Cryptocurrency

Cryptocurrency for beginners in 2022

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 US$66,000 in April 2021K after its impressive drop in mid 2018 by around 70 percent to around US$6،100، has boggled the minds of many cryptocurrency investors، traders or just the curious. . missed the boat.

How it all began?

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

Despite many opinions predicting the death of cryptocurrency, bitcoin’s performance has inspired many other digital currencies, especially in recent years. The success with crowdfunding brought on by blockchain fever also attracted those to scam the unsuspecting public and this has come to the attention of regulators.

Beyond bitcoin:

Bitcoin has inspired the launch of many other digital currencies, There are currently more than 1100 versions of digital currencies or tokens. Not all are the same and their values ​​vary widely، as does their liquidity.

Coins، altcoins and tokens:

Suffice it to say at this point that there are fine differences between coins, altcoins and tokens. Altcoins or alternative coins are generally described differently from the pioneer bitcoin, although altcoins such as ethereum, litecoin, ripple, dogecoin and dash are considered to be in the ‘mainstream’ category of coins, meaning they are traded on more cryptocurrency exchanges.

Coins serve as a currency or store of value, while tokens provide asset or service uses, an example being a blockchain service for supply chain management to authenticate and track wine products from the winery to the consumer.

One point to note is that low-value tokens or coins offer positive opportunities, but don’t expect similar meteoric growth as bitcoin. Simply put, lesser-known tokens can be easy to buy, but they can be difficult to sell.

Before diving into a cryptocurrency, start by studying the value proposition and technology considerations, that is, the trading strategies outlined in the white paper that accompanies any initial coin offering or ICO.

For those familiar with stocks and shares, it is no different than an initial public offering or IPO. However, IPOs are issued by companies with tangible assets and a business history. All this is done within a regulated environment. On the other hand, an ICO is simply based on an idea proposed in a white paper by a business – still in operation and without assets – that requires funds to get started.

Unregulated، so buyers beware:

“No one can fix what is unknown” probably sums up the situation with digital currency. Regulators and regulations are still trying to catch up with cryptocurrencies which are constantly evolving. The golden rule in the crypto space is caveat emptor, let the buyer beware.

Some countries are keeping an open mind by adopting an opt-out policy for cryptocurrencies and blockchain applications, keeping an eye on outright scams. However, there are regulators in other countries more concerned about the downsides than the upsides of digital money. Regulators generally understand the need to strike a balance, and some are looking to existing securities laws to try to police the many flavors of cryptocurrencies globally.

Digital Wallets: The First Step

A wallet is essential to get started with cryptocurrency. Think e-banking but minus the protection of the law in the case of virtual currency, so security is the first and last consideration in the crypto space.

Wallets are digital type. There are two types of wallets.

  • Hot wallets that are connected to the Internet that put users at risk of being hacked
  • Cold wallets that are not connected to the internet and are considered more secure.

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

The choice of wallet depends on the user’s preference whether the interest is purely in bitcoin or ethereum، as each currency has its own wallet, or you can use a third-party wallet that includes security features.

Portfolio notes:

The cryptocurrency wallet has a public and private key with personal transaction data. The public key includes a reference to the cryptocurrency account or address، not unlike the name required to receive a check payment.

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

The private key can be considered to be the PIN code commonly used in e-financial transactions. It follows that the user must not disclose the private key to anyone and back up this data which must be stored offline.

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

Portfolio formats:

Different types of wallets are available to suit individual preferences.

  • Hardware wallets made by third parties that must be purchased. These devices work somewhat like a USB device which is considered secure and only connected when required to the internet.
  • Web-based wallets offered by، for example، crypto exchanges are considered hot wallets that put users at risk.
  • Desktop or mobile software-based wallets are mostly available for free and may be provided by coin issuers or third parties.
  • Paper-based wallets can be printed holding the relevant data for the cryptocurrency owned by public and private keys in QR code format. These should be kept in a safe place until required during 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. Other options include websites for direct trading between buyers and sellers, as well as brokers، where there is no “market” price but is based on compromise between the parties to the transaction.

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

The choice of crypto exchange depends on the user’s preferences, but anonymous ones may have restrictions on the amount of trading allowed or may be subject to unexpected new regulations in the country of residence of the exchange. Minimal administrative procedures with anonymous registration allow users to start trading quickly while going through KYC and AML processes will take more time.

All crypto trades 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 transacted and the volume of the trade. Scalability is known to be a problem with cryptocurrencies and developers are working on ways to find a solution.

Cryptocurrency exchanges fall into two categories.

  • Fiat Cryptocurrency Such exchanges provide for the purchase of fiat cryptocurrency through direct bank transfers or credit and debit cards, or through ATMs in some countries.
  • Cryptocurrency only. There are cryptocurrency exchanges that only deal in cryptocurrencies, meaning that customers must already own a cryptocurrency – such as bitcoin or ethereum – to ‘exchange’ for other currencies or tokens, based on the market rate.

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

Don’t expect a common market price for the same cryptocurrency with differential 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 heed warnings, such as two-factor authentication or 2-FA, staying up-to-date on the latest security measures and being aware of phishing scams. A golden rule for phishing is to not click on the links provided, no matter how authentic a message or email is.

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