Crypto Currency for Dummies
The year is 2012, I’m in 12th grade, and my friends and I are telling our classmates about Bitcoin going to $70. Everyone dismisses the idea including our parents and teachers, and eventually, I fall victim to weak hands. By the time I graduated college in 2017, I realized that maybe I was right about that bitcoin thing. I purchased Ethereum for around $650 but the market jumped off a cliff. I held on and lost money for a few years. Bitcoin began pushing $6,000 in 2019, so I began buying again and experimenting along the way. Since then, a pandemic caused the fed to print trillions of US Dollars. The impact of the SolarWinds hack has yet to be publicly known or discussed. Wall Street allegedly colluded to stop the #wallstreetbets short squeeze against GME, and the richest man in the world promotes a meme coin while buying $1.5 Billion worth of Bitcoin. This is why decentralized assets are hitting all-time highs in 2021.I’ve used a decent amount of time during the Covid-19 pandemic to study cryptocurrencies and blockchains. My knowledge is nowhere close to those holding large sums of capital, or programmers and developers within the space. This is a very generalized and condensed summary that does not touch on all systems, such as Web 3.0. Please do your research, and enter at your own risk. I am not a financial advisor.
Exchanges
Coinbase is traditionally how you get your fiat money into the market. This is a good beginner platform. You can easily earn free cryptocurrencies by taking quizzes and learn more about how cryptocurrencies work. Binance.us is similar to Coinbase and has many tokens that cannot be found on Coinbase or Kraken. Do not worry though, every exchange carries currencies like Bitcoin and Ethereum.
Kraken was the first Exchange to charter a US Bank. (2) This exchange allows you to stake assets and provides you with 5x leverage on certain pairings.
Bybit is Tradingview enabled and allows 100x leverage. This is an extremely high-risk platform, and you will get liquidated even if you know what you are doing. Uniswap is one of many DeFi exchanges where you can invest in DeFi projects. When converting gas fees will need to be paid to complete the transaction. As the price of BTC/ETH increases, gas fees have continued to rise. It is an ongoing issue.
Wallets / Cold Storage
If you don’t have an address for your cryptocurrency, you don’t own it. Cryptocurrencies are held in wallets that are controlled by private keys. Do not share your private key or seed phrase with anyone. Metamask is a digital wallet that easily integrates with your Chrome or Brave browser.Cold storage allows users to send their currencies to a local device and remove it from an exchange. Cold storage devices like Trezor and Ledger Nano’s are widely viewed as safe and reliable.
Proof of Stake
Proof of stake can be explained like this: The more bitcoin owned by a miner, the more mining power they have. Traditionally, miners need to sell their bitcoins to pay their bills, but now they have the ability and incentive to mine more by using less power and holding more tokens.
DeFi
Or “Decentralized Finance” looks more like traditional banking than any other part of the blockchain ecosystem. The idea is that you can take out a loan or become a lender by using Ethereum as collateral. This means you can take out a loan without a banker or credit check. This also means users can become a lender by depositing Ethereum and collecting interest. The loan or interest will be rewarded as a stablecoin, such as USDC. Stablecoins are adjusted to always track the price of the US Dollar.
Compound introduced ‘yield farming’ by issuing ‘governance tokens’ on top of USDC earnings to borrowers and lenders. Compound’s governance token, COMP, is currently priced at around $450. What’s incredible is that borrowers yielded COMP tokens because they took out a loan and made money on the transaction.
Nonetheless, many DeFi projects have been hacked, had liquidity issues, or just been ponzi schemes. Hackers continue to profit by taking out large flash loans and infiltrating reserves or finding code errors. For example, Yearn.Finance was hacked for $11 million just last week. DeFi has many more applications than those listed above, and it is an increasingly speculative space. (3)
Oracles
Blockchains and smart contracts cannot access data outside their network. However, smart contracts are triggered by predefined actions that require external information. Oracles provide smart contracts with this external information. Chain Link is an example of an Oracle. (5)
Conclusion
Bringing these technologies to the masses and enterprise levels will take time, but it makes sense for institutions to follow suit in the near future. Larger investments should yield higher returns if the technology can continue to close loose ends and develop. Whether you’re a retail investor or a hedge fund manager, it may be time to learn more about what these technologies can do.
