036 · What are crypto-currencies and how to successfully invest in Bitcoin?

Bitcoin, cryptocurrency, blockchain… words that we often hear about but whose meaning is still rather nebulous in the minds of most of us. Yet you could, as others already do, earn money without having to invest huge amounts. So, if you want to understand what exactly cryptocurrency is and how you too could get your share of the pie, follow this guide.

In the 90s, many people wondered what the internet was, this new technology that was to revolutionize the world. Today, not only does no one wonder anymore (except maybe a few isolated hermits at the end of the world), but the vast majority of the inhabitants of our planet use it daily. The same thing should happen with cryptocurrencies: Everything suggests that in thirty years, nobody will need to ask what they are because they will probably be part of our daily life, just like the internet is today.

The Short History of Cryptocurrencies

For those who are interested, let’s start with a brief history of their appearance. Modern cryptocurrencies were first described in 1998. The concept fully emerged in 2009 with the publication of a “white paper” explaining the basics of blockchain and Bitcoin. This white paper was written by a person (or group of people) under the mysterious pseudonym “Satoshi Nakamoto”.

Before the emergence of today’s cryptocurrencies, there were several attempts that went unheeded. These include ideas that originated in the early 1980s in the Netherlands and the United States. The first major digital currency was “Digicash”, which collapsed in the 1990s.

What is blockchain?

Before we look at what exactly cryptocurrency is, it’s important to understand the technology on which it is based. This technology called “blockchain” allows the storage and transmission of data in a transparent and secure way and especially without centralized intermediary. The various pieces of information are, therefore, stored and distributed on a large number of remote computers called “nodes”, which are spread all over the world, without any central entity needing to control access to a user’s files.

The 3 entities that guarantee its security are: the sender, the receiver, and a third party. Each of them must confirm and approve any new transaction on the network. Bitcoin transactions are stored and can be traced in a digital ledger called “distributed ledger technology” (DLT).

And if you want to know more about blockchain, I suggest you read this very interesting article.

What is a cryptocurrency?

Cryptocurrency is a universal, decentralized, and encrypted digital currency, operating on a “Peer to Peer” basis, and requiring no trusted third party. So, that’s the complete definition. But let’s dissect it to extract the 6 essential characteristics that are specific to all cryptocurrencies.

  • 1It’s a digital currency: It’s a virtual currency that exists only in a computer or a smartphone. Cryptocurrencies are therefore neither coins nor banknotes.

  • 2It works on a peer-to-peer (P2P) basis Cryptocurrencies must be able to be transferred from one person to another on the internet, without any intermediary.

  • 3It is universal: This means that there is not one cryptocurrency for Europe and another for the United States. They are the same everywhere, can be used freely across borders and between virtually all countries.

  • 4It is encrypted: There are no rules to define who can use the cryptocurrency. The real names of the holders are not used, and instead, each user receives an identification code. This is part of the definition of cryptocurrency: Crypto means “hidden” in Greek, so cryptocurrencies are anonymous money.

  • 5It is decentralized: Banks do not exist in the world of cryptocurrencies. Everyone is responsible for their own money, and it is not held in any bank. Cryptocurrencies are not managed by a central server, which is why they are said to be decentralized.

  • 6It doesn’t require any trusted third party: Because of the way cryptocurrencies are designed, you don’t have to trust anyone for the system to work.

And to better understand what cryptocurrencies are, we must first define what “regular” money is—the money we use every day.

How does ordinary money work?

Money is not worth anything in itself—it is only paper and pieces of metal that we can exchange for goods and services, in agreement with banks and governments. This is called “fiat money”. The euro, the US dollar, the British pound, and the Chinese yuan are fiat currencies.

We know that when we go to the grocery store, we can exchange our fiat currency for goods. We know this because we all trust what the government tells us.

When we have more cash than we can keep in our pockets, we open a bank account. To do this, we have to give the bank our personal information.

When our money is in the bank, we can’t see it, but we know it’s there. That is, we basically rely on the banks, which are an example of what we call a “trusted third party”.

Do you see a little bit of what I’m getting at? In fact, cryptocurrency is just the opposite. It has its advantages and disadvantages, both for users, but also for governments and institutions, but I’ll come back to that later.

Banknotes

Is it still worth investing in Bitcoin?

Bitcoin was the first true cryptocurrency to emerge, and its creation gave birth to the current cryptocurrency ecosystem. It has now become a household name, and institutions and governments alike are looking to develop parallel systems to meet the growing demand.

Just as the internet was once a speculative investment, Bitcoin has been subject to similar criticism. However, Bitcoin’s current adoption rate now exceeds that of the internet; with a user base in 2021 that is roughly as large as the internet’s in 1997.

In 2021, El Salvador became the first country in the world to introduce Bitcoin as a legal tender; it appears that Paraguay and other countries will follow. El Salvador is also the first and only country to have Bitcoins in its treasury. As of September 2021, it had 700 Bitcoins (although its president did not bother, like Elon Musk, to announce these purchases on Twitter…).

At this point, Bitcoin has become too important to ignore. As the traditional financial world becomes aware of the development of cryptocurrencies, it must now choose between accepting this reality or being out of the game.

Some believe that Bitcoin has the potential to destroy the U.S. dollar, and other fiat currencies, in a big way. Russia has even stated that it is considering converting to the use of cryptocurrencies in order to reduce its dependence on the US dollar.

Currently, one of the main reasons investors are betting on Bitcoin is to protect themselves from inflation and a potential economic collapse. Indeed, where to turn in times of economic chaos? Generally speaking, to assets that can be considered “safe havens” (gold, real estate, certain currencies…) against the financial consequences of global events such as economic recessions.

While Bitcoin’s volatility has always been a problem for some, it is now decreasing drastically as institutions and governments have entered this market with a long-term view.

Moreover, using volatility to determine whether an asset is a safe haven is actually a misleading idea: Volatility is simply a measure of how much an asset’s price changes over time, both up and down.

Given that Bitcoin’s historical volatility has been steadily declining in relative terms since its launch, it seems clear that today it is no longer a strong argument against Bitcoin. As a result, Bitcoin is increasingly seen as a reserve asset and a safe haven on par with gold.

Thomas Jefferson once said, “I believe that banking institutions are more dangerous to our liberties than standing armies”, and James A. Garfield, “He who controls the money supply of a nation controls the nation.

All of these elements mean that while its future is still uncertain, Bitcoin is emerging as an increasingly popular currency. And so, ultimately, the personal decision to invest in Bitcoin, rather than entrusting it to a bank, depends primarily on your taste for risk and your personal vision for the future.

What about other cryptocurrencies?

Bitcoin was the precursor to virtual currencies, and today there are over 9,000 of them covering a range of uses. By 2021 the cryptocurrency market has continued its exponential growth reaching a staggering US $2000 billion.

The valuation of all cryptocurrencies currently represents more than 18% of the valuation of the world’s gold reserves. Bitcoin alone accounts for more than half of that valuation.

Top 10 Cryptocurrencies in Terms of Capitalization

  • 1Bitcoin (BTC)
  • 2Ethereum (ETH)
  • 3Cardano (ADA)
  • 4Binance Coin (BNB)
  • 5Tether (USDT)
  • 6XRP (XRP)
  • 7Dogecoin (DOGE)
  • 8USD Coin (USDC)
  • 9Polkadot (DOT)
  • 10Solana (SOL)

What is the future for cryptocurrencies?

As faith and credit in the dollar, euro, and other reserve currencies decline, cryptocurrencies are a viable alternative for many economists and investors. They have moved from the virtual world to the real world in just a few years. Millions of people around the world already use payment cards, linked to a cryptocurrency wallet on smartphones, to pay for their daily purchases.

In an increasingly dangerous and uncertain world, where a bank or state can freeze or devalue your money, the role of digital currencies as “anti-crisis capital” could ultimately trump any effort to control cryptocurrencies. So, the fear of another crisis is currently one of the most compelling reasons for people around the world to hold at least some of their wealth in cryptocurrencies.

The growing credibility of virtual currencies, thanks to the possibility of paying on more and more websites, leads me to believe that these currencies should continue to seduce investors!

In view of all this information, it is reasonable to think that cryptocurrencies will continue to attract the interest of financial markets and individuals. In the future, they may even become an important addition to the global financial infrastructure.

How to get started with cryptocurrencies?

To invest in cryptocurrencies, you don’t need to be a millionaire. You just need to be careful and realistically assess the potential return on investment. If you’re ready to take the plunge, let’s take a look at how to create a cryptocurrency wallet and acquire your first Bitcoins or whatever. It might seem a little complicated at first, but with a little learning and time, you can start buying, selling, and storing your own cryptos.

What you need to do before buying Bitcoins

Bitcoin is the most widely used digital currency, and at the time of this writing, its price is reaching record highs. But rest assured, even if you are not very rich, you can still buy Bitcoins in small quantities.

Before you start, you need to perform a few very simple actions:

  • Get an online cryptocurrency wallet.
  • Set up your wallet.
  • Create an account with a reputable cryptocurrency platform (exchange).
  • Gather the necessary documents to verify your identity (KYC).
  • Make sure you have a fast and reliable internet connection.

Choosing a cryptocurrency wallet

Before you can buy Bitcoins, you need a place to store them, and that’s where cryptocurrency wallets come in handy. They go by many names, but there are two main types:

  • Cold wallet: a physical digital wallet for storing cryptocurrencies that is not connected to the internet, similar to a USB stick, for storing cryptocurrencies. This makes them more difficult to hack than wallets connected to the internet. There are several of them, but Ledger or Trezor are among the main brands.

  • Hot wallet: a digital wallet based on software connected to the internet and often takes the form of an application. Most major platforms provide their own online wallet with the user account.

    For example, Coinbase, one of the largest cryptocurrency platforms, does this and its wallet is highly rated. You also don’t need to have an account on the platform to use the app.

USB Ledger

Once you’ve chosen your wallet and set it up, it’s time to find a cryptocurrency exchange platform, commonly known as an “exchange”, and make your first Bitcoin transaction.

Choosing an exchange platform

The main reputable and regulated platforms are:

Take the time to study each one and do your research to see which one is best for you. Since Bitcoin is the original and most popular cryptocurrency, you can be pretty sure that all of the platforms mentioned above will offer it. You can also check out what other cryptocurrencies they offer if you’re considering expanding your wallet. In addition to Bitcoin (BTC), you can practice with established currencies such as Ethereum (ETH), Ripple (XRP), IOTA (MIOTA), or even Cardano (ADA). You can also get a lot of information about most currencies by visiting coinmarketcap.

What are the pitfalls and mistakes to avoid?

If you want to invest in high-risk, high-reward markets, then the cryptocurrency sector is the one to watch. As I’ve already mentioned, a cryptocurrency is a highly volatile digital asset. There are as many chances to make a lot of money as there are to lose money.

So, here are 5 main mistakes to avoid:

  • aInvesting without proper research: The biggest mistake you can make when investing in cryptocurrencies, or any other asset, is to invest without knowing the fundamentals or doing proper research. If you don’t understand what you are doing, you will end up losing money. Before you invest a dime, take the time to learn the basics of cryptocurrency investing. You need to get all the information you can about how the market works; this will help you invest wisely.

  • bFailing to ensure that the crypto currency is trustworthy.: Cryptocurrencies are encrypted digital assets. However, the fact that cryptocurrencies are encrypted does not mean that they are 100% safe. The encryption only guarantees their confidentiality. It does not mean that they cannot be stolen or hacked.

    So, you must take responsibility for the security of your digital money. To protect your investment, do not share keys or codes with anyone. You should also not leave your cryptocurrencies on an exchange for too long, no matter how popular the platform is. Use a wallet (cold or hot) to store your cryptocurrencies.

  • cNot doing your homework: Investing is about making a profit. So, you need to focus on the profit potential when you invest. To know if you are making a profit when investing, you need to understand the numbers. If you don’t know the numbers, you will never know if you are making a profit or not.

    Prices can change in an hour or a day. To take advantage of these price changes, you need to consider the transaction fees. These transaction fees can significantly reduce your profits, so you need to pay close attention to them.

    The other parameters you need to be aware of when investing in cryptocurrencies are taxes and other fees. If you don’t include them in your calculations, your profits can turn into losses.

  • dMaking investment decisions based on emotions: In the field of cryptocurrency investing, you will come across acronyms such as “FOMO”, “HODL” and “FUD”. These acronyms reflect some of the emotion-driven cryptocurrency strategies. Don’t let these emotions control your investment decisions.

    • FOMO simply means “fear of missing out”. So, don’t make the mistake of investing in a cryptocurrency because it is hype or fashionable.
    • FUD stands for “fear, uncertainty and doubt.” FUD prevents people from investing, even if market sentiment or research statistics suggest that it may be a good time to invest.
    • HODL (Hold On for Dear Life) means to hold your position even when the market is experiencing high volatility. While it is sometimes possible to hold on to your stake, sometimes you don’t have time to wait for a very good return on your investment. In this case, it is better to “sell at a loss”, and lose a little, than to lose everything.
  • eInvest in one cryptocurrency: Bitcoin is the most popular cryptocurrency and one you should consider investing in for the long term. However, the volatile nature of cryptocurrencies means that one can experience a rise at one moment and huge losses the next. Because of this volatile nature, it would be a mistake to invest in just one of them. When investing in cryptocurrencies, it is wise to invest in different tokens. Diversify your investments: Cryptocurrencies such as Ethereum, Litecoin, Dodge, Bitcoin Cash and many others, can also offer you a very lucrative return on investment.

Things to remember: Just like in other types of investments, you can make a profit one minute and lose everything the next. To ensure a good return on investment, take the time to educate yourself and learn how to invest in crypto-assets properly.

Some Tips for Choosing a Platform

As we have seen, one of the first steps is to find the right platform for you. If you choose the wrong one, you will be wasting your efforts, money, and time.

But how do you choose the right exchange platform? Start by reviewing your goals. For example, do you want to trade long term or short term? And analyze the different possibilities offered by each platform.

After carefully defining your goals, you should then look at the rules and security of the platforms.

Here are some points to consider:

  • 1Reputation: Before you decide to invest, it is very important to consider the reputation of the platform. After all, this type of trading and investing is still relatively new, and some people have already been cheated out of their hard earned money.

    An effective way to check the reputation of a platform is to use Google. Read what people are saying about the platform and type the word “scam” next to the platform name to find out if it is reliable. You can also see on social networks what previous users are saying about it..

    Also, don’t forget to read the terms and conditions of the platform to know how it works.

  • 2Insurance: The best platforms have an insurance fund. This is designed to protect investors under certain conditions, and of course, you feel more relaxed to trade when you know you are partly protected by the platform.

  • 3Security features: Security features are an important characteristic of any crypto platform. In particular, look for two-factor authentication (A2F). By today’s standards, this is a very acceptable level of security. If you find that your chosen platform does not have this security, it is best to avoid it.

    On the other hand, if your platform has A2F, you should go a step further and check for compatibility. The most common A2F authentications are Yubikey, Google Authenticator, and Authy.

    In addition, also check if the platform offers other security features, such as data storage and protection services.

  • 4Fiat Exchange: As an investor in the cryptocurrency market, you need a mechanism that allows you to exchange your local currency into tradable units and vice versa.

    Note that different platforms have different options for currencies. Also, they only work with certain banks and not others. It is, therefore, worth checking which banks are compatible with the platform, as well as the “fiat” currency exchange options it has.

  • 5Registration fees: Most crypto currency trading platforms you will come across charge a small fee per transaction. Keep in mind that these fees are not standard and one platform may charge more than another.

    It’s important to keep these fees in mind as they are often calculated as a percentage of each transaction, which can result in significant costs depending on your business. Be aware that there are crypto trading platforms that also charge withdrawal fees.

Things to remember: In the world of cryptocurrencies, security starts with a certain amount of skepticism. The tips above are good ways to find the right trading platform. However, the final decision will have to be based on the goals you hope to achieve.

Conclusion

Cryptocurrencies such as Bitcoin still have several significant hurdles to overcome before they can completely replace existing monetary systems. The most immediate is the resistance of existing financial institutions, which have a considerable interest and means to prevent the spread of cryptocurrencies.

Other large corporations are open to cryptocurrencies, but do not currently consider them stable enough to be held as assets for long periods of time.

Because cryptocurrencies only require access to the internet and do not rely on established institutions such as banks, they are ideal for developing communities and countries that do not have a well-developed financial infrastructure.

Indeed, just as many people in emerging markets have abandoned their landline phones and gone straight to cell phones, these same people may ignore traditional banking systems and switch to mobile banking.

For these reasons, virtual currencies can be expected to have a significant impact on these emerging markets over the next 3-5 years and by extension the entire world. Knowing that in Niger, the world’s largest user, 42% of the population has already owned or used a cryptocurrency and 31% in Thailand… against only 8% in the USA and 5% in France!

It is, therefore, quite possible to envisage that global and democratized cryptocurrencies could one day replace the current fiduciary currencies as the main means of transaction. The blockchain model is perfectly adapted to internet transactions, which require speed, simplicity, and security.

Finally, while waiting for cryptocurrencies to replace existing financial infrastructures, their greatest immediate potential lies in their ability to integrate with other technologies (e.g. metavers) to participate in a true digital revolution, which is imminent.

EcoTips

Environmental and climate change issues are more than ever at the heart of the concerns of this 21st century, which is why I am proposing a few ideas that will enable you to limit the negative impact that the implementation of this idea could have.

These solutions that I suggest are sometimes largely insufficient to compensate for these negative impacts, such as carbon offsetting. Unfortunately, there is not always an ideal and 100% efficient solution, far from it. And if you have others, please do not hesitate to share them in the comments below.

The environmental impact of cryptocurrencies is generally quite catastrophic. The main reason for this is that the computer processing power required to “mine” cryptocurrencies is colossal. Mining is the use of a very (very) large amount of computers running continuously at full speed in order to verify the validity of transactions and thus secure the blockchain, in exchange for a reward (of crypto). This is a way to get Bitcoin without having to buy it. However, a large amount of fossil energy (mostly coal and oil) is used by these mining “farms” which are often located in China, Russia, and the USA.

The good news is that things are changing in the right direction (China, for example, has decided to ban the mining farms present on its territory). However, some farms are located in countries offering sufficient quantities of renewable energy (geothermal energy in Iceland, wind power in the Netherlands…). Some cryptocurrencies are, therefore, “greener” than others, and opting for one of them is definitely an eco-responsible choice.

Pros

  • Very high potential benefits
  • Perfect for risk-takers
  • Requires little equipment (a smartphone is enough)

Cons

  • The level of risk is quite high, even very high.
  • You have to spend a lot of time to get properly informed (before and while you invest)
  • It is currently an environmental disaster
Disclaimer, please read this

Legal and administrative aspects of the ideas you'll find on Sweekr are rarely discussed because they vary greatly depending on the country you live in. I would advise you to check with your local adminitration before starting any business. Keep in mind that if you make money, the state will ask for "its share" in order to guarantee the proper functioning of schools, hospitals and other public services. Therefore, you will probably have to acquire a micro-entrepreneur status, or any other similar.

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