TOPIC: CRYPTOCURRENCY AND HOW TO START WITH THEM IN 2022
What is Cryptocurrency?
A cryptocurrency is a digital form of cash that doesn’t require anyone to operate it (no middle-man or intermediary). All you need are apps on your smartphone to send and receive.
Why the name “Cryptocurrency”?
The name “Cryptocurrency” is a combination of “cryptography” and “currency”. With Cryptography, advanced math is applied to secure funds, making sure nobody else spends them.
Advantages of Cryptocurrency
1. Permission-less: Unlock banks where they can freeze users’ accounts or prevent transactions, you require nobody’s permission to access it.
2. Censorship Resistant: The network is designed in such a way that it is impossible for hackers or attackers to shut it down.
3. Cheap and Fast: When a transaction is made to someone on the other side of the world, the money gets to them in seconds at a fraction of the cost of an international wire transfer.
4. It promotes Anonymity: A person can transfer millions or billions of dollars without being at the risk of danger.
Note: When we talk about Crypto, there’s a need to emphasize privacy and security. Every crypto wallet comes with “Mnemonic KeyWords or Phrases” either 12, 24, or 32. DO NOT GIVE YOUR KEYS TO STRANGERS OR NON-TRUSTED PARTIES. Your keys are significant to your money.
BITCOIN
Who Invented Bitcoin?
It hasn’t been published yet who invented Bitcoin but only one name can be linked to it- “Satoshi Nakamoto”(This could be a single person or group of programmers, a time-traveling alien, or a secret government team).
Satoshi published a 9-page document in 2008, detailing how the bitcoin system worked. Months later, in 2009 the software was released.
Differences in Cryptocurrencies
There are over 6000 Cryptocurrencies in existence according to data from CoinGecko and Coinmarketcap. These include Bitcoin, Ethereum, BnB, Doge, Usdt, Usdc, Solana, Avax, etc.
Most Cryptocurrencies are no more in existence. Some are faster than others, some are more private, most of them are more secure while others are programmable.
Some Cryptocurrencies were created for fun. For example, Doge and Shib(they are referred to as meme/shitcoins). Some were made to serve a purpose, eg Ethereum was built to aid scalability.
BLOCKCHAIN
Blockchain is the technology on which the vast majority of digital currencies are based. It is a database.
Blockchains are append-only: You can only add information. Also, in blockchain, each entry(a block) in the database is cryptographically linked to the last entry.
TRADING VS INVESTING
Trading generally refers to a shorter-term approach to generating profit. Traders may jump in and out of positions all the time but how do you know when to get in and out?
Understand the technical and fundamental analysis.
Fundamental Analysis
This is a method used by Investors and traders to attempt the establishment of intrinsic value of assets. They do this by rigorously studying the internal and external factors to determine if an asset is overvalued or undervalued.
Technical Analysts
These sets of persons use tools and terms like EPS (Earning per Share) ratio, Price-to-earnings ratio, active addresses, whitepaper, team roadmaps, investors backing the project.
How to Begin Trading
Before you begin trading, you need to understand some basics. There are 2 kinds of exchanges to trade on:
1. CEXs (Centralised Exchanges)- Here, all liquidity and funds needed to aid a coin are provided by the exchanges. Binance, Kucoin, FTX, Huobi Global, Bybit, Coinbase are all centralized Exchanges. You can never be anonymous on this platform.
2. DEXs (De-Centralised Exchanges)- These kinds of exchanges aid anonymity. Here, all liquidity and funds are pulled in and added by traders in order to aid a coin. For example, Trust wallet, metamask, Huobi wallet, DeFi wallet, etc. DEXs are also referred to as “DApps (De-Centralised Apps)”, eg pancakeswap. finance, app.uniswap.org.
Note: For DEXs, there are several types and only the token for a particular blockchain can be used in the DEX unless cross bridging is applied. For example, Ethereum Blockchain uses ETH, Binance Smart Chain uses BnB, Avalanche uses Avax.
What is a Cross-Chain Bridge?
A Cross-Chain Bridge (a.k.a Blockchain Bridge) is a set of properly written code including smart contracts that enables users to transfer tokens, smart contract events, or instructions between different blockchains.
Trading Strategies
A trading strategy is an extensive plan for all trading activities. It can also help mitigate risk as it eliminates a lot of unnecessary decisions.
These strategies include:
1. Day Trading- This involves entering and exiting positions on the same day. Day traders capitalize on price moves that happen within one trading day.
2. Swing Trading- This is a long-term trading strategy that involves holding positions longer than a day but not longer than a few weeks.
3. Trend Trading- This is a strategy that involves holding positions for a longer period of time, at least a few months. These sets of traders take advantage of directional trends.
4. Scalping- Scalpers don’t try to take advantage of big moves. It’s a strategy that focuses on exploiting small moves over and over again. It also requires a deep understanding of the mechanics of the markets.
Investing
Investors look for long-term bets based on the fundamentals of an investment. Bitcoin investors follow the “HODL” philosophy (this means they believe so deeply in the success of bitcoin that they don’t intend to sell for a long time).
UNDERSTANDING RISK MANAGEMENT
What is Risk Management?
For a trader or investor, risk management is a framework (this could be the management of multiple assets such as Cryptocurrencies, Forex, commodities, shares or real estate) that defines how a company or investor handles financial risks which are inherent to all kinds of businesses.
How does Risk Management Work?
It involves 5 steps:
1. Setting Objectives
2. Identifying Risks
3. Risk Assessment
4. Defining Responses
5. Monitoring
The process of managing risks aims to evaluate the risk/reward ratio so that the most favorable positions can be prioritized.
OTHER WAYS TO EARN IN THE CRYPTO SPACE
1. Airdrops: Airdrops refer to the distribution of digital assets to the public either by-
* Virtue of holding a certain other tokens.
* Virtue of being an active wallet address on a particular blockchain.
* Being an early adopter.
* Being a participant of a DeFi protocol.
2. Writing Articles: You can earn by writing articles about crypto projects, posting them on your blogs, website, or social media for engagement.
3. Info-Graphics and How-to-Videos: If you are a good graphic designer or graphic artist, you can make designs, videos, and Info-Graphics for projects with their token as a form of appreciation.
4. Community Moderator/Ambassador: You could become a moderator for a project by monitoring one of the social media accounts like telegram or discord and get paid at certain intervals.
5. Passive Income: You can earn passively by securely lending your holdings to other people in exchange, they pay interest to you.
6. Learn and Earn: You can learn about several new protocols and projects, and get rewarded for your newfound knowledge. Binance and Coinmarketcap are the most prominent platforms.
Complied by Cryptosmart Education Team
