Cryptocurrency is the name given to all digital currencies. There are lots of different types that have evolved in the past decade. Some are called coins, like bitcoin, but other terms are token, gem, ether, etc. Naturally, a lot of people acquire digital currency in hopes that it will massively inflate in value, but not all cryptocurrencies are going to do this, and there are several reasons why. Some cryptocurrencies are created to only serve a local community, others are for very specific networks, and content delivery platforms, while others are actively aimed at building into large globally viable currencies. Each cryptocurrency has its own focus, design scope, and often an intended use, so that is a very important thing to learn to be able to identify as you explore deeper.
What is the advantage of a cryptocurrency vs. traditional currency?
For starters, we are sort of in the wild west still – so many nations do not regulate cryptocurrency, or have very few to no restrictions. This means that, by and large, cryptocurrency is untaxed, decentralized, and generally anonymous. Of course this has earned them a bad reputation, but the real goal is not to create a clandestine currency to support illegal operations, but instead to develop access to alternative forms of currency that can facilitate greater wealth mobility, and economic opportunity than fiat currencies. This emphasis on democratized wealth means that people can navigate some of the pitfalls associated with conventional currencies. If a person only has access to a fiat currency that is weak in the global market – their earnings are limited in terms of economic access, while being paid in a cryptocurrency with a global reach can be a more viable way to elect to be compensated for goods, or services, while also avoiding steep taxes. In the US, for example, people are required to report cryptocurrency on their tax forms, but it is not taxed, so people are able to retain their wealth without it being taken away on an annual basis, which is a big incentive behind why many people diversify into cryptocurrency.
Are cryptocurrencies “safe”
Safe is a nebulous term used to mean a ton of different things, so we prefer to look at it in terms of risk. Nothing is truly zero risk. Whether you are spending time, money, or labor – there is often no guarantee that a project will pay off. We recommend that you approach cryptocurrency trading carefully by assuming there is always a risk. If you learn what to look for you can be better prepared to manage the risks associated with acquiring a cryptocurrency. All currency comes with risk – whether it is a central bank, or a fiat currency….situations can change, and people can lose a great deal if they are not prepared, or aware of an upcoming change in a situation. We advise that you learn about all the regulations that apply to digital assets in your native country, and be willing to spend the time to stay updated on changes that could negatively impact, enhance, or even strand your holdings prior to this happening.
What is an ICO, and why do we warn against them?
One of the prime dangers is that somebody shares a lead to an up and coming cryptocurrency, and are promising huge returns, but when it comes time to see that benefit many people are let down. Based on our experience, one of the most risky, but high reward, ways to get into a crypto is called an initial coin offering (ICO) wherein, a party creates a coin, and assign it a value. They say, “buy our crypto, and it’s value will go up” but instead of investing into building partnerships, ways to spend the crypto, and on promotional strategies – they sometimes will take the initial profits from an ICO, and abandon the project. Other times, they will mismanage the launch of a crypto, which has the same result for people who bought in initially. If you hear about an ICO the first thing you should do is research it thoroughly. Investing on the assumption, or hope it will give you returns is very risky, and that is one mistake that turns a lot of people off from digital currency, but by researching carefully, and diligently you can protect yourself on the front end, rather than seeing the red in your portfolio later.
White Papers? What are they, and why should you expect one?
Put simply, a whitepaper is basically a guiding document that is intended for public access. They often contain the coding, regulatory standing, participants, and partnerships that are behind the currency. All initial coin offerings should have a whitepaper to accompany them, and many, if not most leading cryptocurrencies have them published online. You can see some examples for yourself if you type in a major cryptocurrency (Bitcoin, Etheruem, etc) into google with the phrase “whitepaper.” Now, the lack of a whitepaper is not the end all be all, but if you cannot locate one then it should be a clue to you that you should, at the very least, do some more research. By trying to identify the people, and partnerships that are part of a cryptocurrency you can evaluate it yourself. Remember, people trying to sell you cryptocurrency want you to buy it, so it is not enough to hear their pitch, and then invest. Research is imperative before you acquire.
What is a cryptowallet?
This is a very simple concept that often gets poorly explained. We like to look at it as a sort of hybrid between a bank, a bank account, and a wallet. A cryptowallet is usually stored on your computer, hosted on a secure network, or encrypted in a secure usb, or key-based device. Either way, just like all financial information – it is your responsibility to keep it safe. Instead of a bank holding your assets, often retain control, which means that you assume risk. All cryptowallets should be encrypted with a passcode, biometric lock, or pin, and contain hidden layers of code that make them very very hard to steal, or hack into. You can research cryptowallets to get a better feel for how many there are, what they offer, and what separates them from each other. Basically, when you are acquiring, or sending digital currency it will enter, and leave your “wallet.” Each wallet has a unique digital address – this wallet address is the equivalent to a bank account, and routing number all in one. Cryptowallets must be protected, and treated as valuable as all the wealth contained within them. They can be lost, or stolen, and there are far too many anecdotes of this happening. Keep your cybersecurity updated, never forget your access info, beware of phishing scams, and only reveal the specifics of your crpytowallet to truly trusted individuals.
Quick Recap:
1. We cannot say it enough; research! The biggest cautionary tale is that of the countless people who leapt into acquiring a crypto, and then lost everything. Learn about a crypto before you acquire it.
2. Learn what wallet, or encrypted devices are ideal for your use. Do not let your confidential information be stolen.
3. Remember that changes in legal regulations can impact you, so stay informed, and up-to-date so that if you need to divest, diversify, or liquidate – you can, and that you do so in a legally compliant way.
4. Initial Coin Offerings (ICO’s) are sometimes massively successful, but sometimes they fail, so if you look at it like gambling, be sure to learn as much as you can to improve your odds of winning, and be prepared to make mistakes as you learn.
5. Learn how to identify the goal of a crpyto, and use a search engine to gain insight whenever, and wherever possible!