In the early days of its launch in 2009, several thousand bitcoins were used to buy a pizza. Since then, the cryptocurrency’s meteoric rise to $65,000 in April 2021, following its precipitous drop in mid-2018 by roughly 70 percent to around $6,000, boggles the minds of many: cryptocurrency investors, traders or just curious that I missed the boat.

How it all began

Note that dissatisfaction with the current financial system gave rise to the development of digital currency. The development of this cryptocurrency is based on the blockchain technology of Satoshi Nakamoto, a pseudonym apparently used by a developer or group of developers.

Despite many opinions predicting the death of cryptocurrencies, bitcoin’s performance has inspired many other digital currencies, especially in recent years. The success with crowdfunding sparked by the blockchain craze also attracted those trying to scam the unsuspecting public and this caught the attention of regulators.

Beyond Bitcoin

Bitcoin has inspired the launch of many other digital currencies. There are currently more than 1,000 versions of digital coins or tokens. They are not all the same and their values ​​vary a lot, as does their liquidity.

Coins, altcoins and tokens

At this point, it would suffice to say that there are fine distinctions between coins, altcoins, and tokens. Altcoins or altcoins generally describe currencies other than the pioneering bitcoin, although altcoins like ethereum, litecoin, ripple, dogecoin, and dash are considered to be in the “major” category of coins, meaning they are traded on more cryptocurrency exchanges.

Coins serve as a currency or store of value, while tokens offer asset uses or utilities, for example a blockchain service for supply chain management to validate and track wine products from cellar to warehouse. consumer.

One point to note is that low value tokens or coins offer upside opportunities, but don’t expect bitcoin-like meteoric rises. In a nutshell, lesser known tokens can be easy to buy but hard to sell.

Before entering a cryptocurrency, start by studying the value proposition and technological considerations, namely the business strategies outlined in the white paper that accompanies every initial coin offering or ICO.

For those familiar with stocks and shares, it is no different than initial public offering or initial public offering. However, IPOs are issued by companies with tangible assets and a business history. Everything is done within a regulated environment. On the other hand, an ICO is based solely on an idea proposed in a white paper by a company, not yet operating and without assets, that is looking for funds to start.

Not regulated so buyers should beware

“One cannot regulate what is unknown” probably sums up the situation with digital currency. Regulators and regulations are still trying to catch up with cryptocurrencies that are continually evolving. The golden rule in the crypto space is ’emptor warning’, buyer beware.

Some countries keep an open mind and adopt a hands-off policy for cryptocurrencies and blockchain applications, while keeping an eye out for outright scams. However, there are regulators in other countries more concerned with the disadvantages than the advantages of digital money. Regulators generally realize the need to strike a balance and some are looking at existing securities laws to try to control the many flavors of cryptocurrencies globally.

Digital wallets: The first step

A wallet is essential to get started in cryptocurrencies. Think of electronic banking but without the protection of the law in the case of virtual currency, so security is the first and last thought in the crypto space.

The wallets are of the digital type. There are two types of wallets.

• Hot wallets that are linked to the internet and put users at risk of being hacked

• Cold wallets that are not connected to the Internet and are considered more secure.

Apart from the two main types of wallets, it should be noted that there are wallets for only one cryptocurrency and others for multiple cryptocurrencies. There is also the option of having a multi-signature wallet, similar to having a joint account with a bank.

The choice of wallet depends on the user’s preference, whether they are only interested in bitcoin or ethereum, as each currency has its own wallet, or they can use a third-party wallet that includes security features.

wallet notes

The cryptocurrency wallet has a public and private key with personal transaction records. The public key includes a reference to the cryptocurrency account or address, similar to the name required to receive a paycheck.

The public key is available for all to see, but transactions are confirmed only after verification and validation based on the relevant consensus mechanism for each cryptocurrency.

The private key can be thought of as the PIN that is commonly used in electronic financial transactions. It follows that the user must never reveal the private key to anyone and make backup copies of this data which must be stored offline.

It makes sense to have a minimum amount of crypto in a hot wallet, while the largest amount should be in a cold wallet. Losing the private key is just as good as losing your cryptocurrency! The usual precautions about online financial transactions apply, from having strong passwords to being vigilant against malware and phishing.

wallet formats

There are different types of wallets available to suit individual preferences.

• Hardware wallets made by third parties that must be purchased. These devices work like a USB device that is considered secure and only connects to the Internet when needed.

• Web-based wallets provided, for example, by crypto exchanges, are considered active wallets that put users at risk.

• Software-based wallets for desktop or mobile are mostly available for free and can be provided by coin issuers or third parties.

• Paper wallets can be printed with the relevant data about the cryptocurrency held with public and private keys in QR code format. These should be kept in a safe place until they are required in the course of the crypto transaction and copies should be made in case of accidents such as water damage or printed data fading over time.

Crypto exchanges and markets

Crypto exchanges are trading platforms for those interested in virtual currencies. The other options include websites for direct trading between buyers and sellers, as well as brokers where there is no “market” price, but rather it is based on the commitment between the parties to the transaction.

Therefore, there are many crypto exchanges located in various countries but with different infrastructure standards and security practices. They range from those that allow anonymous registration that only require an email to open an account and start trading. However, there are others that require users to comply with international identity confirmation, known as Know Your Customer, and anti-money laundering (AML) measures.

The choice of cryptocurrency exchange depends on the user’s preference, but anonymous ones may have limitations on the scope of trading allowed or may be subject to sudden new regulations in the exchange’s country of domicile. Minimal administrative procedures with anonymous registration allow users to get up and running quickly, while KYC and AML processes will take longer.

All cryptocurrency transactions must be properly processed and validated, which can take anywhere from a few minutes to a few hours, depending on the coins or tokens being traded and the volume of the transaction. Scalability is known to be an issue with cryptocurrencies and developers are working on a solution.

Cryptocurrency exchanges fall into two categories.

• Fiat Currency These exchanges allow the purchase of fiat currency through direct transfers from banks or credit and debit cards, or through ATMs in some countries.

• Only cryptocurrencies. There are cryptocurrency exchanges that deal only in cryptocurrencies, which means that customers must already own a cryptocurrency, such as bitcoin or ethereum, to be ‘exchanged’ for other coins or tokens, depending on the market rate.

Fees are charged to facilitate the buying and selling of cryptocurrencies. Users should do their research to be satisfied with the infrastructure and security measures, as well as to determine fees they are comfortable with such as the different fees charged by various exchanges.

Do not expect a common market price for the same cryptocurrency with different exchanges. It may be worth spending time researching the best price for the coins and tokens you are interested in.

Online financial transactions carry risks and users should be aware of caveats such as two-factor authentication or 2-FA, stay up-to-date on the latest security measures, and be aware of phishing scams. A rule of thumb about phishing is not to click on provided links, no matter how authentic a message or email is.