Saturday Brain Storming Thought (95) 09/01/2021 – COMPILED BY VR AVINASH KULKARNI
CRYPTOCURRENCY
A cryptocurrency is a digital asset designed to work as a medium of exchange wherein individual coin records are stored in a ledger existing in a form of computerized database using strong cryptography to secure transaction records, to control the creation of
What is Cryptocurrency
It is a digital or virtual currency, that is secured by cryptography, which makes it nearly impossible to counterfeit or double spend
Many cryptocurrencies are decentralized networks based on Blockchain technology – a distributed ledger enforced by a disparate network of computers
A defining feature of cryptocurrencies is that they are not issued by any central authority, rendering them theoretically immune to government interference or manipulation
Understanding Cryptocurrencies
These are systems that allow for the secure payments online which are denominated in terms of virtual tokens, which are represented by ledger entries internal to the system
Crypto refers to the various encryption algorithms and cryptographic techniques that safeguard these entries, such as elliptical curve encryption, public-private key pairs, and hashing functions
Advantages of Cryptocurrencies
1) easier to transfer funds directly between two parties
2) user autonomy
3) discretion
4) peer-to-peer focus
5) elimination of banking fees
6) vary low transaction fees for international payments
7) mobile payments
8) instant and 24-hours accessibility
9) minimizes the time and expense involved in making asset transfers
10) more confidential transactions
11) strong security, once a cryptocurrency transfer has been authorized, it can’t be reversed
12) easy adaptability
13) protection from inflation
14) self governed and managed
Disadvantages of Cryptocurrencies
1) can be used for illegal transactions
2) data losses can cause financial losses
3) decentralized but still operated by some organization
4) some coins not available in other fiat currencies
5) adverse effects of mining on the environment
6) susceptible to hacks
7) no refund or cancellation policy
8) scaling that ate posed
9) cybersecurity issues
10) price volatility and lack of inherent value
11) thing is not regulated and hence it is not under control
12) difficult to understand
13) lack of knowledge
14) not accepted widely
15) not environment friendly
Cryptocurrency value calculation base
1) high token supply with little demand from traders and users then the cryptocurrency value will drop
2) limited supply and high demand the cryptocurrency value will increase
Strategies to make money with cryptocurrencies
1) investing – it is usually associated with taking a long-term view by buying and holding assets for some time
2) trading cryptocurrency for profit
3) staking and lending
4) Crypto social media
5) mining
6) airdrops and forks
Crypto profit
It is a trading robot that allegedly makes users money by speculating on cryptocurrency volatility
The robot is said to have a high win rate which means that it claims to be more accurate than manual trading
Does cryptocurrency replace money?
Deutsche Bank, one of the world’s leading financial services companies has predicted that cryptocurrency could replace cash entirely by 2030 due to fragility of the current system
Overcoming regulatory hurdles will broaden their appeal and raise the potential to eventually replace cash
Banks that allow purchase of bitcoin
1) wirex – founded in 2014 a London based company that allows customers to open a crypto-friendly business account
2) Ally Bank
3) USAA
4) Simple Bank
5) Goldman Sachs
Thumbrule for investment in cryptocurrency
No more than 10% of your portfolio in individual stocks or risky assets
Tracing of Cryptocurrency
Every transaction since the network launched in 2009 – all has been recorded and stored in a permanent, inalterable public ledger, which anybody can view and analyze at any time
Think of that transaction history as a fingerprint
Buying of Cryptocurrencies
To buy cryptocurrencies, you will need a wallet, an online app that can hold your currency
Generally, you create an account on an exchange, and then you can transfer real money to buy cryptocurrencies such as bitcoins or ethereum
Cryptocurrencies types
1) Bitcoin (BTC)
2) Ethereum (ETH)
3) Basik Attention Token (BAT)
4) Theta
5) Siacoin (SIA)
6) Orchid Protocol (OXT)
7) Monero (XMR)
8) Nuance Coin (BNB)
9) Pax Gold (PAXG)
10) USDC
Factors determining the price of 1 bitcoin ie cryptocurrency
1) the supply of bitcoin and market demand for it
2) the cost of producing a bitcoin through the mining process
3) the rewards issued to bitcoin miners for verifying transactions to the Blockchain
4) the number of competing cryptocurrencies
5) the exchanges it trades on
6) regulations governing it’s sale
7) it’s internal governance
Intrinsic value of cryptocurrency
Cryptocurrencies have intrinsic value, because their integrity as a payments system can be trusted
Factors affecting Crypto value
1) utility
2) scarcity
3) perceived value
Valuation of cryptocurrency
Performing fundamental analysis for cryptocurrencies, however, is radically different since there are no financial statements to analyze
1) cryptocurrencies are digital currencies that represents value or assets within a network
It’s viability is not based on generating a revenue, but rather directly depends on the participation of the community
2) the Crypto space is in its infancy stages, and almost all of the cryptocurrencies are in development stages, which means that there are limited uses cases in the real world currently and therefore a lack of track record to show for
Step 1 – Finding the right source of information
Knowledge is power
In order to assess a coin, we have to first know where to get the key sources of information form
Coins white paper Coins slack channel or blog Community forums
Step 2 – Cryptocurrency fundamental analysis checklist
Purpose of coin Utility Coins governing structure Development roadmap Proof of coin Advisors names Supply structure Market capitalisation of coin Coin allocations
Step 3 – Starts investing
Opening an exchange account Deposit funds Open Crypto exchange account Transfer amount Start buying
Methods of cryptocurrency valuation
1) Quantity theory of money
MV = PT
M = money supply V = velocity of money supply in a given time period P = price levrl T = transaction volume in a given time period
2) National currency comparisons
Just compare cryptocurrency adoption compared to fiat currencies as a rough order of magnitude sanity check
If the average bitcoin users does only 10% of their economic activity in bitcoin and 90% of their activities in typical currencies then sizei will be average per-capita economic activity
3) pure store of value – percent of net worth
Bitcoins usage has shifted primarily to being an alternate store of value rather than primarily being used as a medium of exchange
Stock of flow
It is a measure of how much is mined or produced per year compared to how much stored
Value of cryptocurrency is based purely on its network effect
