CRYPTOCURRENCY -ALL YOU NEED TO KNOW

CRYPTOCURRENCY -ALL YOU NEED TO KNOW

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

Compiled by:-

Avinash Kulkarni

Chartered Engineer
Govt Regd Valuer
IBBI Regd Valuer

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