurrency is based on a new type of technology called blockchain. The ‘blockchain’ is immutable (cannot be changed).  Typically the cryptocurrency is decentralised on a disparate, increasingly complex network of computer systems or ‘nodes’.

A Cryptocurrency blockchain is used to store records of transactions – in the open for all to see.  These transaction blocks are duplicated around the world in the process of validating and confirming transactions i.e. to prove that the transactions aren’t fraudulent or double counted.   Such activity is automatic and independent.

Information stored in a block can be simple transaction data (e.g. details of the transfer of funds from one person/account to another). However, a blockchain can contain any digital information, graphics, video, sounds – in fact data of any sort.  The key thing to remember is that the data in each block is similar in structure to the previous one although the actual data is most certainly different. Once that block is written to the blockchain it can’t be changed (it’s safe, it can’t be edited, deleted or counterfeited – it’s immutable).

This makes most cryptocurrency relatively immune to government and institutional interference or manipulation.

Many believe that blockchain technology heralds a new industrial revolution. This time, It’s seen to be more beneficial to people like you and me as opposed to people in power or leaders of financial/government/corporate organisations.  They can benefit too, but it’s more likely to disrupt them than us!  This industrial revolution will empower from without!

In other industrial and technological revolutions, new machines and technology automated tasks and jobs on the periphery of an organisation.  In essence, major change has protected those at the centre who are empowered to implement change around them.  For example, in the first industrial revolution, mill owners installed machinery to increase the productivity of their mills.  The owners enjoyed huge profits through productivity gains because machines could work longer and at less cost.  Unfortunately, those on the periphery (the workforce) became redundant.

Such innovations made certain people very rich and others poor. One of the latest technological ‘revolutions’ has seen the leaders of ‘Big Tech’ becoming the richest people in the world! Companies like Amazon, Google, and Facebook are certainly more well known from the wealth of their leadership than the benevolence and care they provide to their workforce. Not ironically, one of the more respected Big Tech leaders, Jack Dorsey (the founder of Twitter) recently felt the need to leave the social media platform to pursue loftier ambitions on the blockchain.

Many of us are increasingly disaffected by the corporate ambitions of high tech companies and feel increasingly insecure and exploited each time we use their services. Unfortunately, in many cases there are no options. Google for instance, collects as much information as they can about us and then use this to help advertisers sell things – We may not want them to do this but we don’t seem to have any choice (duckduckgo and Brave browser aren’t good enough to replace Google yet) – the disadvantages are outweighed by the advantages in search accuracy and speed.

Some of us feel that we have lost the right to the information we uploaded to sites like Facebook, Twitter, Instagram etc. and that these websites seem free and able to do what they like with our personal data – usually to their advantage rather than ours.

Blockchain provides a solution. It does this by protecting our ‘profiles’ on the internet, our personal information, our money and our property by utilising innovative programmes and services that automate from the centre and not the periphery! The use of personal data uploaded to the blockchain will be more obvious than it is today and we will have more control of how that data can be used. For example, our cryptocurrency cannot be invested by a bank. 

Change from the centre is a fundamental aspect of blockchain technology and the reason why it will change the world. Blockchain products are normally decentralised and therefore difficult to control by a corporate or government entity.  As an example, a financial transaction on a decentralised network is handled by a smart contract which completely cuts out the middle man/men.  The corporate executives, directors, manipulators and custodians aren’t required! You won’t need to trust the leaders of organisations to do the ‘right thing’ – transaction security is enforced by blockchain smart contracts.

Although in the very early stages of adoption one thing is guaranteed, the sooner we learn what cryptocurrency and blockchain is and how it can be used, the sooner we will benefit from the freedoms (financial or otherwise) that this technology has to offer.

In the next section, we’ll look more closely at Why Cryptocurrency will Succeed.

This article is copyright 2022 by Tony Fawl, CryptoNET.

This page is part of the How to Crypto Web Series, an awareness course for beginners interested in blockchain projects and cryptocurrency investment. Please checkout the Bibliography and Glossary of Terms pages for other useful recourses and links. To find out what we do, checkout the About Us page.

Disclaimer: CryptoNET.org.uk is not a registered investment, legal or tax advisor or a broker or dealer.  All investment/financial opinions expressed by CryptoNET.org.uk are from the personal experiences of the owner of the website and are intended as educational and entertainment material. Best efforts are made to ensure that al information is accurate and up to date but we would still recommend that you do your own research before making investment decisions. 

If you have found this page useful, please consider a small donation to help fund the site:

[crypto-donation-box]

Thank you.