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Cryptocurrency for beginners

In the early days of its launch in 2009, several thousand bitcoins were used to buy pizza. Since then, the cryptocurrency’s meteoric rise to $65,000 in April 2021, following its heart-stopping drop in mid-2018 by around 70 percent to around $6,000, has boggled the minds of many people – crypto investors, traders or just curious who missed the boat.
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How it all started

Note that dissatisfaction with the current financial system led to 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.
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Despite many opinions predicting the death of cryptocurrency, Bitcoin’s performance has inspired many other digital currencies, especially in recent years. The crowdfunding boom fueled by blockchain fever has also attracted those seeking to defraud the unsuspecting public, and this has caught the attention of regulators.
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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. Not all of them are the same, and their values ​​vary widely, as does their liquidity.
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Coins, Altcoins and Tokens

At this point, it will suffice to say that there are subtle differences between coins, altcoins, and tokens. Altcoins or altcoins usually describe something other than the pioneer bitcoin, although altcoins such as ethereum, litecoin, ripple, dogecoin, and dash are considered the “mainstream” category of coins, meaning they are traded on more cryptocurrency exchanges.
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Coins serve as a currency or store of value, while tokens offer the use of assets or utilities, an example being a supply chain management blockchain service to validate and track wine products from the winery to the consumer.

It should be noted that low-value tokens or coins offer upside opportunities, but don’t expect the same meteoric increases as Bitcoin. Simply put, lesser-known tokens may be easy to buy, but may be difficult to sell.
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Before getting into cryptocurrency, start by learning the value proposition and technology considerations, namely the trading strategies outlined in the white paper accompanying any Initial Coin Offering or ICO.
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For those familiar with stocks and shares, this is no different than an initial public offering or IPO. However, IPOs are issued by companies with tangible assets and business experience. Everything is done in a regulated environment. On the other hand, an ICO is based entirely on an idea proposed in a white paper by a business – not yet operational and with no assets – that is looking for start-up funds.
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Unregulated so buyers beware

“One cannot regulate the unknown” probably sums up the digital currency situation. Regulators and regulations are still trying to catch up with the ever-evolving cryptocurrencies. The golden rule in the crypto space is caveat emptor, let the buyer beware.
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Some countries maintain an open-mindedness by adopting a no-action policy on cryptocurrencies and blockchain applications, while keeping an eye out for detected scams. Yet there are regulators in other countries who are more concerned about the downsides than the upsides of digital money. Regulators are generally aware of the need to strike a balance, and some are looking at existing securities laws to try to deal with the many flavors of cryptocurrency globally.
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Digital Wallets: The First Step

A wallet is essential to get started with cryptocurrency. Think electronic banking, but minus the protection of the law in the case of virtual currency, so security is the first and last thought in the crypto space.
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Wallets are of digital type. There are two types of wallets.

  • Hot wallets that are connected to the Internet that expose users to the risk of hacking
  • 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 multi-cryptocurrency. There is also the option of having a multi-signature wallet, somewhat similar to having a joint bank account.
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The choice of wallet depends on the user’s preference whether the interest is purely Bitcoin or Ethereum, as each coin has its own wallet, or you can use a third-party wallet that includes security features.

Wallet notes

A cryptocurrency wallet has a public and private key with private records of transactions. The public key includes a reference to the account or address in cryptocurrency, not unlike the name needed to receive a check payment.
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The public key is available for everyone to view, but transactions are confirmed only after verification and validation based on the consensus mechanism applicable to each cryptocurrency.

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

It makes sense to have minimal cryptocurrency in a hot wallet, while the larger amount should be in a cold wallet. Losing your private key is as good as losing your cryptocurrency! The usual safeguards for online financial transactions apply, from having strong passwords to being on the lookout for malware and phishing.

Wallet formats

Different types of wallets are available according to individual preferences.

  • Hardware wallets made by third parties that must be purchased. These devices work somewhat like a USB drive, which is considered safe and only connects to the internet when needed.
  • Web-based wallets, such as those provided by crypto exchanges, are considered hot wallets that expose users to risk.
  • Software-based wallets for desktop or mobile are mostly available for free and may be provided by coin issuers or third parties.
  • Paper wallets can be printed carrying the relevant data of the cryptocurrency held with public and private keys in QR code format. They should be kept in a safe place until they are needed in the course of the crypto transaction and copies should be made in case of mishap such as water damage or fading of printed data over time.

Crypto exchanges and markets

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

Hence, 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, requiring only an email to open an account and start trading. Still, there are others that require users to comply with international identity verification, known as Know-Your-Customer, and anti-money laundering (AML) measures.

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

All crypto 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 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 the purchase of fiat cryptocurrency through direct transfers from bank or credit and debit cards, or through ATMs in some countries.
  • Cryptocurrency only. There are cryptocurrency-only crypto exchanges, meaning that customers must already own a cryptocurrency – such as Bitcoin or Ethereum – in order to be “exchanged” for other coins 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 satisfied with the infrastructure and security measures and determine the fees that are convenient as different rates charged by different exchanges.

Don’t expect a common market price for the same cryptocurrency with different exchanges. It may be worth your while to research the best price for coins and tokens that are of interest to you.

Financial transactions online carry risks, and users should consider warnings such as two-factor authentication or 2-FA, update themselves on the latest security measures, and be aware of phishing scams. A golden rule of thumb for phishing is to not click on provided links, no matter how authentic a message or email is.

Cryptocurrency and Tax Challenges

Cryptocurrencies have been in the news lately because tax authorities believe they can be used for money laundering and tax evasion. Even the Supreme Court appointed a special team to investigate black money recommended to discourage trade in such currency. While China has reportedly banned some of its largest operators from trading in bitcoin, countries such as the US and Canada have laws that restrict trading in cryptocurrency stocks.

What is cryptocurrency?

Cryptocurrency, as the name suggests, uses encrypted codes to make a transaction. These codes are recognized by other computers in the user community. Instead of using paper money, the online ledger is updated through regular accounting records. The buyer’s account is debited and the seller’s account is credited with such currency.

How are cryptocurrency transactions made?

When a transaction is initiated by a user, their computer sends a public cipher or public key that interacts with the private cipher of the person receiving the currency. If the recipient accepts the transaction, the initiating computer attaches a piece of code to a block of several such encrypted codes that is known to every user on the network. Special users called “miners” can attach the additional code to the publicly shared block by solving a cryptographic puzzle and earn more cryptocurrency in the process. Once a miner confirms a transaction, the block entry cannot be changed or deleted.

BitCoin, for example, can be used on mobile devices as well as to make purchases. All you have to do is let the receiver scan a QR code from an app on your smartphone or bring them face-to-face using Near Field Communication (NFC). Note that this is very similar to regular online wallets like PayTM or MobiQuick.

Die-hard users swear by BitCoin for its decentralized nature, international acceptance, anonymity, transaction permanence, and data security. Unlike paper currency, no central bank controls inflationary pressures on cryptocurrency. Transaction logs are stored on a Peer-to-Peer network. This means that each computer chips its computing power and copies of databases are stored on each such node in the network. Banks, on the other hand, store transaction data in central repositories that are in the hands of private individuals employed by the firm.

How can cryptocurrency be used for money laundering?

The very fact that there is no control over cryptocurrency transactions by central banks or tax authorities means that transactions cannot always be traced back to a specific person. This means we don’t know if the transactor received the store of value legitimately or not. The store of the recipient of the transaction is also suspicious, since no one can tell what reward is given for the currency received.

What does the Indian law say about such virtual currencies?

Virtual currencies or cryptocurrencies are generally considered to be pieces of software and are therefore classified as goods under the Sale of Goods Act of 1930.

Since they are good, indirect taxes on their sale or purchase as well as GST on services provided by the miners would be applicable to them.

There is still a lot of confusion about whether cryptocurrencies are valid as currency in India and the RBI, which has authority over clearing and payment systems and prepaid negotiable instruments, has certainly not allowed buying and selling through this medium of exchange.

Thus, any cryptocurrency received by a resident of India will be governed by the Foreign Exchange Management Act, 1999 as an import of goods into that country.

India has allowed Bitcoin trading on dedicated exchanges with built-in safeguards against tax evasion or money laundering and enforcement of know-your-customer norms. These exchanges include Zebpay, Unocoin and Coinsecure.

Those who invest in bitcoins, for example, are subject to tax on dividends received.

Capital gains received due to sale of securities involving virtual currencies are also subject to tax as income and subsequent online filing of IT returns.

If your investments in this currency are large, it is better to get the help of a personalized tax office. Online platforms have greatly facilitated the process of tax compliance.

Crypto market analysis

Cryptocurrency has been around for a while and there are numerous papers and articles on the basics of cryptocurrency. Cryptocurrency is not only booming but also opening up as a new and reliable opportunity for investors. The crypto market is still young, but mature enough to pour enough data to analyze and predict trends. Although it is considered to be the most volatile market and a huge gamble as an investment, it has now become predictable up to a point and Bitcoin futures are proof of that. Many stock market concepts have already been applied to the crypto market with some tweaks and changes. This gives us another proof that many people are adopting the cryptocurrency market every day and currently more than 500 million investors are present in it. Although the total market capitalization of the crypto market is $286.14 billion, which is approximately 1/65 of the stock market at the time of writing, the market potential is very high, given the success despite its age and the presence of already established financial markets . The reason for this is none other than the fact that people have come to believe in the technology and products supporting crypto. It also means that crypto technology has proven itself so much that companies have agreed to put their assets in the form of crypto coins or tokens. The concept of cryptocurrency became successful with the success of Bitcoin. Bitcoin, which was once the only cryptocurrency, now contributes only 37.6% to the total cryptocurrency market. The reason is the emergence of new cryptocurrencies and the success of the projects that support them. This does not mean that Bitcoin has failed, in fact the market capitalization of Bitcoin has increased, rather what it shows is that the crypto market as a whole has expanded.

These facts are enough to prove the success of cryptocurrencies and their market. And in fact, investing in the crypto market is considered safe now, to the extent that some are investing as their retirement plan. Therefore, what we need are crypto market analysis tools. There are many such tools that allow you to analyze this market in a similar way to the stock market, providing similar indicators. Including coin market cap, coin chasing, crypto and investing. Although these indicators are simple, they provide important information about the crypto in question. For example, a high market cap indicates a strong project, high 24-hour volume indicates high demand, and circulating supply indicates the total amount of coins of that crypto in circulation. Another important indicator is crypto volatility. Volatility is how much the price of a crypto fluctuates. The crypto market is considered highly volatile, cashing out right now can bring a big profit or make you tear your hair out. Therefore, what we are looking for is a crypto that is stable enough to give us time to make a calculated decision. Currencies like Bitcoin, Ethereum and Ethereum-classic (not specifically) are considered stable. To be stable, they must be strong enough not to become invalid or simply cease to exist in the market. These characteristics make cryptocurrency reliable and the most reliable cryptocurrencies are used as a form of liquidity.

When it comes to the crypto market, volatility comes hand in hand, but so does its most important property, ie. decentralization. The crypto market is decentralized, this means that a drop in the price of one crypto does not necessarily mean a downward trend in any other crypto. Thus, it gives us an opportunity in the form of so-called mutual funds. It is a concept of managing a portfolio of cryptocurrencies in which you invest. The idea is to spread your investment across multiple cryptocurrencies so that you reduce your risk if any cryptocurrency starts to go down

Similar to this concept is the concept of indices in the crypto market. Indices provide a standard reference point for the market as a whole. The idea is to choose the best currencies on the market and spread the investment between them. These selected cryptocurrencies change if the index is dynamic in nature and only considers the best currencies. For example, if currency “X” falls to the 11th position in the crypto market, the index that considers the top 10 currencies will no longer consider currency “X” but rather will start looking at currency “Y” which has taken her place. Some providers like cci30 and crypto20 have tokenized these crypto indices. While this may seem like a good idea to some, others are against it due to the fact that there are some pre-conditions for investing in these tokens, such as a minimum investment amount being required. While others, like cryptoz, provide the methodology and value of the index, along with the currency components, so that the investor is free to invest the amount they want and choose not to invest in crypto that is otherwise included in an index. In this way, indices give you a choice to further smooth out volatility and reduce the associated risk.

Conclusion

The crypto market may seem risky at first sight and many may still be skeptical about its authenticity, but the maturity that this market has achieved within the short span of its existence is incredible and is proof enough of its authenticity. The biggest concern of investors is volatility, for which there was a solution in the form of indices.

What is Bitcoin and why is cryptocurrency so popular?

Bitcoin is the most popular word in the financial space. In truth, Bitcoin has blown up the scene in the last few years and many people and many large companies are now jumping on Bitcoin or cryptocurrency wanting a piece of the action.

People who are completely new to the cryptocurrency space constantly ask this question; “What exactly is Bitcoin?”

Well, for starters, Bitcoin is actually a digital currency that is outside the control of any federal government, is used all over the world, and can be used to buy things like food, drinks, real estate, cars, and more.

Why is Bitcoin so important?

Bitcoin is not susceptible to things like government control and fluctuations in foreign currencies. Bitcoin is backed by the full faith of (you) the individual and is strictly peer-to-peer.

This means that anyone who transacts with Bitcoin, the first thing they realize is that it is much cheaper to use than trying to send money from bank to bank or using other services out there that require sending and receiving money internationally.

For example, if I wanted to send money to, say, China or Japan, I would have to have a fee from a bank, and it would take hours or even days for that fee to get that money there.

If I use Bitcoin, I can do it easily from my wallet, mobile phone or computer instantly, without any of these fees. If I wanted to send, for example, gold and silver, it would require a lot of security, it would take a lot of time and a lot of money to move bullion from point to point. Bitcoin can do it again with the tap of a finger.

Why do people want to use Bitcoin?

The main reason is that Bitcoin is the answer to these destabilized governments and situations where money is no longer as valuable as it used to be. The money we have now; the paper fiat currency that is in our wallets is worthless and will be worth even less in a year.

We are even seeing large companies showing interest in blockchain technology. A few weeks ago, a survey was conducted among a handful of Amazon customers to see if they would be interested in using a cryptocurrency if Amazon created one. The results of this showed that many were very interested. Starbucks has even hinted at using a blockchain mobile app. Walmart has even filed for a patent for a “smart package” that will use blockchain technology to track and authenticate packages.

Throughout our lives we have seen many changes take place from the way we shop, the way we watch movies, the way we listen to music, read books, buy cars, look for homes, now how we spend money and bank. Cryptocurrency is here to stay. If you haven’t already, it’s time for everyone to fully explore cryptocurrency and learn how to take full advantage of this trend that will continue to thrive throughout time.

How does cryptocurrency gain value?

Cryptocurrencies are the latest ‘big thing’ in the digital world and are now recognized as part of the monetary system. In fact, enthusiasts have labeled it the “money revolution”.

Put plainly, cryptocurrencies are decentralized digital assets that can be exchanged between users without the need for a central authority, most of which are created through special computing techniques called “mining.”

The acceptance of currencies such as the US dollar, the British pound and the euro as legal tender is because they are issued by a central bank; however, digital currencies, like cryptocurrencies, do not rely on the public’s trust and confidence in the issuer. As such, several factors determine its value.

Factors that determine the value of cryptocurrencies

Principles of a free market economy (mainly supply and demand)

Supply and demand is a major determinant of the value of anything of value, including cryptocurrencies. This is because if more people are willing to buy a cryptocurrency and others are willing to sell, the price of that particular cryptocurrency will increase and vice versa.

Mass adoption

Mass adoption of any cryptocurrency can shoot its price to the moon. This is because the supply of many cryptocurrencies is limited to a certain limit, and according to economic principles, an increase in demand without a corresponding increase in supply will lead to an increase in the price of that particular commodity.

Many cryptocurrencies have invested more resources to ensure their mass adoption, with some focusing on the applicability of their cryptocurrency to pressing personal problems as well as crucial everyday cases, with the intention of making them indispensable in everyday life.

Fiat inflation

If a fiat currency, such as the USD or GBP, becomes inflated, its price rises and its purchasing power falls. This will then cause cryptocurrencies (let’s use Bitcoin as an example) to increase relative to that fiat. The result is that you will be able to acquire more of this fiat with each Bitcoin. In fact, this situation is one of the main reasons for the increase in the price of Bitcoin.

History of fraud and cyber attacks

Scams and hacks are also major factors affecting the value of cryptocurrencies, as they are known to cause unusual fluctuations in valuations. In some cases, the team supporting a cryptocurrency may be the scammers; they will pump up the price of the cryptocurrency to attract unsuspecting individuals and when their hard-earned money is invested, the price is reduced by the scammers who then disappear without a trace.

That’s why it’s imperative to be wary of cryptocurrency scams before investing your money.

Some other factors to consider that affect the value of cryptocurrencies include:

  • How cryptocurrency is stored, as well as its utility, security, ease of acquisition and cross-border acceptability

  • The strength of the community supporting the cryptocurrency (this includes funding, innovation and loyalty of its members)

  • Low associated risks of cryptocurrency as perceived by investors and users

  • Journalistic mood

  • Cryptocurrency market liquidity and volatility

  • Government regulations (this includes the ban on cryptocurrency and ICOs in China and its acceptance as legal tender in Japan)

Why there will never be another bitcoin

Well, it’s been a crazy 10 years for Bitcoin. In fact, it has been more than 10 years since Bitcoin was first created by Satoshi Nakamoto. Whoever he, she, or they was, they had a profound effect on the world. They no doubt anticipated this, which is why they chose to disappear from the limelight.

So more than a decade later, Bitcoin is still alive and stronger than ever. Thousands of other crypto coins emerged as everyone tried to imitate the king of crypto. All have failed and will continue to fail. Bitcoin is one type. Something that cannot be repeated. If you don’t know why, let me explain.

If you don’t know what Bitcoin is, I’ll just give you a few quick key points:

  • Bitcoin is an online cryptocurrency

  • It has a maximum supply of 21 million

  • It cannot be tampered with

  • Not all coins are in circulation yet

  • It is completely decentralized with no one controlling it

  • It cannot be censored

  • This is money from an affiliate network

  • Anyone can use it

  • Bitcoin has a fixed supply that decreases every 4 years

What Makes Bitcoin Different?

So what makes Bitcoin different from all the thousands of other coins that have been invented since then?

When Bitcoin was first invented, it began to spread slowly among a small group of people. It grows organically. As people began to see the benefits of Bitcoin and how the price would increase due to its fixed supply, it began to grow faster.

The Bitcoin blockchain is now spread across hundreds of thousands of computers around the world. It spread beyond the control of any government. Its creator has disappeared and now operates autonomously.

Developers can upgrade and improve the bitcoin network, but this should be done in my opinion across the entire bitcoin network. No one person can control Bitcoin. This makes Bitcoin unique and impossible to copy.

There are thousands of other cryptocurrencies available right now, but as an example of what makes Bitcoin different, I’ll use Ethereum as an example. It is one of the biggest altcoins right now and has been since it was invented in 2015 by Vitalik Buterin.

Vitalik controls the Ethereum blockchain and essentially has the final say on every development that happens on Ethereum.

Censorship and government interference

For this example, let’s imagine that Iran sends billions of dollars to North Korea to fund its new nuclear weapons program. This is not a good situation, but it should show you how your money is safer in Bitcoin!

Anyway.. first example. Iran uses the standard banking system and transfers this money to North Korea in US dollars. The US government says wait a minute, we need to freeze these transactions and confiscate the money… Easy. They do it right away and problem solved.

Second example. The same thing happens again, but this time Iran uses the Ethereum blockchain to send the money to North Korea. The US government sees what’s going on. A phone call is in progress.

“Get Vitalik Buterin in here NOW”

The US government is “putting some pressure” on Vitalik, and they’re getting him to roll back the blockchain and cancel Iran’s transactions. (The Ethereum blockchain was actually rolled back when a hacker stole a significant amount of funds).

Problem solved. Unfortunately, the trust in Ethereum will be ruined along with its price.

Ethereum is just an example, but it is true for any other cryptocurrency.

Bitcoin cannot be stopped

So the same thing happens again. This time, Iran is using Bitcoin as a payment method. The US government sees this and is powerless to stop it.

I have no one to call. There is no one to pressure. Bitcoin is uncensored.

Every other cryptocurrency out there is created by someone or some company and that will always be the point of failure. They are still centralized.

Another example would be if Vitalik’s family were taken hostage. Bitcoin is beyond all that and that is why it is the safest investment on the planet.

Learn how to use Bitcoin

Everyone should own some bitcoins. Not without that it is dangerous. If you are new to Bitcoin then you should learn as much as you can before investing money. Owning Bitcoin comes with many responsibilities. Learn how to use Bitcoin safely.