These are 5 points that nobody ever mentioned when talking about crypto in casual conversations, the news, or documentaries from YouTube, Netflix, etc.
1. Bitcoin Is Just the Tip of the Iceberg
The overwhelming success of early adopters of Bitcoin (BTC) becoming wealthy, some ridiculously wealthy, spikes the curiosity of many of us. As a result, we find ourselves delving into the world of cryptocurrencies and other blockchain digital assets. Regardless of your reasons behind getting into the market, there are many details left out when our friends, family, and co-workers talk about their crypto journey. With so much to figure out, the result is people not fully understanding what is it that they are investing into or how to be an adopter of the technology rather than a sidelines investor.
There is much more behind the crypto market than Bitcoin and whatever coin is making headlines this week. The truth is that there is a purpose behind these cryptocurrencies.
2. Types of Crypto Exchanges
Stock Trading Exchanges
Unlike the traditional stock exchange, the cryptocurrency market never sleeps. The true nature of a market that operates 24/7 is the first attractive of the crypto market. Coming into the crypto world, I had no idea of where to go and how to get started and therefore made my first, and never again repeated, mistake quickly. I began my crypto journey by buying a bit of BTC and ETH in the severely restricted hands of Robin Hood. Buying crypto from a stock trading platform meant paying for the current price of crypto tokens that someone else owned and that I would never get to hold or spend. In the world of crypto, this is a big No-No. If you are not required to create a wallet for which only you know the passphrase, you are not truly buying crypto.
Centralized Crypto Exchanges
Centralized exchanges like crypto.com and coinbase.com and are the initial step to gain access to cryptocurrencies in exchange for fiat (dollars, euro, etc.). These exchanges require for a potential customer to authenticate their identity and connect their bank account, credit/debit card, and/or PayPal to purchase assets. These exchanges do some level of vetting on crypto assets before listing the assets in their platform. A con here is that new projects with potential for massive growth are never listed at their lowest price point and once they are listed, the level of exposure makes the skyrocket for the initial days or weeks after listing. The real beneficiaries of selling these assets are those who got in early through initial coin offerings, seed crowdsourcing, and purchase from decentralized exchanges.
Decentralized Crypto Exchanges
A DEX or decentralized exchange like Pancake Swap, UniSwap, SundaeSwap, and TraderJoe are places where investors or crypto users can go to exchange crypto assets without exchanging fiat currency. Once you have a crypto wallet with cryptocurrency of any value in it, you can connect to a DEX and exchange your crypto. The cost of the exchange and fees will depend on the native network of that the DEX is built on top of. Unlike a centralized exchange where you log in with a username and password, you do not have to create or maintain an account in a DEX nor there is a layer of initial setup requiring user identity authentication. All you need is to connect your crypto wallet to the exchange.
3. Crypto Wallets
Centralized Exchange Wallets
When I bought my first crypto tokens in Coinbase, I knew they required me to establish access to the platform and they put my coins in individual wallets. These individual wallets came with unique addresses that allow me to send the currencies outside of Coinbase. This wallet, however, is not exclusively mine as it is centralized and custodied by Coinbase. As a result, a hack to Coinbase brings the inherent risk of my digital assets to be lost. Even worst, if Coinbase was to declare bankruptcy and decide to go out of business, my assets are gone.
Decentralized Storage
Decentralized crypto storage exists in many forms. These are wallets that require for us to write their long string of alphanumeric characters (account/wallet address) as well as a string of words that must be kept secure (Secret Recovery Phrase). There is NO forgot my username or password associated with a decentralized wallet. The essence of this type of wallet is the inherent security of its owner being in full custody and control of its contents (like a real wallet in your pocket, except that you cannot carry an infinite amount of currencies, at large volume, in it).
The most known decentralized wallet is MetaMask. I will use MetaMask Wallet as a great example for a decentralized wallet solution. MetaMask is customizable to hold cryptocurrency, utility tokens, and non-fungible tokens (NFTs) for multiple blockchains. A MetaMask wallet can be downloaded into a mobile device or as a browser extension on a computer or laptop which make it readily available to use for signing into a web3 enabled website like a DEX.
An even more secure decentralized crypto asset storage option is what is called a cold wallet. A cold wallet is comparable to an external storage device such as a hard drive or USB. Due to the fact that crypto assets are data that relates to a specific Layer 1 network, you can transfer the assets to a cold wallet and fully disconnect them from the internet. Comparable to offloading your money from your bank account and putting it in a safe inside your house.
4. Blockchains, Cryptocurrencies, and Projects
For simplicity’s sake, crypto blockchains, cryptocurrencies, and web3 projects are basically comparable to computer networks, applications, and programs. In turn, cryptocurrencies and tokens are tied to blockchain layers. Most commonly, the blockchain networks are divided in layers 0, 1, 2, and 2.1 or 3.
Layer 0 is rarely ever spoken of. Layer 0 consists of physical infrastructure devices such as hardware equipment, such as miners, required to run the crypto network and connect them to the internet. Additionally, there a crypto projects like Avalanche and PolkaDot that fall inside the realm of Layer 0 as their purpose in to interconnect Layer 1 protocols.
Layer 1 is basically the foundation of a blockchain protocol. Bitcoin, Ethereum, Helium, and Cardano are four examples of layer 1 protocols. In the case of Ethereum, the network is the foundation to build applications and solutions. The cryptocurrency ETH (Ether) is used to pay for fees in the Ethereum network as these applications are built and interacted with. When investing in Layer 1 projects, it is important to look into the purpose of the protocol, what problem is it trying to solve, and how possible is it to be adopted by countries and firms, for example fortune 500 companies.
Layer 2 protocols are solutions built on top of a layer 1 protocol. This is where programs run over the base layer to interact with the layer 1. Also, a cryptocurrency like Polygon (MATIC) is an example of a layer 2 currency used to pay fees on a protocol network that runs on top of Ethereum (Layer 1). Layer 0 hardware and resource hosts receive compensation through the cryptocurrency native to the blockchain layer they facilitate. Layer 2 protocols can be seen as secondary networks built on top of a base network.
Layer 2.1/Layer 3 protocols can be seen as programs that interact with the user. These are for example, Decentralized Exchange Applications, Games, and Smart Contracts that automate and facilitate decision-making for blockchain applications.
When it comes to web3 and crypto projects, the reality is that anyone can create a cryptocurrency. This is where the threat for rouge projects and scams exists. Oftentimes cryptocurrencies are offered as a means for crowdfunding for layer 3 projects and buying those currencies makes you an early investor. Providing funds for these projects is risky if the creators of the coin/token do not have a solid plan, are overpromising, or simply are scammers. However, this is not a reason to stay away from new projects. The solution to avoiding a “rug-pull” project is to really look into the the project. As I will discuss further, crypto trackers like CoinGecko.com are the best place to start.
5. CoinGecko and CoinMarketCap are Your Best Friends
I really appreciate how platforms like Coinbase provide news stories relevant to cryptocurrencies and quick overviews that pay you crumbs in crypto to get an understanding on use cases. However, I found the real hubs of data and information to track the entirety of the crypto market when my friend introduced me to CoinGecko and CoinMarketCap.
CoinGecko and CoinMarketCap are the top two platforms that track the changes in the crypto market in real time. Furthermore, these two platforms offer the official website links to every asset published in their page. But make no mistake, this does not mean that every asset listed in these platforms has a promise longevity or can be assumed legitimate. These are tools for tracking of assets you own, you are interested in, or overall market research.
Both platforms offer a great wealth of information from the latest news, research data, projects’ self-published info papers, and crypto education. This is also how I discovered how massive the crypto market is as you can filter assets by category. For example, CoinMarketCap has listed 159 crypto asset categories as of the writing of this article. The listed categories include cryptocurrencies and tokens like “USD Stablecoin”, “Sports”, “Gambling”, “Insurance”, and “Energy”.
Published @ https://medium.com/general_knowledge/5-things-nobody-tells-you-about-the-crypto-world-99a16ab0ff8a
