Cryptocurrencies are all the rage right now, and for good reason. They have the potential to revolutionise how we do business and can provide a much more secure and efficient way of conducting transactions.
In this guide, we will explore the basics of cryptocurrencies and blockchain technology. We will discuss how they work, what makes them so special, and why they matter.
Additionally, we will take a look at some of the most popular cryptocurrencies out there and examine what determines their value. Finally, we will weigh the pros and cons of crypto to help you decide if it is right for you.
What is cryptocurrency?
Cryptocurrency is a digital or virtual asset that uses cryptography for security. Cryptocurrencies are decentralised, meaning they are not subject to government or financial institution control.
Bitcoin, the first and most well-known cryptocurrency, was created in 2009. Since then, hundreds of other cryptocurrencies have been developed.
These are often called altcoins, short for alternative coins (more on them later).
Cryptocurrencies are built on blockchain technology – what many term as the new Internet.
What is the blockchain?
Blockchains are distributed ledgers that record transactions across many computers. They’re used for things like digital currencies and smart contracts.
Each transaction made on a blockchain is verified by network nodes through complex algorithms. Once verified, the transaction is recorded on the blockchain and cannot be altered retroactively without changing all subsequent blocks, which requires consensus from the network majority.
This makes blockchain an incredibly secure way of conducting transactions. It also has the potential to revolutionise many other industries beyond just finance.
How does the blockchain work?
The blockchain is a distributed ledger that records all transactions made on the network. Transactions are grouped into blocks, which are then verified by network nodes and recorded on the blockchain.
Each block contains a hash of the previous block, which links the blocks together and creates a chain. This chain is used to verify transactions and prevent double-spending. It works by referencing the previous block in the chain, which contains a record of all the transactions that have taken place.
If someone tries to alter a transaction, they would need to change not only that block but all subsequent blocks as well. This would require majority consensus from the network, which is incredibly difficult to achieve.
Understanding Blockchain Consensus Mechanisms
Consensus mechanisms determine who gets to add blocks to the ledger and when those blocks are added.
Blockchain consensus mechanisms are what make the blockchain so secure. They also allow for decentralised decision-making, which is one of the key advantages of this technology.
A blockchain consensus mechanism is a set of rules that all nodes on the network must follow.
There are two main types of consensus mechanisms: Proof-of-Work (PoW) and Proof-of-Stake (PoS).
Proof of Work
This is the most well-known consensus mechanism, is used by Bitcoin, and what many know as crypto mining. The PoW process requires miners to solve complex mathematical problems to verify transactions.
Miners who solve these problems correctly receive rewards in the form of newly minted coins. They’re incentivised to be fair and honest because they stand to lose money if they cheat.
To earn more coins, miners must solve more math problems.
This creates a race between miners trying to find solutions to the problem and those trying to profit off solving them. Miners compete against each other to create the most valuable solution.
If a miner solves a problem faster than others, he receives more coins. He can use his extra coins to purchase more computing power, which increases his chances of finding a solution faster.
The more computing power needed, the more energy is used – highlighting ESG issues with this consensus mechanism.
This is partly why many cryptocurrencies utilise the proof-of-stake system, including Ethereum 2.0.
Proof of Stake
Proof-of-stake systems use “stakers” to verify transactions and add blocks to the blockchain. These “stakers” are usually called a validator, and operate a node by staking the blockchain’s native tokens to validate transactions and record them on the blockchain.
Nodes will be eligible to receive block rewards, which are then split across many individuals who stake their tokens to help operate the node.
This consensus mechanism allows for more efficient and secure transaction processing as it uses lesser energy than proof of work consensus.
Furthermore, PoS mechanisms can help prevent some of the security risks associated with that proof of work mechanisms.
Why do cryptocurrencies matter?
Cryptocurrencies are digital currencies that exist only online. They’re not backed by any government or central bank
Instead, they rely on cryptography to secure transactions and verify ownership. They’re also decentralised, meaning there’s no single authority that controls them. This means that cryptocurrencies are completely independent of governments, banks, and other financial institutions.
This makes them ideal for use in places where traditional banking systems aren’t available. For example, many developing countries lack access to banks and credit cards. Cryptocurrencies allow these populations to participate in global commerce without having to deal with the bureaucracy and fees associated with traditional banking.
Another benefit of cryptocurrencies is that they’re anonymous. Unlike cash, credit cards, or checks, which require identifying information, cryptocurrency transactions are pseudonymous. This means that when you send money through a cryptocurrency wallet, nobody knows who sent it except you and the recipient.
Finally, cryptocurrencies are fast. Transactions take place instantly, and this allows users to transfer funds quickly and cheaply.
These benefits make cryptocurrencies ideal for use in microtransactions, small purchases, and international transfers. They’re also great for sending remittances to family members overseas.
Cryptocurrencies are still relatively new, however, so they haven’t yet become mainstream. In fact, most people don’t even know what they are. But if you want to learn more about cryptocurrencies, here are some resources to get started:
How Crypto & Blockchain Will Disrupt Industries
Crypto and blockchain technology are already disrupting several industries, with more to follow. Here are a few examples of how this new technology is shaking things up:
The banking industry is perhaps the most obvious target for disruption by crypto and blockchain. These technologies have the potential to streamline many of the current banking processes that are slow and cumbersome.
For example, international money transfers could be made almost instantaneously and at a fraction of the current cost using crypto. With cryptocurrencies, there’s no longer a need to wait for 1-7 working days with high intermediary fees to make these transfers.
The real estate industry is another area where crypto and blockchain are starting to make their mark.
Before you understand how this will work, you’ll need to understand what’s a smart contract.
In its simplest terms, a smart contract is a contract that executes automatically when certain conditions are met, removing the need for middlemen and administrative time and costs.
In real estate, smart contracts can be used to streamline property transactions, making them faster, cheaper, and more secure.
Blockchain could also be used to create a decentralised registry of property ownership, which would be much more difficult to tamper with than the current system.
The supply chain management industry is another area where crypto and blockchain are starting to have an impact. These technologies can help to track the movement of goods and ensure that they are being handled properly throughout the supply chain. This could lead to reduced costs and improved efficiency for businesses that rely on supply chain management.
The usage of smart contracts is endless, and with the adoption of blockchain, many industries are prone to disruption, including insurance.
The art industry has already been disrupted by blockchain through NFTs and verified art ownership. This is just the beginning, however, as blockchain could also be used to track provenance, verify the authenticity, and even help to prevent forgery.
The music industry is also starting to feel the effects of blockchain. Musicians are starting to use blockchain to distribute their music and receive payments directly from fans. This could help to cut out the middlemen who currently take a large share of the revenue in the music industry.
The healthcare industry is another one that is ripe for disruption by crypto and blockchain technology. These technologies can help to create a secure and decentralised database of patient records.
This would be much more difficult to hack than the current centralised system and could potentially save lives by ensuring that critical medical information is always available when needed.
These are just a few examples of how crypto and blockchain are already disrupting industries.
We will likely see even more disruption in the years to come as these technologies continue to evolve. So far, it seems clear that crypto and blockchain are here to stay – and they’re going to change the world as we know it.
Types of Cryptocurrencies
There are over 5,000 cryptocurrencies in existence today, with new ones being created all the time. Here are a few of the most popular types:
Bitcoin
Bitcoin is the original cryptocurrency, created in 2009 by Satoshi Nakamoto. It’s not backed by any government, company, or bank.
Instead, bitcoin is based on peer-to-peer technology and uses cryptography to secure transactions.
Because there’s no central authority, you can use bitcoin to send payments anywhere in the world (almost) instantly, at a very low cost, and with near-perfect security.
The importance of Bitcoin is that it was the first cryptocurrency to solve the double-spending problem without the need for a trusted central authority. Bitcoiners believe that this makes Bitcoin unique and incredibly valuable.
It is also scarce and limited in supply with a total of 21 million bitcoins that will ever be in existence. It is sound money, which means it cannot be debased like fiat currency. Bitcoin is also often referred to as digital gold, given its similar properties.
Ethereum (ETH)
Ethereum is a decentralised platform that runs smart contracts. These are applications that run exactly as programmed without any possibility of fraud or third-party interference.
Ethereum is used to build decentralised applications (dApps) on its blockchain. These applications are important because they run on a decentralised network, which means that they are not subject to censorship or downtime unless the blockchain has downtime.
They give utility to the blockchain by allowing users to interact with each other in a trustless manner. Ethereum is the second-largest cryptocurrency by market capitalisation after Bitcoin. It is also one of the most popular cryptocurrencies for developing new projects.
Altcoins
Alternative coins, AKA altcoins, are cryptocurrencies other than Bitcoin. While Bitcoin has become the most popular cryptocurrency, others exist, including Litecoin, Dogecoin, XRP, XLM, and many more.
This includes the likes of Ethereum. However, as Ethereum is the most popular altcoin and can be considered a blue-chip crypto, we like to refer to altcoins as cryptocurrencies apart from Bitcoin and ETH.
Regardless, whenever you hear the term altcoin, Ethereum is usually considered one of them.
Altcoins are usually created to solve specific problems within the cryptocurrency space, and each has its own unique features. Some altcoins are used as payment methods while others are designed to provide anonymity.
There are thousands of different altcoins available today, and the number keeps growing every day. It’s important to understand that altcoins aren’t just a passing fad; they’re here to stay and play a big part in the disruption process mentioned previously.
Here are some of the most popular altcoins in the market:
Ripple: Ripple is a real-time global settlement network that offers instant, certain, and low-cost international payments. With the XRP token, Ripple enables banks to settle cross-border payments in real-time, with end-to-end transparency, and at lower costs. We hold XRP in our portfolio.
Litecoin: Litecoin is a peer-to-peer cryptocurrency that was created in 2011. It is similar to Bitcoin, but with faster transaction times and lower transaction fees. Litecoin is considered the digital silver.
Bitcoin Cash: Bitcoin Cash was created in 2017 as a fork of Bitcoin. It is similar to Bitcoin, but with faster transaction times and lower fees.
Cardano: Cardano is a decentralised public blockchain and cryptocurrency project using the ADA token. It is the first blockchain platform to evolve out of a scientific philosophy and a research-first driven approach. The development team consists of a global collective of expert engineers and researchers.
Polkadot: Polkadot (DOT) is a sharded protocol that enables cross-chain transfers of any type of data or asset. It is scalable, secure, and modular. Polkadot was created by a former co-founder of Ethereum. We hold DOT in our portfolio.
Luna (TERRA): LUNA is the native token of the Terra blockchain. The Terra blockchain is a stable coin network that uses a price-stable cryptocurrency called Luna as its reserve asset.
LUNA is used to collateralise and stabilise the value of other cryptocurrencies in the Terra network. The Terra blockchain is integrated with major exchanges, wallets, and payment processors.
Tezos: Tezos is a decentralised blockchain that can evolve by upgrading itself. It features formal verification, which makes it secure against hacking and malicious code.
Tezos has a built-in digital voting system to allow stakeholders to vote on proposed protocol upgrades. The Tezos foundation funds the development of the project.
Cosmos: Cosmos is a decentralised network of blockchains. It is the first blockchain platform to enable interoperability between different blockchains. Cosmos was created by the Interchain Foundation.
The importance of Cosmos is that it enables different blockchains to communicate with each other. This allows for the creation of a decentralised network of blockchains, which can scale to billions of transactions per second.
Solana: Solana is a high-performance blockchain that can process more than 50,000 transactions per second. Solana is designed to be scalable and secure. It uses a Proof of History consensus algorithm to achieve these goals.
Chainlink: Chainlink is a decentralised oracle service. It connects blockchain smart contracts to off-chain data sources. Chainlink is important because it allows for the development of more complex smart contracts.
Chainlink is used by major cryptocurrency projects such as Ethereum, Polkadot, and Cosmos. We hold LINK in our portfolio.
Dai: Dai is a decentralised stablecoin that is pegged to the US Dollar. Dai was created by the team behind the cryptocurrency project MakerDAO.
Dai is important because it is a stablecoin. Dai is used to stabilise the value of other cryptocurrencies in the MakerDAO ecosystem.
USDC: USDC is a dollar-backed stablecoin. It is issued by regulated financial institutions and backed by fully reserved assets. USDC was created by the team behind the cryptocurrency project CENTRE.
USDC is important because it is a stablecoin. A stablecoin is a cryptocurrency that is pegged to a stable asset, such as the US Dollar. They are also one of the most popular stablecoins right now.
Binance Coin: Binance Coin is the native token of the Binance cryptocurrency exchange. Binance Coin is used to pay fees on the Binance exchange and their ecosystem.
Cronos: Cronos is the native token of the Cronos chain and is used by Crypto.com to reward users using its ecosystem. We hold a large amount of CRO in our portfolio because we believe in Crypto.com and its project.
These are just a few popular cryptocurrencies that are currently available. There are many more, and new ones are being created all the time. With so many options available, it can be difficult to know which one is right for you.
The best way to find out is to research each project and decide which one aligns with your goals and values.
What determines the value of a cryptocurrency?
Cryptocurrencies are often traded on exchanges and their prices can fluctuate wildly. Several factors can affect the price of a cryptocurrency, including:
The amount of money that is flowing into the cryptocurrency market: When there is more demand for a cryptocurrency, its price will go up. The amount of money that is flowing out of the cryptocurrency market: When there is more selling pressure on a cryptocurrency, its price will go down.
The level of public interest in cryptocurrency: When more people are talking about a cryptocurrency, its price is likely to go up. This is because more people are interested in buying it and because the news can have a positive or negative effect on the price. Altcoins such as DOGE are a good example of this as it was heavily discussed on social media platforms such as Reddit and Twitter.
The level of development activity: When there is more development activity, such as new features being added or new partnerships being formed, the price of a cryptocurrency is likely to go up.
The level of regulation: When there is more regulatory clarity, such as when a country recognises a cryptocurrency as a legal tender, the price of the cryptocurrency is likely to go up. Likewise, when there are regulations against cryptocurrencies, the price will go down.
The level of innovation: When a cryptocurrency is more innovative, such as when it has a new use case or is the first to offer a certain feature, its price is likely to go up.
The level of risk: When a cryptocurrency is seen as being riskier, such as when it is less established or has a volatile price, its price is likely to go down. Well-established cryptocurrencies such as Ethereum or Bitcoin are still volatile but not as much as new cryptocurrencies.
The amount of media coverage that a particular cryptocurrency is receiving: When a cryptocurrency is getting a lot of media attention, its price is likely to go up. This is because more people are interested in buying it. For example, when Ray Dalio made the news that he was buying Bitcoin, the price of Bitcoin went up.
The level of trust that people have in a particular cryptocurrency: When people are more confident in a cryptocurrency, its price is likely to go up. This is because more people are willing to buy it and hold it for the long term. Bitcoin is a good example of this as it is the most well-known and trusted cryptocurrency.
The level of utility that a particular cryptocurrency has: When a cryptocurrency is more useful, such as when it can be used to buy goods and services or when it has a lower transaction fee, its price is likely to go up. Bitcoin and USDC are good examples of this as they are the most widely accepted cryptocurrencies.
We believe that the utility of a cryptocurrency is one of the most – if not the most – important aspects of what determines the actual value of a cryptocurrency.
The level of scarcity that a particular cryptocurrency has: When a cryptocurrency is scarcer, such as when there is a limited supply or when it is difficult to mine, its price is likely to go up. Bitcoin is a good example of this as there is a limited supply of 21 million coins. This can be checked by looking at the total, max, and circulating supplies of the specific coin.
The overall health of the global economy: When the global economy is doing well, the price of a cryptocurrency is likely to go up. This is because more people are interested in buying it. Global economic factors such as the stock market, inflation, and interest rates can all affect the price of a cryptocurrency.
The level of competition: When there is more competition in the cryptocurrency market, such as when there are more altcoins or when there is more innovation, the price of a particular cryptocurrency is likely to go down. This can be seen with blockchains that compete to become the best smart contract platform, such as Ethereum and Solana.
The stage of the cryptocurrency cycle: The stages of the cryptocurrency cycle are accumulation, mark-up, distribution, and mark-down. When a cryptocurrency is in the accumulation stage, its price is likely to go up. This is because more people are buying it. When a cryptocurrency is in the distribution stage, its price is likely to go down. This is because more people are selling it.
Greed & fear: The emotions of greed and fear can have a significant impact on the price of a cryptocurrency. When there is more greed, such as when people are buying a lot of Bitcoin because they think it will go up in price, the price is likely to go up. When there is more fear, such as when people are selling a lot of Bitcoin because they think it will go down in price, the price is likely to go down.
The level of adoption: When more people are using a particular cryptocurrency, its price is likely to go up. This is because demand increases as more people want to buy it. Bitcoin is a good example of this, as it is the most widely used cryptocurrency.
As you can see, several factors can affect the price of a cryptocurrency. To make money trading cryptocurrencies, you need to understand how these factors work and how they can affect the price.
In general, when more people are buying a particular cryptocurrency and there is more demand for it, the price will go up. Similarly, if there is less demand for a currency, the price will go down.
By understanding the factors that influence the price of a cryptocurrency, you can make better-informed decisions about when to buy and sell.
Pros and cons of crypto
Cryptocurrencies have been gaining in popularity over the past few years. Here are some of the pros and cons of investing in cryptocurrencies.
Pros of crypto
Cryptocurrencies are digital or virtual tokens that use cryptography for security: This can make them more secure than traditional fiat currencies.
Cryptocurrencies are decentralised: This means that they are not subject to government or financial institution control. You have more control over your money.
Cryptocurrencies are global: They can be used by anyone, anywhere in the world.
Cryptocurrencies are anonymous: Transactions can be made without revealing the identity of the parties involved.
Cryptocurrencies are fast: Transactions can be made quickly, without the need for a third-party approval. Because of this, it makes international transactions much cheaper too!
Cryptocurrencies are transparent: The blockchain is publicly available, so anyone can see transactions that have been made.
Many cryptocurrencies are open source: This is positive because anyone can contribute to their development.
Cons of crypto
Cryptocurrencies can be centralised: Although cryptocurrencies are supposed to be decentralised in nature, the level of decentralisation is not binary and falls within a scale. Some companies running the crypto projects might have more control (thus, centralisation), than what is preferred.
Cryptocurrencies are volatile: Their prices can fluctuate wildly, making them (highly) risky investments.
Cryptocurrencies are not regulated: This means that there is no government or financial institution oversight. This also means that if you fall for a crypto scam, there’s not much that can be done.
Cryptocurrencies are new and untested: They have only been around for a few years and have not been widely used. This means there’s a higher probability of failure due to the lack of adoption.
Cryptocurrencies are subject to hacking: This is because they are stored in digital wallets and can be subject to cyber-attacks.
Cryptocurrencies are not widely accepted, yet: Only a few businesses accept them as payment, so they may not be useful for everyday transactions. And businesses that do, only accept the most popular kinds.
As you can see, there are both pros and cons to investing in cryptocurrencies. You will need to weigh these carefully before deciding whether or not to invest.
Some people believe that cryptocurrencies will eventually take over traditional fiat currencies like the U.S. Dollar or Euro. Others think that crypto is too volatile and risky to invest in. Whatever your opinion, it’s important to do your research before investing in any asset.
Before you invest in cryptocurrencies, be sure to understand the risks and potential rewards. Crypto investing is not for everyone, but it can be a profitable venture for those who are willing to take the risk.
How to get cryptocurrencies?
There are a few different ways to buy cryptocurrencies. The most common way is to buy them in exchange. Exchanges are websites where you can buy, sell, or trade cryptocurrencies for other assets, such as traditional fiat currencies or other digital currencies.
Centralised exchanges
This is the most common type of exchange. They work like traditional stock exchanges, with buyers and sellers coming together to trade assets. Centralised exchanges are regulated by governments and the company that operates them.
Here are our picks on the best crypto exchanges in Singapore.
Decentralised exchanges
The second type of exchange is decentralised exchanges. These are not regulated by any central authority and instead, use smart contracts to match buyers and sellers.
Decentralised exchanges are often seen as more secure than centralised exchanges because they are not subject to government or financial institution control.
However, they are prone to smart contract exploits and rug pulls due to the lack of regulations.
Mining
Mining is the process of verifying cryptocurrency transactions and adding them to the blockchain. Miners are rewarded with newly minted coins for their work. This can be done by anyone with a computer and the necessary software.
How to store cryptocurrencies?
After you’ve bought or mined cryptocurrencies, you’ll need to store them in a digital wallet. This is because cryptocurrencies are not physical assets and instead exist as entries on the blockchain.
There are two types of wallets: hot wallets and cold wallets.
Cold Wallets
A cold wallet is a wallet that is not connected to the internet. This means that it is much less susceptible to hacking. Cold wallets can be either hardware or software wallets.
Hardware wallets are physical devices that store your private keys offline. They are considered to be the most secure type of wallet because they cannot be hacked. Software wallets are similar to hardware wallets, but they are stored on your computer or mobile device.
Hot Wallets
Hot wallets are connected to the internet and can be used to make transactions. They are less secure than cold wallets because they are more susceptible to hacking.
Here are our picks for the best crypto wallets.
Who is crypto for?
Cryptocurrencies are for people that want to take control of their own money. It’s for people that want to be in charge of their own finances, and not have to rely on banks or other financial institutions.
Cryptocurrencies are also for people that want to invest in something that has the potential to grow in value.
Cryptocurrencies are a new and exciting way to control your finances, and it has the potential to change the way we think about money. If you’re looking for an investment with potential or a way to take control of your own money, then cryptocurrencies are worth considering.
This asset class is for everyone. There is no class, race, or demographic that is not able to invest and trade cryptocurrencies. This market is still in its early days, which means there is still a lot of opportunity for growth.
Many think of the crypto market as the stock market in its early stages. There are a lot of opportunities for large financial growth, but there’s also most risk involved.
These assets can be volatile and there are many scam coins out there. However, if you are someone that can control your emotions and do your research, then investing in cryptocurrencies can be a very rewarding experience.
Cryptocurrencies may not be for those that are risk-averse as a 10-50% overnight decline in your capital is a normal thing in crypto. If this sounds too risky, then consider looking at stocks, ETFs, unit trusts, REITs, and bonds.
Volatility should not scare you away from investing and trading cryptocurrencies. Many different strategies can be employed to mitigate risk. If you’re proactively employing risk management strategies, then cryptocurrencies could be a great investment for you.
Conclusion
In conclusion, cryptocurrency has become increasingly popular over the past couple of years. This is largely due to its decentralised nature, which means that it doesn’t rely on any single authority to keep it safe. Instead, it relies on cryptography to ensure that transactions are secure and anonymous.
Cryptocurrencies aren’t perfect, however. They’re extremely volatile, meaning that their value changes frequently. In fact, some cryptocurrencies have seen their values skyrocket and plummet within minutes. That said, the technology behind them is constantly improving, which means that they’re likely to continue growing in popularity in the future.
As long as you know what you’re doing, you shouldn’t have any problems investing in cryptocurrency. However, it’s important to note that investing in these currencies is very risky.
So if you’re going to invest in them, make sure that you fully understand the risks involved.
