Guide

Basic Guide for Cryptocurrencies – Digital Assets

Author: Andrew French (Twitter @asiamtm)

Table of Contents

  1. Introduction

Not so long ago, on a Twitter, a “noob” is thinking of buying into the cryptocurrency movement but doesn’t know where to begin. Maybe this person isn’t a total noob (someone new to Crypto, or new to anything for that matter) but is just misinformed due to the overwhelming amount of FUD (Fear, Uncertainty, and Doubt) being spread. FUD comes in the form of both positive and negative statements, but both are damaging if not true or not based on any kind of fact.

FOMO (Fear Of Missing Out) has set in, and this person wants a piece of the action, and why not. Cryptocurrencies and Digital Assets will be a part of the not so distant future, and in some cases, already are.

I’ve written articles before about myths and realities, but this one is a bit more comprehensive. As a long-term investor, I feel personally invested also in helping others learn and to sort through the “trash” we all see on Twitter (as an example).

My favourite asset is XRP by Ripple, it is, in my opinion, one of the very few that will not only survive, but thrive, in the upcoming regulation of cryptos.

  1. Definitions

Things can get a bit confusing in this arena, so we should first start with defining some items.

    1. Cryptocurrency

Loosely defined, a cryptocurrency is a digital or virtual currency that uses cryptography for security.1

    1. Digital Asset

Every cryptocurrency on the world can be labelled as a digital asset, however, not every digital asset is a cryptocurrency. XRP is the digital asset native to the XRP ledger. The XRP ledger is an open-source distributed ledger, and Ripple is a privately held company.2

    1. Distributed Ledger

This is a database that is consensually shared and synchronized across a network spread across multiple sites, institutions, or geographies. It allows transactions to have public “witnesses”, thereby making a cyberattack more difficult. Each node participant of the network can access the entries that have been shared and can own an identical copy of it. Any changes to the ledger are reflected and copied to all nodes in a matter of seconds.3

    1. Blockchain

Blockchain is just one type of distributed ledger. When we talk about blockchain it is usually the technology that is used for Bitcoin, a consensus of replicated, shared, and synchronized digital data. New formed blockchains have added new functionalities to the original one. Under the Bitcoin protocol each transaction is being given a unique cryptographic number and included with others in a “block” of similar transactions. Each block is then ‘chained’ to the next block, using a cryptographic signature (“hash”). This allows blockchains to be used like a ledger, which can be shared and validated by anyone with the appropriate permissions.4

    1. Wallets

Cryptocurrency wallets can be divided into five types and each comes with varying levels of security to ensure the safety of your private keys; online (web), mobile, desktop, hardware, and paper wallets.

Now that you have a little foundation of related terms, let’s look at 5 different types of cryptocurrency wallets, their advantages, and their disadvantages.5

      1. Online Wallet (Web Wallet)

Online wallets are typically cryptocurrency wallets that you access via your web browser. In some cases, people refer to all hot wallets as online wallets, but that only gets confusing when we start to discuss individual platforms that your wallet resides on, such as mobile or desktop wallets. It is a bad idea to put the bulk of your crypto onto these wallets.

If you don’t know what a “honeypot” is, understand that online exchanges and online wallets are incredibly attractive to hackers and they work much harder to break into them. It happens, as you can read on the news.

Advantages

  • Fastest way to complete transactions (no lag between locations of app and server)
  • Ideal for holding small amounts of cryptocurrency
  • Some can manage multiple cryptocurrencies, transfer amounts between them, or be directly integrated into an exchange
  • TOR network can be used for more privacy

Disadvantages

  • Users are susceptible to phishing scams, malware, insider hacking, DDOS attacks, and outdated security measures
  • Your wallet is “out of your hands” and coin information is stored on a third-party
  • Your computer is open to malware, keyloggers, and viruses
      1. Mobile Wallet

Mobile wallets provide access to your cryptocurrencies wherever you are with your mobile device and provide additional features above and beyond wallets that are completely internet-based, however they also come with additional security risks.

Advantages

  • More practical and easier to use than other wallets, great to accept or send payments on the fly
  • Additional features above and beyond both online and hardware wallets like QR code scanning
  • TOR network can be used for more privacy

Disadvantages

  • Phones are incredibly insecure devices – nothing will save your crypto if your phone has been maliciously compromised or rooted, not even wallet app encryption
  • Your phone is open to malware, keyloggers, and viruses
      1. Desktop Wallet

A desktop wallet is considered somewhat more secure than both an online (web) wallet and mobile wallet, however that depends on your commitment to online security.

In cases where you use an older laptop, completely offline, on a clean operating system install –you could consider this to be an effective cold storage method.

Advantages

  • Incredibly easy to use
  • If “never been kissed” by an internet connection this is a great cold storage solution
  • Private keys not stored on a third-party server
  • TOR network can be used for more privacy

Disadvantages

  • If connected to the internet there are security and privacy caveats
  • Computer repair people! If you rely on the Nerd Squad, they could steal your coins
  • If you forget to back it up and your computer dies, you’re out of luck
  • Your computer is open to malware, keyloggers, and viruses
  • Some wallets ask for really strange privacy permissions (security certificates)
      1. Hardware Wallet

Hardware wallets are slightly less user-friendly than web wallets and desktop wallets, but they’re easier to work with than paper wallets and more secure than hot wallets (most of the time).

Some require batteries, some don’t. Some have screens which mean you don’t need an insecure computer to back up your private keys, some don’t. Some handle hard forks better than others, and they all are often sold out.

They’re great for storing large amounts of cryptocurrency you don’t need to move around often, and they offer more control.

Advantages

  • If it has a screen, it’s the most secure way to store crypto long-term
  • Stronger security than all other wallets, for the most part

Disadvantages

  • Cumbersome for some beginners to use, but an absolute must for large quantities of cryptocurrencies
  • Often sold out
      1. Paper Wallet

Before hardware wallets, paper wallets were the defacto standard for cold storage of cryptocurrencies. There are paper wallets and then there are secure paper wallets.

Advantages

  • One of the most hacker-proof crypto wallet choices
  • Not stored on a computer
  • Private keys not stored on a third-party server

Disadvantages

  • More effort required to move cryptocurrencies around
  • More technical understand required
    1. ICO

Initial Coin Offering. BEWARE, these have a very high potential for being a scam.6

    1. Technical and Fundamental Analysis

Technical Analysis is when you study the price on a chart. Traders usually apply lots of different indicators to try and predict where the price is going (up is bullish, down is bearish). TA studies the past pricing to try and predict the trend coming and should be utilized in the absence of Fundamental data to analyse.

Fundamental Analysis is studying the facts of a company/token during times such as news and announcements. FA impacts the price very profoundly as we can see during the Coinbase announcement about not yet deciding to add any new cryptos and the Coinmarketcap decision to remove Korean exchange pricing into their calculations without telling anyone first. During fundamental revelations, TA takes a back seat because the FA sets what’s about to happen to the price action.

  1. Myths and Facts

Here we can highlight some issues and shed some light on what’s true and what’s not.

Myth #1

You need a referral code to open a Binance account.

Truth

You can open one with or without a referral code. If you do open one with a code what will happen is that (now 20%) of your trading fee goes to the person who gave you the code. Also, due to the overwhelming amount of people trying to open accounts, they only open registrations during certain unannounced times of the day.

Myth #2

It is OK to buy someone’s account on an exchange.

Truth

Most people selling their accounts sell them for insane amounts of money (usually in the form of Bitcoin) and it’s a violation of most, if not all, exchange terms of service, to buy/sell accounts. Once found out, that account will be cancelled. So, any money spent on buying one will be lost. Also think about how secure your account would be (hint, it’s not) if you buy it from someone else.

Myth #3

You can make a ton of money from a “pump and dump” group.7

Truth

Really, the only people making money from this strategy are the actual organisers themselves. They use the lack of knowledge of the masses to pump up the price of a coin, then they dump it. By the time you’ve realised it and try to sell, it’s too late. Not only do you lose, but you take part in something that goes against what a company behind a coin is all about.

Myth #4

I should listen to someone on Twitter telling me to sell my XRP because the price is dropping.

Truth

Totally ignore these people, they’re just spreading FUD and are probably just upset because they missed the boat back when it was still selling for $0.25 per token. Cryptos are still an emerging technology and there are still more shakedowns coming in order to make them mainstream under regulation. Price volatility will be very pronounced during these early times. XRP is not a token meant for day trading, it’s a solid company that will change the world and the only strategy that makes sense is to buy and HOLD.

Myth #5

XRP is a bankers coin and is centralized.

Truth

Whilst it’s true that Ripple first set out to target the banks to solve the annual quadrillion dollar problem of cross border settlements, that’s not the case anymore. Their roadmap is first B2B (business to business), then B2C (business to consumer) and then C2C (consumer to consumer). If we look at the MoneyGram partnership as an example, this is a service from a non-bank to a consumer who generally is unbanked. There are still 2 more “non-banks” to be announced on their partnerships too.

If we think about centralization, Ripple contributes to the open-source code of the XRP ledger, but they do not own, control, or administer the ledger. The XRP ledger is decentralized, and if Ripple ceased to exist, the XRP ledger would still continue to exist.

From June 2016 until around the end of 2018, Ripple will turn off one of their nodes for every 2 independent validator nodes established, thus making them even more decentralized.

Myth #6

Ripple hold most of the coins and can make more at any time.

Truth

Ripple only hold 6,253,951,232 tokens, with an additional 38,739,142,811 being distributed, and the remaining 55,000,000,000 locked up in escrow smart contracts. 8

Ripple cannot just arbitrarily make more tokens and they cannot just break the contracts to take the escrowed ones and dump them on the market (hence the meaning of the word “Escrow”)

Myth #7

XRP value can’t go so high because the market cap would be worth more than all money in existence.

Truth

When it comes to crypto’s, market cap doesn’t really mean anything. In crypto’s, it’s the value of utilization and adoption that makes its worth. Just because there are 99 billion coins, doesn’t mean that 99 billion coins are being used, this is the key reason as to why market cap doesn’t matter.9

  1. Smart Money Is Coming

Smart money, or, institutional money is coming to the key cryptos. This should bring with it some serious volume as well as fundamentally driven price action.

Ripple have just signed a lease in the Kaufman Organization and Goldman Sachs Asset Management’s office building in New York10, and Weiss, a US ratings agency, will tomorrow begin to grade some of these key cryptos.11

A rating system is a “must have” for these institutional investors, so this is pretty much the writing on the wall. Couple this with the coming regulation, very few cryptocurrencies will be able to stand out from the crowd.

  1. Summary

There are, and always will be, people who try to scam you out of your hard-earned money. This can come in many various forms and being coerced into doing something just because “everyone else” is doing it, is one way. DYOR (Do Your Own Research) goes a very long way to help safeguard yourselves against these schemes.

One of the best pieces of advice I can give is to ignore these people on Twitter who say things like “Oh My God, price is dropping, sell now” or “XRP is a sh*t coin” or “TRX to the moon”. If you believe in the fundamentals of a company behind the coin and you’ve done your research, then you already know what to do. Buy, and hold. In the case of Ripple/XRP this is the best course of action. Lastly, there are very few tokens out there with a solid company behind them, this is what makes Ripple and their native token XRP a real game changer. Happy investing everyone.

Disclaimer: I personally own XRP digital assets and am a long-term investor/holder in the product. I am not a financial advisor and my analysis reports are not intended as any kind of investment or financial advice.

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