What should a beginner know before investing in cryptocurrencies?

The cryptocurrency world regularly attracts the attention of beginners from all over the world. The reasons for this are the high cost of bitcoin today and the desire of people to grab a share of the profits from all this ” cryptocurrency hype”. But the realities for today are such that if a person who does not understand what is happening in the cryptocurrency markets comes into the crypto industry, he may lose his funds instead of profit and, in some cases, go into the red.

What is bitcoin, and is it reliable?

Bitcoin is a unique and one-of-a-kind cryptocurrency. The uniqueness of bitcoin lies in that, unlike altcoins, there is no personality behind bitcoin that influences the currency’s fate. As a result, nothing is known about bitcoin’s creator (or creators). The only thing we know today about the creator of the very first cryptocurrency in the world is that it was developed in 2008 by a man who called himself Satoshi Nakamoto. Unfortunately, the creator did not show himself further, and he hardly can because the blockchain network is conceived, so outside interference is impossible.  

Blockchain functions like a torrent; data is distributed through public channels and is entirely dependent on users. For any transaction to be carried out, its authenticity must be confirmed by a large part of the network participants; to be more precise, more than 51% of the capacity of the entire existing network must be used. It is a huge figure within the bitcoin framework; only huge pools can single-handedly seize such power. In the history of the existence of bitcoin, only one collection approached this mark, the owner of which responsibly informed users that the pool was close to the “exciting” sport after it reduced the number of pool participants. Collections do not make sense to destroy the trust in the currency with which they work closely.

What about altcoins?

The situation is much shakier with altcoins, and there are several reasons for this. First, the creators of altcoins can influence the fate of the coin they created, affecting it in many ways. The most innocuous thing is that the price of an altcoin can fluctuate depending on the reputation and actions of the creators; that is, not only the currency itself is at the forefront. The most unpleasant thing is that the altcoin creators may want to “go with the money into the sunset.” Moreover, the latter can happen with almost any altcoin, regardless of how long they have been on the market. Some coins cease to exist at the launch stage; others live on the market for years before the creators benefit from them and abandon them.

Vivid examples of scams in the world of cryptocurrencies: PayCoin, SQUID, “coin999”

“Coin 999”

At the end of December 2019, the altcoin Coin 999 unexpectedly entered the top 30 most capitalized coins on CoinMarketCap. The developers positioned the project as a platform that would link together all available payment systems. It assumed that the platform would work with PayPal, Visa, Mastercard, American Express and others. The coin went through a series of ” pumps “, soaring up in price very sharply, which attracted those who wanted to capitalize on a new and rapidly growing coin, and then the coin again fell sharply to zero. The method is called “pump and dump” the method allows the organizers to evade responsibility as calmly as possible, so if some coin shows rapid growth, this is not a reason to invest in it. In general, you should not invest in cash when they are already actively growing, but more on that later.

PayCoins

One of the illustrative examples is why beginners should not invest in altcoins to avoid disappointment in the cryptocurrency market. The project seemed reliable and trustworthy to many, including because of what the creator of ” PayCoin ” did in the past. GAW Miners started by renting and reselling equipment for mining, and then the owner of GAW Miners decided to go further and announced the possibility of cloud mining. Cloud charges mining was received by users in the PayCoin coin, the capitalization of which reached over $ 3 billion at its peak. Later, the creator admitted that “PayCoin” was a pyramid scheme, and the value of ” PayCoin ” fell to $0.01.

“SQUID”

Altcoin, from the beginning, had all the signs of a financial pyramid since the final win directly depended on the number of participants now stated in the documentation, and the number of participants was unlimited. However, the altcoin was mentioned in major media, including “Fortune” and “BBC”. In combination with the rapid growth in the price of the coin, after the altcoin was mentioned in the media, even experienced crypto raiders, for example, Luke Hartford, fell for the scam. When Luke had almost one million dollars in SQUID, the altcoin creators withdrew $3.6 million from the platform, with which they safely disappeared, and swept up traces through the cryptocurrency mixer.

Therefore, if you just came to the world of cryptocurrencies, it is better to invest in the time-tested bitcoin and pay attention to altcoins only when you begin to understand what is happening confidently.

But if, even after all of the above, for some reason, you decide to take a closer look at altcoins at the start, pay attention to the following points:

• Do not trust the project if the altcoin is closed source;
• Are transactions public (in the blockchain bitcoin, all transactions are public, which does not allow the creator to hide something from users);
• Carefully study the information about the creators of the altcoin.

Separately, pay attention to whether the creator is the creator of a particular currency; scammers like to use famous people’s names and even real currencies’ names to deceive. For example, at one time, scammers often used the name of Pavel Durov to lure people into fraudulent bounty programs; in the end, users were asked to invest money to withdraw “earned coins”.

Crypto entrance. What must you know before buying cryptocurrency?  

Now that the cryptocurrency market is in a downturn, many are wondering if this is the right time to make their first purchase of digital assets? There are over 19,000 cryptocurrencies in existence today, and let’s be honest, not all of them will be as explosive as bitcoin or ether. How to rationally approach the choice of one or another cryptocurrency, and which investment strategy to choose?

MINE review. The exchange has prepared a list of essential criteria you should consider before buying a cryptocurrency.

Cryptocurrency white paper

The so-called “White Paper” of cryptocurrencies is a simplified business plan or project roadmap and answers basic questions about goals, benefits and strategy. In addition, in the “White Book”, you can get acquainted with the tokenomics of the coin. Tokenomics includes details on how the token will be distributed to investors and its supply limits. It also provides information on creating new tokens if it is part of the ecosystem. Be prepared for the White Papers to be replete with the technical specification of blockchain processes. Comparing the “White Books” of several crypto projects, one can distinguish a more important criterion – whether this or that cryptocurrency creates additional utility for the entire ecosystem of the crypto market. For example, Bitcoin is a decentralized digital currency used for payments and as a store of value. Many smart contracts, NFTs, and other cryptocurrencies depend on Ethereum technology. Stablecoins, in turn, is tied to the value of physical objects. The absence of the White Book in public access is an alarming sign.

Presentation materials and social networks

Each crypto project tries to show its competitive advantages using various communication channels. It can be social networks, a website, PR materials in the media, digital advertising, or reviews. Clear and accessible messages, visual design, and user communication speak of the seriousness and professional approach to business. Pay special attention to the study of social networks. It is almost standard for every project to have accounts on Twitter, Reddit or Discord. It is worth paying attention to how such statements are “live”. Are there discussions, current news and answers to specific questions without “water”. Stay away from groups that have too much spam. Feel free to read the reviews.

The predominance of negative responses is a wake-up call, as is an excess of overly optimistic comments. Perhaps this is a dishonest marketing ploy and self-promotion under the guise of “satisfied” users. It also needs to understand that the site can be informative and made in the trend of design solutions, and advertising is exciting and original. Still, if managers ignore users in public comments on social networks or the communication culture is far from business style, this is a reason to think carefully.

Who is behind the project?

The success or failure of a startup depends on its team members. To launch similar projects, you should pay attention to the success stories (or losses) of individual top managers or the entire working team. Either they have already gone their own way and are experts in this field, or they are newcomers who are ambitious enough to make others believe in their unique product. Information about the cryptocurrency creators should be accessible and transparent and exclude the presence of a fraudulent past. The saying is also appropriate here: “Tell me who your friend is, and I will tell you who you are.” The presence of toxic partners in the portfolio, or vice versa, large reputable companies, can fluctuate the level of loyalty in one direction or another. Please do not be too lazy to conduct your monitoring in search engines and find information not only about the project itself but also about its owners. What media, in what context and tone, talk about the brand.

Cryptocurrency Volatility

To check the market performance of your chosen cryptocurrency, it is enough to use cryptocurrency aggregators, such as the CoinMarketCap service. Pay attention to 3 leading indicators: market capitalization, trading volume and supply.

Capitalization

The market capitalization of a cryptocurrency is calculated by multiplying the price of a cryptocurrency by the total number of coins/tokens in circulation. Investing in cryptocurrencies with large market caps (over $1 billion) is generally safer, but this is no guarantee of safety. These tokens are also at risk. A very recent example is the collapse of stablecoin. Terra had a capitalization of about $18.5 billion and less than $1 billion after the fall. In general, coins in the top 100 are safer investments than those lower in the list.

Deficit

Most cryptocurrencies tend to have a limited supply, even if they are in the billions. An exception is ETH, which has an unlimited supply. The circulating pool shows how many coins are currently traded or held in the wallet. This metric can be used to understand the potential scarcity of a currency, which can affect its price in both directions.

Trading volume

This metric shows how many cryptocurrencies were traded in a given period. High volume means many investors buy and sell, resulting in more liquidity and price stability. An example of high importance is ETH. On the contrary, a low level of transactions can lead to significant price fluctuations and inferior liquidity.

Story prices

The cryptocurrency market is unstable, so price fluctuations are normal, but in general, dynamic growth should be observed over time. Choose several different periods, including viewing history from the moment it was created. It will allow you to form a broad view of long-term and short-term price trends. For example, if the line resembles a heart rate with jumps in the form of ups and downs, this may indicate fraudulent fraud when the price of a currency is artificially inflated. Then, rising to the peak due to trends, viral and hype promotions, it is sold off sharply, forming a series of rollercoasters.

Fraud related to cryptocurrency exchanges and what not to do at the start

We figured out why it is dangerous to invest in altcoins initially, but what about the risk and fraud around cryptocurrency exchanges? If you came to cryptocurrencies to make money, you would want to trade on sales or entrust this business to intermediaries.  

Let’s figure out what to do and what to avoid:

• Firstly, do not trust people who advertise bots to make money on the difference in cryptocurrency prices. There are no universal schemes; you will spend money on a bot, which does not bring any benefit and can lead you to a minus. With a high probability, you will not even get a bot at all but transfer money to a scammer;
• Secondly, do not believe if you are promised earnings of x1000 from the deposit. Yes, bitcoin has grown significantly in price since its inception; in general, all cryptocurrencies that are more or less settled in the stock markets have grown considerably since their inception. Those who invested in bitcoin at its start and still have not spent the invested funds increased their budget by x1000 times, maybe even more. But if we talk about faster earnings, wanting to get x1000 in a short time, you will most likely lose money. It is essential not to trust your funds to traders who promise the specified x1000 from the deposit, and they will throw you for money. Actual earnings, which are possible on cryptocurrency exchanges, if you understand what is happening and make investments correctly, can exceed the profitability in comparison with classical financial instruments by only 3-5 times;
• Thirdly, do not use borrowed funds for trading on cryptocurrency exchanges. If you have looked at coin growth charts on cryptocurrency exchanges and think that borrowing money and investing in any coin while it is in its growth phase is a good idea, you can be very wrong.      The growth phase of the currency can abruptly change into a degree of decline; the duration of this phase can last for several months; as a result, you will have to pay interest on borrowed funds and wait for the coin to grow again. Perhaps, if you are patient, it will beat such investment off at least zero in the future. In another option, you will panic and withdraw funds from the exchange, losing the commission from the business and the fact that the coin managed to fall in price before the withdrawal. And as already mentioned in the second paragraph, in no case should you use borrowed funds to invest in dubious bots or traders who promise to increase your deposit by x1000 times;
• Fourth, trade only on reputable exchanges. Always read online reviews of businesses, check the conditions under which they work, and whether the exchange owners hide their identities. It is better to avoid little-known exchanges. It is also worth checking the address of the business; for example, if instead of beribit.com, the search engine directs you to the address berib1t.com. Fraudsters love to forge names and copy the style of trusted projects (the beribit.com exchange, by the way, deserves it, and instant withdrawal of funds from the account is also available there);
• Fifth, it is best not to use futures unless you are an experienced trader. Cryptocurrencies have incredibly high volatility, and futures trading allows you to profit not only on the growth of currencies but also from their fall; it looks tempting; however, it can be difficult for a beginner to guess the movement of a currency accurately. As long as you don’t understand the market well, it’s best to stay with regular stock trading;
• Sixth, long-term investments are better than betting on trading with “quick” profits. As already mentioned, cryptocurrencies tend to grow quite strongly in price, but this growth does not occur in a short period. If you buy some cryptocurrency and forget about it for a year or two or even five years, you can get the very desired x1000 growth from the deposit;
• Seventh, remember that a coin on the stock exchange can fall even below one cent. Cryptocurrencies use a slightly different number system than we are all used to. For example, one bitcoin contains 100000000 satoshis, and the smallest bitcoin value is 0.00000001 BTC. On the stock exchanges, this calculation applies to everything. It can sell a lost coin for $0.00000001, which will destroy all investments;
• Eighth, if you will make money on trading, try to buy coins in the phase of decreasing their value. Buying a currency in the growth phase is almost always a losing strategy. Successful trading on cryptocurrency exchanges is to guess when the coin will go up and buy it in the depreciation phase.

General tips for handling cryptocurrency

• Invest in coins that you will potentially use. Now there are millions of cash in the network. Indeed, some of them may show unexpected growth, thanks to which you can earn a good amount, or you can buy a coin and then not sell it at all, since no one needs it and it cannot spend in any way. When you take an altcoin, evaluate how you can potentially use it without exchanging it for other coins; if the altcoin is “running”, then it is more resistant to falls and can be used, if you suddenly need it, to pay for something, and not just hold “for growth”. Such a simple analysis will help to assess better the risks associated with a particular coin;
• Research financial security issues and do not accept transfers from dubious sites or people. If someone offers you to get the same bitcoin at a price tag below the market, you should not rejoice; unfortunately, cryptocurrencies are often used to launder ill-gotten funds. Now there are special services where you can check transactions for “purity”. Ideally, in your free time, it is better to read about what AML is and be careful;
• Remember that bitcoin, like many popular altcoins, has open transactions. It can view all transactions on bscscan, etherscan, and blockchain. So you can make sure, for example, that it sent funds to you; this will be displayed in the blockchain. You can also track on such sites where the person who makes the transfer to you received his funds earlier (whether the transaction is “clean”);
• Keep cryptocurrencies in the original wallet, not on exchanges or online wallets. Since third-party sites can access your funds, sales and online wallets are highly unreliable for storing cryptocurrency. If the business or wallet decides to shut down, you could lose your funds. In addition, keeping money online, you overpay for transactions because exchanges and online wallets take their percentage from above. It is much safer to spend a little time and figure out how the official wallet works and download it to a computer or other device. It is especially true if you plan to store your funds for the long term.

Conclusions

Cryptocurrencies allow you to earn and earn a lot, but only with long-term investments. There is a lot of hype around the cryptocurrency world and, accordingly, a lot of scammer activity, especially considering that cryptocurrencies allow scammers to remain anonymous. It would help if you were prudent, study everything carefully, do not invest in little-known altcoins, and do not trust dubious projects or individuals.

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