Table of Contents
1. Introduction
Cryptocurrency is a complex and innovative concept, which is experiencing broad adoption as individuals experience online trade through things like online banks, online gambling, and online stock investment. It is a form of digital or virtual currency using cryptography for security, making it difficult to counterfeit. It is the money of the future and has been changing the financial world for the past 10 years. With the rise of digital money, there has been an influx of individuals and companies trying to capitalize on the value of the coin. The value of cryptocurrency is not a physical product like gold, but is only represented by the power of the market. If enough individuals believe in the value of a coin, it will increase. Many have attributed this to the rise and fall of ICOs, where companies will sell “shares” of their company in token form, and is directly attached to the success of the coin. With the increasing popularity in cryptocurrencies, the value of coins will continue to rise and outpace the inflation of the world currencies. Cryptocurrency is a new revolutionary type of currency. Like traditional currencies, digital currencies serve several functions, which is all to store, exchange, and unit account. However, digital currency does this through a secure and trusted implementation of the functions with incalculable potential. Over time, the cryptocurrency space has become rife with scams and fraudulent schemes as people realize the potential value of the space, with many lengthy “whitepapers” being produced as an elaborate means to con people out of their funds. Nonetheless, at the end of the day, cryptocurrencies are a new revolutionary way of storing value and are set to surpass traditional methods of wealth storage and transfer over time.
1.1. What is the crypto world?
Quelli. Cryptocurrency is an electronic money created with technology controlling its production and regulating the generation of new units by cryptography. The idea of cryptocurrency is based on a structure of sharing public or “open” ledgers, which is a form of database accessible by anyone. This would include the very basis of cryptocurrency, the virtual coin. Balanced definition. He answers the important question “what is cryptocurrency?” by saying “cryptocurrency is a type of digital/virtual currency that uses cryptography for security and is generally based on a decentralized system.” Most users today see cryptocurrency as “digital gold”. This is a good analogy because it is both rare and a difficult process to obtain (mining). Cryptocurrency may serve as an easy means of payment, especially between countries. This eliminates the need for currency exchange rates. An example of cryptocurrency serving as a quick, easy, and cheap means of payment is the purchasing of goods overseas. But the majority of long-term growth is still mainly speculative, which also holds a certain appeal to the traders and investors looking to make large profits in a short time-frame. The history of most cryptocurrencies begins with bitcointalk announcements. Most altcoin communities of today were satoshi clients first, followed by minor changes to the source code such as altered parameters and adding extra features. In the early years, cryptocurrency was synonymous with black markets, usually involving drugs or other contraband. Bitcoin is a great example and was tied to the notorious “Silk Road”, which was a site that facilitated the trade of illegal drugs. Today, cryptocurrency has made leaps and bounds, having made its way into legislatures of a variety of countries and being the primary topic of countless stock and market forums.
1.2. Brief history of cryptocurrencies
Collectors of money want a type of money which is less compromising than the banks. In the subsequent time duration, Satoshi mined the first-ever block of bitcoins, calling it “Block 0” or “The genesis block”. This was established as a major milestone in the history of cryptocurrency as it marks the date till 3rd Jan 2009. After 6 days, version 0.1 of BTC is released and will be the first official record on the Bitcoin Blockchain. The rest is history. With these beginnings, it nearly recalls the neonate footsteps to the mark of every millennial today who can’t imagine life without the internet.
In September 2008, an individual or group of individuals operating under the pseudonym “Satoshi Nakamoto” published a document called the Bitcoin Whitepaper. This document outlined a groundbreaking way of using a combination of technologies already in existence (such as the internet, private key cryptography, and protocol to record service history via smart devices) to solve the problem of “double spending” in a purely digital form of money.
Cryptocurrency came into existence in the course of the Bitcoin era. It basically took rise subsequent to the global financial crisis when there was great concern regarding the use and security of banks. Transactions were taking a lot of time and costing very high fees. People had a mindset to switch to different forms of money other than the poor services banks were providing.
2. Key Concepts in the Crypto World
A token is a representation of something in its particular ecosystem. It could be value, stake, voting rights, or anything. It is not meant to be used as a currency. A token is traditionally issued on top of an existing blockchain. Tokens can represent any fungible tradable good: coins, loyalty points, gold certificates, IOUs, in-game items, etc. The difference between cryptocurrency and tokens is that cryptocurrencies have their own blockchain, whereas tokens exist on an existing blockchain. For example, bitcoin and ether are cryptocurrencies. VR company Voxelus is developing a virtual reality marketplace to buy and sell VR assets and games using a token called voxel, which is issued on the bitcoin blockchain.
2.2. Cryptocurrencies and tokens A cryptocurrency is a digital or virtual currency that uses cryptography for security and is generally decentralized. Many cryptocurrencies are based on blockchain ledger technology—a distributed ledger enforced by a disparate network of computers. A defining feature of cryptocurrencies is that they are generally not issued by any central authority, rendering them theoretically immune to government interference or manipulation.
Blockchain is best explained in terms of state transitions. A state represents quantified data about the system: an initial state, transaction, and final state. A state transition defines a valid movement from one state to another. A transaction is a function which takes a state as an input and must return an output. For a transaction to be valid, it must return true for all states. This transaction can be interpreted into code. A sequence of transactions is grouped into a block, and the state is iteratively updated after each valid block. Each cryptocurrency has its own blockchain, with the bitcoin one being the most well-known. The blockchain can be manipulated to the developers’ wishes because it is not stored in one place, and the use of blockchain has many theoretical benefits.
Blockchain has a large potential to transform business operating models in the long term. Blockchain is the derivative of bitcoin. It represents a new way to execute and record transactions, with these records being dispersed and stored on a ledger. Each transaction is grouped in a “block” then added to the chain. Blocks can be added to the chain once a consensus has been reached; once it’s added, it cannot be modified.
2.1. Blockchain technology Blockchain is an incorruptible digital ledger of economic transactions that can be programmed to record not just financial transactions but virtually everything of value. Joe Duran, founder and CEO of United Capital, remarked on blockchain, “It’s a shared secure database in which each user has its own copy and the changes can only be made when there’s a mutual agreement between the participants. We will see technology shift from the clumsy, inefficient, and error-prone systems associated with doing businesses on paper to something much more streamlined. Blockchains will provide greater efficiency, security, and increased transparency.”
2.1. Blockchain technology
This technology has been called the most important IT invention of our age, but has been little understood by the average person. Essentially, the blockchain is a vast, global distributed ledger or database running on millions of devices and open to anyone, where not just information but anything of value can be moved and stored securely and privately. The technology is therefore rapidly transforming the way we interact, offering us greater control and security in our digital lives. The innovation is that the data is both public and private at the same time and can also verify integrity by a consensus but also be more easily audited and checked because of the universal access. More specifically, the blockchain consists of a chain of blocks and is resistant to modification of the data. It achieves this through hashing, which, to simplify, is a unique code of fixed length that identifies each block of data. As each block contains a hash of the previous block, a new block and its data being altered would still need to reference the incorrect version of the previous hash, causing a snowball effect. Finally, the data is stored on a peer-to-peer network, essentially meaning as long as a single copy exists, the data will never entirely be lost. This offers much more reliability compared to the conventional client-server model, where a large company or government organization may store data centrally.
2.2. Cryptocurrencies and tokens
A cryptocurrency is a digital asset, or digital currency, that uses cryptography for security. They can easily be transferred from one person to another with minimal processing fees and allow for pseudo-anonymous online transactions. Merriam-Webster’s definition for Cryptography is the process of writing or reading secret messages or the science or study of the techniques of secret writing, especially code and cipher systems. In cryptocurrencies, the messages that are sent between two parties are the transaction data. These messages need to be confidential, authentically from the sender, and only from the sender, and also be able to switch the sender into a receiver so that the next time they want to send a message, the receiver is the sender and vice versa. This is achieved using many different methods of cryptography. This is where it gets really tricky. In order to understand how cryptocurrencies encrypt transaction data, you first need to understand at least some small part of public key cryptography. In public key cryptography, a pair of keys is used. These are a public key and a private key. The keys are very large numbers and are mathematically linked together. Data that is encrypted with a public key can only be decrypted by the same owner using their private key. A public key is also used to encrypt data, and you will most likely have many encrypted messages sent by many different people that only you can decrypt using your private key. This is great for data integrity as you can use your private key to sign data. Someone else can use your public key to verify that the data was encrypted using your private key and that it has not been changed. This entire process is used extensively in cryptocurrencies.
2.3. Decentralization
Moving back to the old people, they feel already left by a government. Resources that are really not quite compatible with the needs are making a provision of service increasingly far from affordable cost, and getting the right to a service has to spend a lot more cost than before. This complex condition has made them have no right to obtain something. It is not much different from what was experienced by many people who do not understand why the socioeconomic status is very influential in obtaining a service, whereas they have paid for these with savings in the same way.”
In a country, the political situation related to public services or rights that must be available to every individual citizen, the more wealthy a citizen, then the registration on the rights will be ascertained. It will create a difference in the rights, whereas the old and poor people are minimally getting the same rights as wealthier people because the cost that must be spent along the old people are not really far different. This situation has been depicted in huge governments or countries that consider the current situation of the resources when they decide to the needs. The more cost, then more facilities would be obtained.
What they want to fight is bringing back the rights and control of data to the individual, taking benefits of more secure technology to transit data, cutting more cost on data transit. This is directly related to the first key concept which is decentralization because the controlled data and owned by individuals is part of the principle from the previous design of decentralization.
“In the crypto world, we can counteract with a number of players and projects, each with their individual vision of how best to use this technology to re-establish something they believe has been lost. Previously, there are many of them that want to make decentralization great again. They come from some spheres of life, but they have the same thought about the current situation.
3. Crypto Trading and Investment
On the other hand, Bitmex is an exchange mainly for traders, and it offers up to 100x leverage on certain contracts. The UI can be overwhelming for new users, and it doesn’t have a great reputation in terms of security. This type of exchange and the lack of support for the first type is what discourages the idea of investing into cryptocurrency for many people, but at the same time, makes it an exciting opportunity for the more experienced.
The first type of exchange often times is difficult to navigate for the average user but provides a service arguably more reliable than the second type. An example of this is the difference between Coinbase and Bitmex. The user interface on Coinbase is designed to be simple and provide an easy way to buy various coins. It’s backed by 0.1% fees for takers and makers, has a wide range of security measures, and insures all funds that are stored digitally. The trade-off with this is a significantly smaller range of cryptocurrencies and possibly lower liquidity.
In order to invest and trade in cryptocurrencies, you should use a specialised exchange. These typically function similarly to a stock exchange and allow anyone to buy, sell, and even short sell various digital assets, and in some cases, using leverage. There are two different types of exchanges: those that have been around since the beginning of Bitcoin and are supported by investors aiming to help the growth of the cryptocurrency industry, and those that are purely about making money.
3.1. Understanding cryptocurrency exchanges
A cryptocurrency exchange is a medium used to change one form of currency to another. It is essentially a market where various forms of cryptocurrency are bought and sold. These are similar to the stock exchanges that we all know and use today. There are various types of exchanges, including trading platforms – these websites connect buyers with sellers and take a fee from each transaction. Direct trading – these facilitate direct trades between people, unlike trading platforms there is no fixed market price and sellers will set their own exchange rate. Brokers – these websites are similar to forex exchange websites due to the setting of an exchange rate for the purchase of cryptocurrency. Exchange rates are the costs associated with trading one cryptocurrency for another. This is similar to when you go on holiday and use a currency conversion, there is almost always a margin cost between the rates. Referred to today’s modern form of money known as fiat. Fiat can be seen as currency that is issued by a government but is not backed by a physical commodity. A floating exchange rate is often used to change fiat into other forms of currency and has been described as having no set value since the value can change in relation to other countries and forms of money.
3.2. Strategies for crypto trading
3.2.3. Swing Trading Swing trading is the attempt to capitalize on correct market movements that can take place across several days. This can often lead to more profits if the trader is correctly on the ball with the direction the market is going. This method needs more patience and discipline.
3.2.2. Day Trading One of the more commonly known methods of trading is day trading. This method is similar to scalping but trades can last a lot longer and is less concerned with the small fluctuations in the market. This method usually involves more experience and knowledge of the market trend for that particular cryptocurrency.
3.2.1. Scalping This is a method traders use to make small profits quickly. It involves setting up a large number of trades on small timeframes. The hope is that the small profits will add up and can be reinvested into more trades. It is important to follow the current trend when starting a buy in order to maximize profit and know when to reach a restriction point and sell. This should minimize loss if done correctly.
Trading with no plan is a recipe for disaster, waiting to happen. It is imperative to practice the most coherent strategy in order to profit from investing or trading cryptocurrency. Planning may reduce unexpected consequences and increase the likelihood of a more favorable result.
3.3. Risks and considerations for crypto investment
The nature of the market is extremely volatile. It is common to see large price swings in a short space of time. Project success, technological innovations, mass market acceptance, and market sentiments greatly influence the price of altcoins. Investors looking to short or long-term trade or HODL should be aware that price volatility is something you should be comfortable with. Newbies and investors who are unsure about what they are doing are advised never to, under any circumstances, participate in Margin and Futures trading where you can incur significant liquidation of your initial capital. Only experienced traders can exercise management of risk without overleveraging their positions.
Warnings on the high risks associated with participating in ICOs, handling tokens on exchanges, and investing in crypto assets are disclosed. The information provided on this website is solely for informational and educational purposes and is not financial or investment advice. Please do your own research and understand that investing in any ICO, altcoin, or Bitcoin market involves a high risk of losing money. You should never invest more than you are willing to lose.
3.4. Staying updated with market trends
Whether you are simply interested in learning about market trends or are looking to make a more informed trade, it is vital to ensure you stay up to date on the news and developments that take place in the world of cryptocurrency and blockchain technology. The first port of call for many, and in this case certainly cryptocurrency traders, is social media; Twitter in particular. Many of the biggest names in cryptocurrency and many of the development teams around various projects will have a strong presence on Twitter, and it is often a good measure of the sentiment surrounding a cryptocurrency. Caution should always be exercised when making a trade based on the opinions of others, as it is possible these influencers are looking to offload their own holdings on the back of a pump, as the high liquidity of cryptocurrencies can lead to price manipulation. Aim to seek out truly unbiased sources of news and information. Steemit is a blogging website that rewards users with the cryptocurrency STEEM for creating or curating content. Due to the financial incentive, Steemit is home to a large volume of news and development-oriented articles, and may be a good resource for more in-depth and insightful articles. Reddit is also a valuable resource for finding news about lesser-known cryptocurrencies. It is often possible to find gems of information and great community discussion on a coin’s Reddit that wouldn’t be available elsewhere. Be sure to cross-reference information from all these sources, and look into the credentials of those giving the information. Keep in mind that just because someone is well respected within the cryptocurrency space, it does not make them infallible, and there’s always the possibility of ulterior motives. Always question the incentives of those giving you information, and try to remain as objective as possible.
4. Regulation and Security in the Crypto World
Government regulations and compliance: In 2018, Joseph Stiglitz proposed that we should ban cryptocurrencies altogether. In the same year, over 20 countries enacted laws on cryptocurrency. Such a stance on cryptocurrency varies greatly between countries. For example, an individual caught owning or using cryptocurrencies in Bangladesh could be jailed as their government has taken a very hard stance on it. As stated previously, this differs greatly from how the Japanese government has approached it. The Japanese government holds a much more open stance to cryptocurrencies, accepting that they are now a part of their financial industry. Since 2017, they have recognized cryptocurrencies as a legal form of payment. These different governmental stances on cryptocurrencies greatly affect both their use and value in any given country. Should more governments take a harder stance like Bangladesh, it is plausible that the value of cryptocurrencies in those countries could plummet as users would attempt to get rid of them. Measures of this nature have already been seen. Russia’s deputy finance minister, Alexey Moiseev, has announced plans of legislation that would make access to cryptocurrency websites illegal. This would be done by instructing local internet service providers to block access to them. Failure of the ISPs to comply with this could lead to the removal of their license by Russian telecommunications regulator, Roskomnadzor. Bloomberg has reported that there is a proposal to have this implemented by July 1st, 2018. This threatens to remove much of the global content from the Russian internet and will make accessing cryptocurrencies significantly harder for Russian citizens who have recently become big on cryptocurrency trading. This would most likely drastically reduce the value and the trading volume of cryptocurrencies in Russia.
4.1. Government regulations and compliance
Cryptocurrency regulations have always been a grey area as its decentralized and unregulated nature leaves room for governments to impose measures. The European Union (EU) has always taken a soft approach confirming that it does not ban cryptocurrencies and to be no conflict with the community. However, the recent success and price explosion of cryptocurrency has forced the hand of many government bodies to look into the area and take measures in regulating the use of it. This has caused mixed reactions in the cryptocurrency community with those who have been in the area for some time and became accustomed to the freedom and lack of regulation that attracted them to the area in the first place are concerned that it will no longer be the same and it may lose its appeal. There are also concerns for remittance service users who use cryptocurrency to avoid high fees for sending money abroad, the alternative to this would be using it via Bitcoin and converting it to the local currency at the other end, however money changing services will require a license meaning that the added cost may cancel out the benefits of using this method.
4.2. Protecting your crypto assets
Your crypto assets are the value that is stored in the blockchain. The storage of your assets can be in the form of cryptocurrency or tokens. You could either have bought some bitcoins, you could have been paid in cryptocurrency or you may have tokens that represent another asset, such as shares in a company. Protecting the asset means ensuring that only you have access and control over how they are used and who has the permission to transfer it to someone else. Lack of security with crypto assets can mean that the value is transferred to someone else without your consent and once this has happened, transactions on the blockchain are generally irreversible, meaning there is no way to get the value back. This could involve someone hacking into your computer and taking your private keys or logging onto a website with your credentials, which could be phished in many ways.
4.3. Recognizing common scams and frauds
An easy way to avoid these scams is to invest only in coins with a realistic plan of action and to avoid all coins without a trading exchange.
The next scam involves ICO’s, which are an unregulated way of introducing a new cryptocurrency to the market. In this scheme, the companies in question present their currency and promise a trading exchange in a certain amount of time. However, just before the currency is expected to hit the market, the exchange and the founders will disappear with all of the invested money. Another variation of this would be to create an exchange purely for the intention of scamming, taking fees from the investors and shutting down the exchange with all of the assets after a short period of time.
Another scam is similar to the first “pump and dump” but more specifically targeted. This is when a promoter recommends an asset to newly invested people as a guaranteed profitable investment. They do this for a payment from the company who issued the asset and will sell it soon after, causing the same result.
First is the “pump and dump” scheme. This is when a company artificially inflates the price of an asset to get newcomers to invest at the hiked price. The company will then sell their stake in the asset, causing prices to plummet with the newcomers left holding an asset that has lost significant value. This scheme is very common in stocks but has been widely used to scam cryptocurrency investors, especially in the bear market of 2018.
There are many ways that criminals will try to take advantage of those into cryptocurrency. Listed here are the most known scams to be aware of and look out for.
