Beginner’s Guide to Investing in Cryptocurrencies

Beginner’s Guide to Investing in Cryptocurrencies

Key Facts & Best Educational Resources

1. Introduction to cryptocurrencies
   1. What is cryptocurrency
   2. This history of cryptocurrencies
   3. How cryptocurrencies and Bitcoin work
   4. The top 10 cryptocurrencies and why they are popular
2. The rise of cryptocurrencies
   1. Why are cryptocurrencies becoming such an attractive investment?
   2. Who is investing in cryptocurrencies?
3. Bitcoin – the mother of all cryptocurrencies
   1. Why bitcoin?
   2. The evolution of Bitcoin
   3. Bitcoin m arket price dynamics and long cycles
      
4. How to invest in cryptocurrencies
   1. Basic investment strategies
   2. How to invest in Bitcoin and other cryptocurrenc ies
   3. Selecting the right crypto exchange for you
5. Terminology
6. Resources

Introduction to cryptocurrencies

Hello and welcome to this beginner’s guide to investing in cryptocurrencies! Since Bitcoin was established in late 2008, we have experienced 12 years of rapid innovation, growth, and regulatory development. And in that time, several other cryptocurrencies have been launched, growing the market to a value of US$360 billion .

Here we will explain some of the basics about what cryptocurrencies actually are, a brief history of their development, how you can invest in them, plus a more detailed overview of Bitcoin – the first and still the most popular cryptocurrency in existence! If you’re not sure about any of the terms you come across, check out our terminology section at the end, which should help clarify things.

So, if you are new to cryptocurrencies and would like to start investing, but not sure where, why, or how, then you are in the right place! We hope you enjoy our beginner’s guide, and we look forward to helping you get started on your investment journey!

What is cryptocurrency?

A cryptocurrency is a digital asset that is secured by cryptography. Cryptocurrencies allow for the entire value exchange to occur digitally and peer-to-peer, without involvement from an intermediary like a bank. All cryptocurrency transactions are recorded on a ledger known as a blockchain. We will learn more about blockchains later in this guide.

What is Bitcoin?

Bitcoin is a virtual currency produced by an algorithm that will only ever issue 21,000,000 bitcoins. Unlike fiat currency, Bitcoin is not backed by any central government. One bitcoin can be divided into 100 million “satoshis,” the smallest unit of a bitcoin . All Bitcoin transactions are recorded on the Bitcoin blockchain ledger, and any person with a computer and enough hard drive space can download and view the Bitcoin blockchain and its full record since its inception. The blocks are numbered, starting with the origin block number of ”0,” which first appeared in 2009. More details about Bitcoin will follow later in this beginner’s guide.

History of cryptocurrency

Bitcoin was the first cryptocurrency and is still the most popular. In 2008, the Bitcoin whitepaper was published on a cryptography mailing list under the author’s pseudonym, Satoshi Nakamoto. The purpose of Bitcoin was to create a direct peer-to-peer electronic payment system like digital cash . Ever since then, the cryptocurrency industry has been growing from strength to strength. Here is a brief outline of some of the major events that have occurred. Not an exhaustive list, it does however provide a good summary of most of the key developments.

Cryptocurrency milestones

1989 – Digicash created by David Chaum, a pioneer of electronic currency. One of the first electronic money companies to use cryptographic protocols to govern transactions.

1998 – B-money proposed by Wei Dai, a computer engineer, but never officially launched. The smallest denomination of Ether, the wei”, was named for him.

1998 – Bit Gold proposed by Nick Szabo, a computer scientist. Never implemented, it has however been cited as a “ direct precursor to the Bitcoin architecture .”

October 2008 – Satoshi Nakamoto publishes the seminal Bitcoin whitepaper , marking the start of the crypto revolution.

January 2009 – The genesis block for Bitcoin is created.

January 2009 – The Bitcoin code is released .

January 2009 – The first Bitcoin transaction between two people occurs. Satoshi Nakamoto sends 50 bitcoins to Hal Finney, a cryptographer. This is the only transaction known to have been sent by the creator of Bitcoin.

May 2010 – The first Bitcoin purchase occurs. Programmer Laszlo Hanyecz buys 2 pizzas for 10,000 BTC , worth approx. US$115 million as at October 2020.

July 2010 – Mt. Gox Bitcoin exchange launched in Shibuya, Tokyo, Japan.

November 2010 - Bitcoin market cap exceeds $1 million .

February 2011 – Bitcoin hits US$1 in value, putting Bitcoin in the mainstream media spotlight.

April 2011 – Namecoin , the first notable altcoin, is created.

October 2011 – Litecoin (LTC) is created.

2012 – Proof of Stake (PoS) model first introduced in a paper by Sunny King and Scott Nadal to solve the problem of Bitcoin mining’s high energy consumption.

November 2012 – First Bitcoin halving – mining reward halved to 25 BTC.

February 2013 – April 2013 – Bitcoin rises from US$20 to US$220.

March 2013 – Financial Crimes Enforcement Network of the USA states that cryptocurrencies are not legal tender anywhere .

July 2013 – The first ICO is held by Mastercoin.

January 2014 – Privacy coin wave begins with launch of DASH .

February 2014 – Mt. Gox suspends trading and files for bankruptcy after hack of 850,000 BTC (approx. 750,000 BTC belonging to customers and approx. BTC 100,000 belonging to the exchange. This was worth approx. US$450 million at the time.

February 2015 – Draft of the Lightning Network white paper published by Joseph Poon and Thaddeus Dryja.

July 2015 – Release of Ethereum by Vitalik Buterin.

May 2016 – The DAO is founded, the most successful crowdfunded project at this stage.

June 2016 – Japan recognizes cryptocurrency as legal tender .

June 2016 – The DAO is hacked by users , causing the transfer of around 3.6 million ETH from the total ETH 11.5 million committed.

July 2016 – Second Bitcoin halving – mining reward halved to 12.5 BTC.

July 2016 – Creation of Ethereum Classic (ETC) after $60 million worth of ether (ETH) was stolen, requiring a hard fork to reverse the transactions.

January 2017 – More and more coins and tokens begin appearing in the crypto space. “ICOs” (Initial Coin Offerings) take flight.

August 2017 - Bitcoin Cash forks from the Bitcoin blockchain in an attempt to solve the scaling problem.

October 2017 – Bitcoin Gold forks from the Bitcoin blockchain.

December 2017 – Bitcoin hits all time high price of US$19,764.

February 2018 – The Swiss Financial Market Supervisory Authority (FINMA) publishes guidelines on how to classify cryptocurrencies under Swiss law.

September 201 8 – SMART VALOR approved as a regulated financial intermediary in Switzerland .

January 2020 –The EU’s 5 ^th Anti-Money Laundering Directive (5AMLD) is implemented , applying the EU’s Anti-Money Laundering and Combating the Financing of Terrorism rules to wallets, exchanges, and other crypto custodians.

January 2020 – Start of DeFi wave .

May 2020 – Third Bitcoin halving – mining reward halved to 6.25 BTC.

October 2020 – NFT wave begins.

Legality of Bitcoin and Cryptocurrency

Bitcoin’s legality is largely dependent on where you are located. For example, it is legal in most developed countries, including Switzerland, the EU, the USA, Japan, Canada, and the United Kingdom. However, in emerging markets, there are significant differences in Bitcoin’s legal status. Both China and India have imposed restrictions on its citizens buying Bitcoin in recent years. Therefore, it is wise to check for yourself on the Bitcoin laws in your own country .

Switzerland

Switzerland has emerged as a leading global jurisdiction for Bitcoin and blockchain growth. Taking a progressive approach towards the laws and regulations for cryptocurrency, Bitcoin is legal in Switzerland and cryptocurrency exchanges are regulated by the SFTA . Here at SMART VALOR, we take legal and regulatory issues seriously and that is why we decided to make Switzerland our home. We are supervised by the VQF , a self-regulatory institution in Switzerland that has FINMA approval.

Liechtenstein

Next to Switzerland and Malta, the tiny country of Liechtenstein is widely considered to be one of the world’s leading blockchain locations. This is where the SMART VALOR exchange is based, which complies with the requirements of the Liechtenstein Due Diligence Act. We take pride in operating within the strongest available regulatory frameworks when providing our services.

Why use cryptocurrency?

Shopping

Bitcoin and other cryptocurrencies are now accepted as a means of payment by companies such as Microsoft, AT&T, KFC, Burger King, Wikipedia, and many others. Mainstream acceptance of cryptocurrencies is growing.

Investment

Cryptocurrency was the first digital asset to emerge, and Bitcoin is now seen by many as a store of value to rival gold. Most of the major investment and trading platforms now include cryptocurrencies among their available asset classes.

Independence

Self-reliance is one of cryptocurrency’s central tenets. Holders of cryptocurrencies can do what they like with the funds, and there is no need to deal with any bank, government, or other authority in the process.

Decentralization

Since it is based on a peer-to-peer network, cryptocurrency can be sent and received between its holders and anyone in the world. There is no need for approval to be granted from any central authority or external entity.

No banking fees

Since no banks are involved in wallet to wallet transactions, there are none of the banking fees you would normally have when transferring fiat currency.

Competitive transaction fees

Wire transfers and purchases abroad often incur high fees and foreign exchange charges. However, that is not the case with Bitcoin and other cryptocurrencies. With no middleman involved, transaction costs are minimal in comparison and waiting times for transfers are massively reduced.

Financial inclusion

All that is required to send and receive crypto is a smartphone or computer. No bank account or any other financial infrastructure is required. This represents a huge opportunity to the millions who do not have access to traditional financial systems.

How Bitcoin and other cryptocurrencies work

To understand how Bitcoin and other cryptocurrencies work, it is vital to learn a little about blockchain, the underlying technology that powers them all. Put simply, a blockchain is – as the name implies – a chain of blocks. They are connected to each other securely, which is made possible using cryptography. Continuously being added to, the data contained in each block are brought together to create a publicly accessible electronic database. This database is decentralized, which means that there is no central authority that needs to approve the creation of each block.

Blockchain’s decentralization is a big reason why it can remain free from actors with bad intentions. With no central server, the complete record of each blockchain is stored in the computers of all the network’s participants. Every time a transaction goes through, the record stored on each computer must be updated and approved. If this does not happen, no transactions can occur, and no further blocks can be created.

So, this is very different to normal digital cash. Since it uses a blockchain, Bitcoin does not have a centralized group of people that have the sole authority over ledger management. Rather, Bitcoin, and many other cryptocurrencies use blockchain to run a consensus mechanism that involves miners or stakeholders. There are two key models: Proof of Work and Proof of Stake. If the cryptocurrency requires miners to form consensus, it is called Proof-of-Work. If the consensus involves stakeholders, or people who have purchased a significant holding of that cryptocurrency or token, then it is called Proof-of-Stake. Let’s take a look at them both.

Proof of Work (PoW)

Bitcoin operates under a Proof-of-Work model with miners. At its core, a miner is someone who has downloaded the blockchain ledger onto their computer and has enough computing power and digital storage. The miner then uses those computing resources to run software to solve complex mathematical problems that are auto generated by the blockchain to verify a Bitcoin transaction. This is the “proof of work” that gives this model its name. Solving these mathematical problems proves the legitimacy of the Bitcoin transaction. The software the miner uses automatically gathers all the legitimized Bitcoin transactions together into what is called a “block candidate.” The block candidate has to pass a set of predefined technical criteria .

The objective is to convince enough other Bitcoin network operators to add the miner’s block candidate to their copies of the Bitcoin ledger. When enough network operators adopt the block candidate, the miner earns the "block reward,” which is currently 6.25 bitcoin s , and all associated block transaction fees . The miner’s block candidate is then converted as a regular “block” in the chain of blocks that comprise the public record, which is where we get the term “blockchain.” The mathematical problem in each Bitcoin block becomes more difficult every 2016 blocks .

As the mathematical problems rise in complexity, more computing power, speed, and expensive resources are required to solve and collect the block reward. As a result, today, a significant number of Bitcoin miners are large corporate conglomerates running thousands of dedicated mining machines in warehouses. The rest use aggregated computing power collected from hundreds of individual miners in what is known as a “mining pool.”

Proof of Stake (PoS)

Proof-of-stake consensus, on the other hand, involves validators instead of miners . The validators are selected according to how many tokens they own. Validators lock up a portion of their tokens into a virtual safe as collateral to vouch for the legitimacy of the block . This is also known as “staking” and that is why this model is called “proof of stake”. If the validators’ block is chosen, they share in the block’s transaction fees and retain the tokens they locked. Some of the best known blockchain networks to use the PoS model include Tezos (XTZ), Dash (DASH), Neo (NEO), and QTUM (QTUM). Ethereum will be transferring to a PoS model with its Serenity 2.0 rollout.

If a miner or group of miners controls over 50% of a blockchain network’s computational power and uses this position to create fraudulent transactions on the network, this is referred to as a 51% attack. With the PoS model, a 51% attack is avoided for two key reasons. Firstly, it is expensive and challenging to amass 51% of a well-known cryptocurrency. Secondly, it would not be in the financial interests of anyone with a 51% stake in a cryptocurrency to attack its network. It would cause the value of the cryptocurrency to drop.

Top 10 cryptocurrencies in 2020 and why they are popular

When it comes to working out which cryptocurrency to buy, it can be a difficult decision. With thousands of cryptocurrencies on the market, it makes sense to start by analyzing the most popular. The makeup of the 10 most popular cryptocurrencies often changes. This is due to the volatility of several factors that together make up the total market capitalization (market cap) reported for each token. To understand market caps, we will briefly cover the top 10 cryptocurrencies by market cap as of October 2020.

Bitcoin

The original cryptocurrency, Bitcoin (BTC) has also always been the most popular cryptocurrency. We will take a deeper dive into the mechanics of Bitcoin and why it has remained so popular over the past 10 years in Chapter 4: Bitcoin – the mother of all cryptocurrencies .

Ethereum

Ethereum (ETH) was founded in 2013 by Vitalik Buterin. It “is a global, open-source platform for decentralized applications. On Ethereum , not only can you write code that controls digital value, it runs exactly as programmed, and is accessible anywhere in the world. Ethereum has experienced unprecedented popularity as it continues to be the blockchain of choice for stablecoins and the decentralized finance (DeFi) sector. Ethereum also has lower fees and faster transaction times than Bitcoin, making it a steady top 5 cryptocurrency by market cap.

Tether

Tether (USDT) coins are issued by the company Tether Limited . Tether is the fastest growing Bitcoin-based stablecoin operating on the Omni protocol. A stablecoin is a virtual currency that has its value pegged to outside commodities, like fiat currency . Each Tether coin is backed by one US dollar, which means for every Tether coin issued, there is 1 US dollar stored in the company’s reserves. Many believe its popularity is because it is tied to the US dollar, but is a faster, borderless means to transferring value. Some industry experts predict that Tether will overtake Ethereum on this top 10 list next year.

XRP

XRP, often referred to as Ripple, is a digital payment network and protocol run by the privately-held company Ripple Labs, Inc. XRP has 100 billion pre-mined tokens that are released or put back into an escrow account according to the rules of its blockchain’s smart contracts. Much of XRP’s popularity is because Ripple has a consortium of over 200 financial institutions using its payment technology, and with more being added each quarter.

Bitcoin Cash

Bitcoin Cash (BCH) is a 2017 fork of the Bitcoin blockchain and the most successful Bitcoin fork to date. Like Bitcoin, BCH has a limited supply of 21 million coins and operates on a proof-of-work consensus mechanism. Its leader, Roger Ver, wanted to create a better version of Bitcoin that could act as a payment system, but at higher speeds and with lower fees . They have largely succeeded in this goal, with Bitcoin Cash processing 100 transactions per second (tps) while Bitcoin can only process up to 14 tps . The average transaction fee for BCH is around US$0.5 cents while Bitcoin is around US$2.07. ^xvi

Binance Coin

Binance Coin (BNB) is the native token of Binance. Founded in 2017 by Changpeng Zhao, the former OKCoin CTO, it is the largest crypto exchange in the world. The BNB token gives discounts on trading fees on the Binance exchange as well as being used as a means of payment on several other platforms . Binance international has over 140 coins listed for trading, while the more heavily regulated Binance US offers 41 different coins for trading. Given the scale and continued growth of Binance, BNB is likely to have solid rankings in the near future .

Chainlink

Chainlink (LINK) was founded by CEO Sergey Nazarov and CTO Steve Ellis in 2017. Chainlink’s technology creates a secure bridge that allows information to travel from the outside world into a blockchain and vice versa without jeopardizing data security or integrity . Chainlink’s popularity is attributed to both a growing community, partnerships with big companies in both the crypto community as well as traditional technology conglomerates like Google , and endorsements from influencers like Dave Portnoy .

Polkadot

Polkadot (DOT) is a good example of how fast things can change in the cryptocurrency sphere. In July 2020, DOT was ranked outside the top 100 token by market cap . Less than 4 weeks later, DOT rocketed into the top 10 coins, where it still remains. So, what’s the story? The Polkadot blockchain was created in 2016 by Gavin Wood, a former Ethereum Solidity developer. Polkadot is a smart contract protocol that enables multiple blockchain networks to exist and engage in cross-chain communication . In other words, digital assets created on one blockchain can be sent to another completely different blockchain if both are operating on the Polkadot protocol. Its currently popularity has been attributed to a growing community, a recent redenomination of its coin (similar to a stock split) and its recent listing on the crypto exchange Binance, spiking the DOT token’s value by over 200%.

Cardano

Cardano (ADA) was founded in 2017 by Charles Hoskinson, a co-founder of the Ethereum network. Cardano is a blockchain network that uses the proof-of-stake model, one of the biggest networks to achieve this successfully. This year, Cardano underwent a Shelley upgrade, which was designed to improve its network decentralization by a factor of 50-100. Holders of the ADA token have the right to vote on any proposals for changes to the Cardano software. Recent reports indicate that Cardano has the highest developer activity , followed by Ethereum (second) and Bitcoin following in sixth place.

Litecoin

Litecoin (LTC) was founded in 2011 by Charlie Lee , a former Google developer. Lee forked Bitcoin’s blockchain and vowed to shorten the time it took to confirm a block and lower transaction fees. While Bitcoin generates a block every 7-10 minutes, Litecoin generates a block every 2.5 minutes. Litecoin continues to enjoy popularity by listing its token with fintech companies, most recently Revolut in September 2020.

The rise of cryptocurrencies

It might surprise you to hear that the asset that has performed best over the last ten years was not Microsoft, Google, or Amazon stocks. It was not real estate. And, no, it was not gold either. Yes, that’s right. It was Bitcoin! And this fact has not gone unnoticed by the world’s biggest banks. JPMorgan has already confirmed that it processes crypto transactions. Goldman Sachs has also recently hired Mathew McDermott to head up its digital asset team. Cryptocurrency is on the rise, and don’t let anyone tell you otherwise.

Why are cryptocurrencies such an attractive investment?

For the second time in a generation there is a global economic depression. Economies have been in recession since June 2020, causing many investors to ask whether they should withdraw their funds, keep them in the stock market, or look elsewhere to diversify their investments . Some view the volatility of cryptocurrencies as an opportunity. For instance, in May 2017 one Bitcoin cost around US$1,500 . On April 5, 2020, one Bitcoin cost US$6,600, and now on October 15, 2020, one Bitcoin costs US$11,400 . The potential for significant losses and gains continues to draw investors.

Other reasons why investors are keen to invest in cryptocurrency include:

• Cryptocurrency may become the common standard to exchange value worldwide .
• Unlike fiat money managed by a central bank, many (not all) cryptocurrencies are inflation-proof as they are programmed to produce only a set number of coins.
• Cryptocurrency is seen as more secure than other digital value systems because crypto payments are protected by cryptography.

Also, the value of a cryptocurrency transcends national boundaries, which means you don’t have to deal with different exchange rates from country to country.

Who is investing in cryptocurrencies?

Although cryptocurrencies have featured increasingly often in the news in recent years, many still are reluctant to buy what they do not yet fully understand. This is understandable when an industry is still in its relative infancy. However, those who have made the effort to learn about the basics are becoming quickly convinced of their potential. As is often the case, it is those who have the finances and resources at their disposal who are best placed to act first. So, who is investing in cryptocurrencies?

Americans

As of October 2020, over 15% of all American adults owned one or more cryptocurrencies. During the past 6 months, over half bought cryptocurrency for the first time. According to Forbes , the demographics for the majority of American investors that bought during the 2020 pandemic-fueled crypto run are broken into two main groups:

In the first group, “nearly 8 in 10 of 2020 crypto buyers were men with an average annual income of US$130,000. Around 4 in 10 have a master’s degree or higher (70% have a bachelor’s degree or higher).” Lastly, 57% are Millennials (ages 26-40) and 30% are Gen Xers (ages 41-55).

Hedge funds and asset managers

There have been many indications from large legacy financial institutions that they are ready to bet on Bitcoin. Grayscale Investments is one of many asset managers that have enjoyed record profits for its Bitcoin investments in 2020. In the first quarter of 2020, Grayscale saw over US$503 million pour into its crypto products from institutional investors . This year, the US$10 billion Medallion Fund gained approval to trade Bitcoin Futures on the Chicago Mercantile Exchange (CME) .

Large Corporations:

MicroStrategy, Inc.

In August 2020, Nasdaq-listed MicroStrategy, Inc. invested (US$250 million) in bitcoin . This brings the total Bitcoin holdings of the world’s largest business intelligence firm to just under half a billion US dollars, making it its main treasury reserve asset. Calling it “superior to cash” and a “dependable store of value”, the CEO Michael J. Saylor also believes that Bitcoin is “harder, stronger, faster, and smarter than any money that has preceded it.” Some industry experts wonder if this move will serve as a green light for the rest of corporate America to do the same .

Square, Inc.

After making US$17 million in profits from its Bitcoin sales in Q2/2020, Square Inc –bought US$50 million in bitcoin in October 2020 . Established by Jim McKelvey and Twitter’s Jack Dorsey in 2009, Square, Inc. specializes in smartphone payments for merchants. The bitcoin purchase, which represents approx.1% of the company’s total assets, follows MicroStrategy, Inc.’s huge purchase and was done using an over the counter (OTC) service from an undisclosed bitcoin liquidity provider. Previous brokers used by Square, Inc. include Circle, itBit, Genesis, and Cumberland.

Paul Tudor Jones II

After comparing Bitcoin to gold during the 1970s, Paul Tudor Jones II has now invested between 1 and 2% of his total assets in Bitcoin . A respected economist and pioneer of the modern hedge fund industry, he has a net worth of approximately US$ 6 billion.

Why are they investing in cryptocurrencies?

With interest in crypto investments at an all-time high, let’s delve into some of the reasons why.

Historic high returns

Most cryptocurrencies are volatile, rising and falling in price relatively quickly. The reasons why this happens are varied, and require further research. The following all have an impact on the price of a cryptocurrency: supply, demand, regulatory news, rate of adoption, tokenomics, inflationary approaches. With Bitcoin and Ethereum having recorded rises of (insert percentage) and (insert percentage) over the last five years respectively, cryptocurrencies are still a niche interest and have not yet transferred into mainstream use. What will happen if and when that actually happens? Nobody knows for sure, but corporate America is starting to take the asset class seriously.

Hedging

Hedging is a strategy that every investor should be aware of. Put simply it is an investment strategy that protects an investor’s portfolio. This is achieved by offsetting potential losses in the same or another asset. Cryptocurrency is being increasingly seen as a good hedge against other asset classes.

Fiat devaluation

With the US Federal Reserve printing 20% of the total number of US dollars in circulation in just the last year , some economists predict that the dollar will steadily lose value in the years ahead. Indeed, quantitative easing inherently lends itself to inflation and is used as a strategy by central banks all over the world to increase the money supply, boosting lending and financing in the process. Bitcoin and most other cryptocurrencies have a limited supply, and no central authority to print more cryptocurrencies if the mood takes them. As you can appreciate, this makes cryptocurrencies an attractive proposition to those with even a cursory understanding of basic economics.

Stock market devaluation

With the threat of recession hovering over the adverse economic conditions triggered by the COVID-19 crisis, some stock market investors are looking for a reliable hedge. With cryptocurrency rising from the ruins of the 2008 financial crisis, some economists believe that cryptocurrency is the best hedge out there . However, others believe that cryptocurrencies will not escape the effects of a global economic downturn. It remains to be seen what will happen.

Accessibility

Trying to understand stocks or how to invest in them, and even to qualify for investing, can be a laborious and time-consuming process. That’s not the case with cryptocurrencies. Just sign up to SMART VALOR and start investing in cryptocurrencies right way. It’s as simple as that. You don’t need a minimum deposit or any special authorization. There are far fewer barriers to entry for the investment public.

Optimistic estimates

As explained above, companies of the pedigree of Square, Inc., MicroStrategy, Inc., and Grayscale Investments are making bets on Bitcoin, with most forecasts favorable over the coming years. Of course, this comes with a host of risks and these optimists may all turn out to be wrong. However, Bitcoin’s return on investment over the last ten years, as well as crypto’s accessibility, and hedging utility are giving investors reasons to consider including cryptocurrencies in their portfolios.

Bitcoin – the mother of all cryptocurrencies

Why Bitcoin?

Since Bitcoin is not a stock in a business, there are no dividends and you do not own equity. So why do people keep buying Bitcoin? It’s slower than most other blockchains, has higher transaction fees, and lacks most of the useful features of newer blockchains, like interoperability. What exactly is the appeal?

Well, first up, many investors buy Bitcoin as a hedge against inflation. Fiat currency, or government-backed currency, is controlled by governments and banks that have the power to print more money or remove money from circulation to balance their local economies. When governments print more money (also known as quantitative easing) and slash interest rates close to zero, the value of their native currency also drops . When government-backed currency loses value, then assets that offer a yield or dividend in that currency also becomes less appealing to investors. Unlike centralized fiat money, Bitcoin’s software will stop producing Bitcoin after 21 million. This provides unmovable scarcity that could serve as an effective safety net in times of global economic crises.

Second, Bitcoin adoption is growing worldwide. Some investors speculate that it will one day overtake the US dollar as the world’s reserve currency. To surpass the US dollar, it would need to eclipse a US$1.98 trillion dollar circulating supply . As of October 2020, Bitcoin has a market cap of US$211 billion (though investors should note some Bitcoin will never enter circulation as they are permanently lost, increasing the value of the Bitcoin still available ). While low in comparison, many blockchain leaders have pointed out that many investors are purchasing Bitcoin and holding it long-term, affecting the amount being traded globally.

Third, larger corporate players are converting their fiat reserves into bitcoin . For instance, a billion-dollar business intelligence company, MicroStrategy, announced in August 2020 that it had converted US$250 million dollars into bitcoin . The company is one of many this year to announce that it recognizes Bitcoin as a legitimate investment asset and is bullish on the long-term value it can bring to its company’s shareholders.

The evolution of Bitcoin

In the early days of Bitcoin, there were no crypto exchanges. Almost all Bitcoin trading took place on poorly designed internet forums. In 2010, the first crypto exchange to cater to Bitcoin trading appeared on a now defunct site called Bitcoinmarket.com . Data from the summer of 2010 shows that a single bitcoin was trading for as low as US$0.003 at that time.

Bitcoinmarket was eventually shut down, with two factors contributing. The first was a string of fraudulent transactions occurring on its platform. The second was the fact that early Bitcoiners flocked to the infamous deep web marketplace, Silk Road . In 2011, Mt. Gox launched its crypto exchange, and by 2014 it was handling 70% of all Bitcoin transactions . Like many crypto exchanges that followed in its footsteps, Mt. Gox would eventually file for bankruptcy due to hackers stealing millions from the exchange. Now there are dozens of exchanges, and some of them are regulated. Therefore, there is no longer any single crypto exchange that holds most of the Bitcoin trading volume.

Further, many cryptocurrency wallets have reported an increase in new wallet creation that hold at least a fraction of a Bitcoin. Over the past 12 months, Blockchain.com reported an increase from 41 million to over 52 million wallets . Square’s Cash App reported a meteoric rise in revenue from Bitcoin transactions to US$875 million in 2020, an increase of 600% from 2019 . These recent developments are among the reasons why many investors are betting on an even brighter future for Bitcoin and the rest of the crypto sector.

Bitcoin halving, market price dynamics and long cycles

In July 2010, a single bitcoin cost just US$0.08 or 8 pennies. Today, a single Bitcoin costs over US$10,000. What has contributed to its meteoric rise? As previously discussed, the number of people with a crypto wallet has dramatically increased. Credibility has also come into the Bitcoin trading space as corporate conglomerates convert their treasuries from fiat currency to bitcoin. Plus, the principles of scarcity are at play since there are a finite number of bitcoins that can be produced, curbing against any method that would cause inflation. Yet there is one more peculiar perk built into Bitcoin—the block reward halving .

Since the start, the Bitcoin blockchain has issued a block reward every 10 minutes. Today, the current block reward, or number of new bitcoins put into circulation, stands at 6.25 bitcoins, but it wasn’t always this amount. In 2009, the amount of Bitcoin awarded in a block reward was 50 bitcoins . Every 210,000 blocks, which has historically elapsed around every 4 years, the number of bitcoins produced in a block reward is cut in half . In May 2020, the number of Bitcoin issued every 10 minutes in its block reward halved from 12.5 to 6.25 bitcoin s . In financial terms, this is referred to as quantitative tightening, which refers to a decrease in the amount of liquidity or reduction in the supply.

In “the next 100 years, the remaining 2,638,700 Bitcoins will be created.” The limited total supply, plus the other factors previously mentioned and regulatory changes worldwide, are some of the reasons why Bitcoin has continued to rise in value since its inception.

How to invest in cryptocurrencies

Basic investment strategies

Just like investments in traditional assets, such as stocks and bonds, the sort of cryptocurrency investment you make will largely depend on the recommended risk appetite for your demographic.

In difficult times, investors may flock to Bitcoin and stablecoins.

For investors that seek to only invest in digital assets that are pegged to an outside asset, a “stablecoin” may be the best investment . A stablecoin is a crypto asset that is backed by an outside asset, such as the US dollar, gold, or other property. Historically, stablecoins are less volatile than other cryptocurrencies. However, during the buying rush experienced during the pandemic in 2020, some stablecoins more than doubled their market cap. For instance, Tether’s market cap leapt from US$4.6 billion to US$9.2 billion.

Other investors choose to invest only in Bitcoin, the oldest and original cryptocurrency. Long-term investors in Bitcoin (often referred to as Bitcoin maximalists) consider Bitcoin to be the world’s new store of value, eclipsing gold. Given Bitcoin’s record of rising in value, investors planning on holding onto their cryptocurrencies for many years may gravitate to a Bitcoin-first investment approach.

For investors with a higher risk appetite, buying and trading in altcoins or non-Bitcoin coins, such as ether (ETH) and Basic Attention Token (BAT) gives another opportunity to make the sort of gains the volatile cryptocurrency market produces.

How to buy Bitcoin and other cryptocurrencies

So now that we have understood the basics about Bitcoin and other cryptocurrencies, we can talk about how to buy them. There are several options available, so to make things easy for you, we explain the most popular methods.

Wallets

Let’s start with the basics. Nothing happens without a wallet, which is where you store your cryptocurrency. There are two main types – custodial and non-custodial. As the terms suggest, the difference between the two is who has custody over your crypto funds and control of the private keys.

Custodial Wallet

With a custodial wallet, a third party has control of your crypto. You have permission only to send or receive funds. The advantages to this wallet type include free transactions, no risk of losing your private keys, plus a better chance of undoing any erroneous transactions. Potential downsides include the loss of autonomy as you do not have complete control over your funds. It is also necessary to do KYC since that is a requirement for custodianship. Exchanges can get hacked too, especially those which are not regulated. Like many crypto exchanges, SMART VALOR provides a custodial wallet when you store your funds on its platform.

Non-Custodial Wallet

Non-custodial wallets, on the other hand, give you full control of your funds. Since you are the only person to have access to your private keys, the risk of a data breach is completely down to how you handle your risk. You can also withdraw your funds immediately, without need for third-party confirmation. However, all this comes with a lot of added responsibility . Risks include phishing, hacked passwords, poor anti-virus protection, keeping all your crypto in one wallet, among others. Non-custodial wallets are divided into two categories: hold and cold. The funds in hot wallets are stored online, and cold wallets store funds offline. Examples of a non-custodial hot wallet are MyEtherWallet and MetaMask . An example of a non-custodial cold wallet is Ledger Nano , which functions like a USB stick.

Exchanges

Crypto Exchanges

The safest and most popular way to buy bitcoin and other cryptocurrencies is through a crypto exchange like SMART VALOR. Like when buying stock, there are two main ways to buy cryptocurrency. One way is to do it yourself. Go to SMART VALOR , register an account, do your KYC, and then make your trades.

The second way is to outsource almost the entire process to a dedicated team of professionals. For instance, SMART VALOR operates a competitive wealth management OTC service with no minimum requirements . It does not matter whether you have US$10,000 or US$100,000 – all investors have access to the company’s white-glove service. A dedicated team of professionals execute your purchase order discreetly and with minimal price slippage.

The dedicated fund managers on the SMART VALOR OTC team adhere to the mandate provided by the investor. This means that each purchase and sale of cryptocurrency follows the exact time horizon, risk level, and needs outlined in your investment portfolio.

Derivative Exchanges

In existence since the Middle Ages, derivatives are now considered one of the world’s most popular financial instruments. In essence, a derivative is a financial contract between two or more parties based on the future price of an underlying asset. These underlying assets are typically bonds, stocks, market indices, commodities, and interest rates. For the purpose of this guide, however, we will focus on cryptocurrencies. There are two ways to make money using derivatives.

Going long

Many traders attempt to make money by trading derivatives for Bitcoin and other established cryptocurrencies. In bull markets, they will buy a cryptocurrency when in their opinion its price is low, selling it at a higher price later and profiting from the increase.

Going short

However, you can profit from Bitcoin and other cryptocurrencies even if they are going down in value. This is called shorting. This works by the trader borrowing the cryptocurrency from an exchange or broker in the expectation that the price will fall. When they believe this will happen, they sell them on the market. If and when Bitcoin falls in price, they buy back the same amount of Bitcoin, but for the lower price, and take the profits from the volatility.

Margin Trading

Several crypto platforms offer margin trading, which is one way to short bitcoin. Investors can “borrow” money to enter a trade, usually with leverage which means your profits/losses are amplified.

Futures

With a futures trade, the buyer enters into a contract to buy Bitcoin. The contract stipulates the price it will be sold at and when this will take place. Those who want to go long on Bitcoin buy a futures contract, and those who want to short Bitcoin sell it. These can be bought and sold by retail and institutional investors alike at various exchanges.

Binary Options

Rather than buying or selling assets, with binary options you bet your funds on whether the price of Bitcoin will rise or fall against the US dollar. Your choice is either “call” or “put”. If you forecast a call, it is because you believe the price of Bitcoin will rise. If you predict a “put”, it is because you expect the price to fall. If you guess right, you win and if not, then you lose your funds.

Investors always need to watch out for volatility, but that is especially the case with crypto derivatives. Prices can rocket and plummet rapidly, with losses increased dramatically if margin trading is used.

Warning

Please note that the derivatives market is complicated, and so people who are new to crypto should take great care before getting involved. Without a strong and well thought out strategy in place, just a small mistake can prove to be very expensive. Things can spiral out of control quickly since crypto derivatives are so difficult to predict, especially if margin trading is used.

Bitcoin ATMs

As of September 2020, there are over 10,320 Bitcoin ATMs installed worldwide . Bitcoin ATMs function in a similar way to regular cash ATMs, except they allow you to buy and sell bitcoin and often involves scanning QR codes connected to your Bitcoin wallet. Some Bitcoin ATMs allow cash withdrawals, but not all.

The largest operators of Bitcoin ATMs are Bitcoin Depot, Rockitcoin, ATM Coiners, Coincloud, Coinflip, and Coinsource. Bitcoin Depot operates just under 800 machines, with Rockitcoin owning just over half that number. Genesis Coin has manufactured around 3,000 machines, making it the leading bitcoin ATM manufacturer. They are followed by General Bytes, which has manufactured approx. 2,700 machines.

Funds

Some investors choose to buy their Bitcoin and other cryptocurrencies through cryptocurrency investment funds. Investors can buy into these funds, sharing in profits as the fund grows in value. An example of a cryptocurrency investment fund is Grayscale Funds.

Grayscale Funds

With US$5 billion in assets under management, Grayscale is the world’s largest Bitcoin and cryptocurrency asset managers . Its flagship product is a Bitcoin Trust (GBTC), which allows investors to buy bitcoin from a traditional exchange without needing to worry about wallets, storage or other crypto-specific details . Please note that Grayscale sells its bitcoin at a premium, well above the market price. Therefore, investors that choose to buy bitcoin through Grayscale pay a convenience fee.

OTC Broker

For larger Bitcoin purchases, typically exceeding US$100,000, the OTC market is used. OTC stands for “Over the Counter” and this service is used when buyers want to avoid the problems associated with limited supply on crypto exchanges and high transaction fees. This option is also taken by traders who want to act discreetly and not affect the Bitcoin price too much by placing big orders.

Finding the Right Crypto Exchange for You

When trying to find the best crypto exchange for your needs, there are a variety of criteria to consider. According to CryptoCompare , a trusted resource for comparing crypto exchanges, here are some of the most important:

CryptoCompare Ranking System

Incentive Schemes and Exchange Tokens

In this category, the best exchanges are determined on whether they carry out competitions, offer margin trading, have a competitive fee schedule, and facilitate airdrop distributions, among other factors.

Fees

Here, the scoring is calculated by focusing on the minimum and maximum maker and taker fees on the exchange, plus the averages between them.

Geography/Nationality

For the Geography/Nationality category, the scoring focuses on the jurisdiction used for legal disputes, the location of the exchange headquarters, and that location’s institutional quality, among other criteria.

Legal/Regulatory

Here, CryptoCompare dive deep into the regulatory and legal status of the exchanges they review. This includes the authorities that oversee their activities, the reputation of those authorities, insurance in place, blockchain society memberships, licenses granted, and a host of other factors.

Investment/Business

The exchange’s relationship with its surrounding financial infrastructure is the focus here. This includes analysis of which banks the exchange is partnered with, funding sources, revenues collected from trading fees, and average monthly volumes.

Company/Management Team

Openness and transparency regarding the identities and backgrounds of the management team is a strong indicator of an exchange’s reliability. It is vital that all C-level staff are credible, experienced, and possess the relevant professional qualifications.

Data Provision

With APIs now a vital part of the trading experience, the questions CryptoCompare focus on here include the reliability of the API services provided by each exchange, whether an order book endpoint and websocket (WS) connection are provided, the average connection latency time, etc.

Market/Trading Characteristics

Traders want a wide range of products and services to choose from. Therefore, the number of pairs available to trade on an exchange is deemed a crucial factor in whether to sign up or not. The presence of fiat pairs is relatively rare and generally a strong indicator of whether an exchange embraces regulation or not. This category also checks whether exchanges have a formal market surveillance tool in place.

Exchange Type/Services

Here, checks are undertaken to see whether an exchange is centralized or decentralized. The option to use OTC trading or derivatives trading is also considered in this category.

Web Traffic

Checks are also undertaken on the strength of the exchange’s web presence. Criteria assessed include Alexa rankings, average daily page views, and the number of visitors per day.

The SMART VALOR Edge

SMART VALOR AG is a Swiss-based company. In July 2019, we became the first Swiss company to operate a fully integrated digital asset exchange. Since then, SMART VALOR has grown to list over 65 trading pairs, with more being added each month. Besides crypto, SMART VALOR is also focused on listing real asset-backed tokens. To make this a reality, it has put regulation at the center of its strategy, ensuring investor protection through the exchange’s full compliance with strict AML rules.

With over 80 years of combined blockchain and cryptocurrency experience under the belts of our seasoned blockchain advisors, SMART VALOR are experts at executing investment strategies. With real-name bank account verification for fiat deposits and withdrawals, we embrace regulation and compliance. To this end, we have a suite of compliance tools to ensure that our regulatory obligations are met. Institutional grade financial security, and simple access make us the number one exchange choice for new cryptocurrency joiners who want to use the best possible trading, staking and issuance services.

In addition to a powerful exchange matching engine that is capable of processing one million orders per second, SMART VALOR possesses enterprise-grade security for custodianship of digital assets. Traders are provided an advanced trading module and an open API link for market makers. SMART VALOR was the first exchange in the region to enable Swiss franc (CHF), pound sterling (GBP), euro (EUR) and US dollar (USD) on-ramps through its partnership with Liechtenstein Bank. Its partnership with Paysafe allows for instant VISA and MASTERCARD credit card integration. All of SMART VALOR’s KYC, AML and investor verification processes are conducted in compliance with Swiss and EU regulations.

As you would expect, we rank well for all the categories defined by CryptoCompare. However, in our experience, there are some key factors that should take precedence when deciding which crypto exchange to use.

Regulation

The first question you should ask yourself is whether the exchange is regulated. Ever since cryptocurrency trading began, the bulk of fraud and hacks have occurred on non-regulated exchanges. These are exchanges that do not follow any laws, are not compliant with any jurisdiction, or claim to be compliant with a lesser known jurisdiction that does not have a reputation for safeguarding investors’ capital. Put simply, non-compliant exchanges put your money and assets at risk to criminals.

SMART VALOR is the only exchange operated by a Swiss company that has Financial Intermediary status. Moreover, SMART VALOR is governed by the laws of Liechtenstein as a digital asset exchange. Switzerland and Liechtenstein are two of the world’s most reputable jurisdictions for financial services. The type of jurisdiction regulating the exchange is important since exchanges in more lax jurisdictions might engage in shady activities. These include wash-trading and other practices that can put investors’ money at risk or tie those funds to a lawsuit.

To continue to drive the competitive edge in its regulatory positioning and fill the vision of real asset-backed, digital securities, SMART VALOR applied to become a security dealer and operator of an Organized Trading Facility (OTF) in Liechtenstein (according to the standards of the EU-wide MIFID regulation). SMART VALOR continues to pave the way for innovative technology by working to become one of the first companies to receive the new fintech license (formerly known as “banking light”) in Switzerland.

Deposits and withdrawals

The next question you should be asking yourself is whether you can withdraw your funds easily. While there are many cryptocurrency exchanges, there are only a handful that have trusted fiat on-ramps and reliable banking. At SMART VALOR, you can buy and sell digital assets using USD, GBP, CHF, and EUR. We also have strong and long-established partnerships with Swiss banks which adhere to the highest standards of data integrity and fund management. Investors can also buy bitcoin and other digital assets instantly by bank transfer or credit card in most European currencies.

Safety and security

Unlike many digital asset exchanges out there, we are proud to say that SMART VALOR has never been hacked. Understanding the importance of being good custodians of our clients’ funds, we put a strong emphasis on technical security. We are partnered with auditing companies like Chainalysis and use the standard software suite for financial institutions, like Office 365. Along with security audits of its codebase , SMART VALOR prioritizes strengthening its platform and ensuring fund safety by following cybersecurity best practices. These include using SSL encryption to ensure that our customers’ payment and private data is not breached. That is yet another reason why we operate in Switzerland, one of the world’s privacy leaders, where the security obligations mandated are stricter than in most parts of the world.

Resources

Educational crypto videos

1. How cryptocurrencies work: https://www.youtube.com/watch?v=kubGCSj5y3k
2. How to buy cryptocurrency for beginners: https://www.youtube.com/watch?v=sEtj34VMClU
3. CNN interview with SMART VALOR’s CEO Olga Feldmeier about Bitcoin’s energy consumption: https://www.youtube.com/watch?v=Mc_uBd19i8A
4. Inside the cryptocurrency revolution: https://www.youtube.com/watch?v=u-vrdPtZVXc
5. Banking on Bitcoin documentary: https://www.youtube.com/watch?v=6jSm9vTBGKU
6. What is cryptocurrency? A simple explanation https://www.youtube.com/watch?v=6Gu2QMTAkEU
7. Staking on the SMART VALOR platform

https://www.youtube.com/watch?v=9tHueu5NvQs&feature=emb_logo

1. Invest in tokenized gold on the SMART VALOR platform

https://www.youtube.com/watch?v=a6YiAfAHOXI&feature=emb_logo

Books on investing in Bitcoin and other cryptocurrencies

1. Bitcoin: The future of money? - https://www.amazon.com/Bitcoin-future-money-Dominic-Frisby/dp/1783521023/?tag=tnw88-20
2. Blockchain bubble or revolution: The present and future of blockchain and cryptocurrencies - https://www.amazon.com/Blockchain-Bubble-Revolution-Present-Cryptocurrencies/dp/0578528150/ref=tmm_pap_swatch_0?_encoding=UTF8&qid=&sr=
3. Digital gold: Bitcoin and the inside story of the misfits and millionaires trying to reinvent money - https://www.amazon.com/Digital-Gold-Bitcoin-Millionaires-Reinvent/dp/006236250X/?tag=tnw88-20
4. The Bitcoin standard: The decentralized alternative to central banking - https://www.amazon.com/Bitcoin-Standard-Decentralized-Alternative-Central/dp/1119473861/ref=tmm_hrd_swatch_0?_encoding=UTF8&qid=&sr=
5. Bitcoin billionaires - https://www.amazon.com/Bitcoin-Billionaires-Genius-Betrayal-Redemption/dp/1250217768/ref=zg_bs_10806607011_27?_encoding=UTF8&psc=1&refRID=QMYXW94H603DYWK0YSQB

Cryptocurrency articles online

1. Investopedia - https://www.investopedia.com/terms/b/bitcoin-mining.asp
2. Decrypt - https://decrypt.co/35707/what-is-the-difference-between-bitcoin-and-bitcoin-cash
3. Bitcoin.com - https://news.bitcoin.com/bitcoin-history-part-6-the-first-bitcoin-exchange/
4. SMART VALOR - https://news.smartvalor.com/top-10-facts-you-need-to-know-about-upcoming-bitcoin-halving/
5. Forbes - https://www.forbes.com/advisor/investing/are-bitcoin-and-gold-good-investments/

Cryptocurrency Podcasts

1. Olga Feldmeier, CEO of Smart Valor, describes how she first understood Bitcoin’s potential, her upbringing in Ukraine, and her focus on tokenizing real-world assets - https://unchainedpodcast.com/olga-feldmeier-on-why-switzerland-has-welcomed-crypto/
2. Olga Feldmeier, CEO of Smart Valor, discusses her role in the early days of Switzerland’s “Crypto Valley.” https://www.stitcher.com/podcast/blockworks-group/untold-stories/e/618
3. Olga Feldmeier, CEO of Smart Valor, explains her move from traditional finance to crypto. https://bankonitpodcast.com/episode-207-olga-feldmeier-from-smart-valorAsdf

Want to learn more? Open an account at smartvalor.com now, chat with the team on Telegram , and follow the latest news on Twitter !

Terminology

All the terminology and jargon that surrounds Bitcoin, other cryptocurrencies, and blockchain can be off-putting. To help make sense of the words and phrases you will hear most frequently, we have put together this glossary of terms. We hope you find it useful!

51% Attack - Synonymous with the term “majority attack”, this occurs when over 50% of a blockchain network’s computational power is controlled by a group of miners.

Altcoin - Any cryptocurrency that is not Bitcoin.

Ask Me Anything (AMA) - An open forum where questions to management teams are welcomed from their communities.

Anti-Money Laundering (AML) - The legal and regulatory framework in place to stop criminal activity regarding the misuse of funds, especially the prevention of using criminal proceeds as legitimate income.

Application Programming Interface (API) - A set of programming code that allows two applications to transmit data between them. Cryptocurrency traders can use an API to connect to their exchange, giving them real-time insight into market data.

Arbitrage - When you buy and sell an asset on different markets to profit from price differences.

Ask (Ask Price) - Often known as the “offer price”, this is the lowest price a seller will accept, a lot like the reserve price at an auction.

Atomic Swap - A technology that enables people to trade directly with each other, without the need for a centralized intermediary

Bear Market - A period when a market falls in value.

Bid Price - The price a prospective buyer offers for an asset.

Bid-Ask Spread - The difference between the highest price proposed by a buyer and the lowest price proposed by a seller for an asset on the order book.

Bitcoin - Invented in 2008 by one or more persons using the pseudonym Satoshi Nakamoto, Bitcoin is a decentralized digital currency. The first cryptocurrency to ever be created, it uses blockchain technology to record transactions.

Bitcoin Dominance - The term used to refer to the ratio of Bitcoin’s market capitalization against the whole crypto market.

Block - A constituent part of a blockchain that stores data for transactions

Block Reward - The total number of coins a miner receives as a reward for successfully mining a block under proof of work (PoW) and proof of stake (PoS) systems.

Blockchain - Comprised of blocks that are connected linearly using cryptography, a blockchain is mostly used to record cryptocurrency transactions, but has several other uses. With no central authority, a blockchain is resistant to data falsification

Bollinger Bands - Using by traders doing technical analysis, these are volatility bands placed above and below a moving average.

Bots - Often present on exchanges, bots are software or programs that make trades automatically.

Bull Marke t - A period when a market rises in value.

Circulating Supply - The total number of cryptocurrency tokens or coins that are circulating in the market and not locked under smart contract.

Coin - A cryptocurrency that serves as an exchange of value. A coin uses its own blockchain, unlike a token which does not.

Collateral - Something of value that can be pledged as security for a loan to be repaid which is then forfeited if this does not happen.

Commodity Futures Trading Commission (CFTC) - Established in 1974 in the United States of America, this US-based independent agency regulates the US derivatives markets

Cryptocurrency - A digital asset that is used to exchange value between two parties.

Cryptography - The study of secure communication techniques.

Decentralized Application (DApp) - An application used on a blockchain network.

Decentralized Exchange (DEX) - A cryptocurrency exchange which does not take custodianship of user funds and no funds need to be deposited before starting trading. Users trade with each other.

Decentralized Finance (DeFi) - A term used to describe the financial applications available in the blockchain industry that are focused on disrupting the centralized financial system. Services include lending/borrowing cryptocurrencies, betting on events, and exchanging cryptocurrencies, among others.

Diversification - Distributing funds into a variety of assets to mitigate risk.

Do Your Own Research (DYOR ) - Always do your own research on what you choose to invest or trade before making any decision.

Dollar Cost Averaging (DCA) - Sometimes referred to as the constant dollar plan, DCA is an investment strategy designed to mitigate the effects of an asset’s volatility.

ERC-20 - Devised in 2015, the ERC-20 is a standard for cryptocurrency tokens created on the Ethereum blockchain. They are fungible, which means the tokens are divisible.

ERC-721 - Devised in late 2017, the ERC-721 is a standard for cryptocurrency tokens created on the Ethereum blockchain. They represent a unique asset, like a painting or an invoice. It is a non-fungible token which, which means that each token cannot be divided up into smaller parts.

Fear of Missing Out (FOMO) - A feeling of anxiety that you might be missing out on an opportunity.

Fear, Uncertainty and Doubt (FUD) - When people voice their fears, uncertainties or doubts, this is referred to as FUD, which is sometimes genuine but also often used as a tactic to influence price by spreading fear and insecurity.

Fiat - Money issued by a national central bank or government body. Often used in contrast to crypto.

Fork - When a cryptocurrency forks, this means that a spinoff version of the cryptocurrency is created. A good example is Ethereum Classic (ETC) forking from Ethereum. This happens when there is a software update to the network which changes the rules in place.

Fundamental Analysis (FA) - A method to assess the value of an asset based on its core features and attributes/weaknesses.

Fungibility - Fungible items are those which are interchangeable with each other. Identical with each other, examples are dollar bills, commodities, and cryptocurrencies.

Futures Contract - This allows an investor to buy an asset at a predetermined price at a future date. Once it expires, the investor is required to buy the asset at the previously agreed upon price.

Gas - Gas refers to how much you need to pay in gwei to execute a contract or transaction on the Ethereum network.

Gas Limit - When transacting on the Ethereum network, the gas limit represents the maximum amount the transactor has decided to spend.

Halving - An event that happens every 210,000 blocks on the Bitcoin blockchain where the number of bitcoins awarded to miners is reduced by half.

Hold On for Dear Life (HODL) - originally a typographical error for the word “hold” found on Bitcointalk.com that was taken to stand for “hold on for dear life”. This new meaning has stuck ever since, and is a declaration to hold on to your assets and not sell.

Immutability - The state of not changing or being unable to be changed. This feature is shared by the laws of physics, Bitcoin and blockchain technology in general.

Initial Coin Offering (ICO) - A process where a blockchain company can raise funds in exchange for tokens used to access the host platform and its services.

Initial Public Offering (IPO) - A process through which a private company can issue shares in return for funding.

Know Your Customer (KYC) - Crucial in regulated industries, KYC guidelines help to ascertain the risks associated with a business relationship, typically between an exchange and its users.

Layer 2 - Designed to improve the scalability of a blockchain network, it is built on top (or the second layer) of an existing blockchain.

Ledger - A place, either online or in physical form, where transactions are recorded and tracked.

Lightning Network - A second layer technological solution to a cryptocurrency’s scaling problems. It is currently used by Bitcoin and Litecoin, among others.

Mainnet - In contrast to a testnet, a mainnet (short for main network) is where actual blockchain transactions take place.

Mainnet Swap - This occurs when a cryptocurrency issuer transfers (or swaps) from one blockchain network to another.

Market Capitalization - In a similar way to how a company’s market capitalization (market cap) on the stock market is calculated by factoring the share price with the number of shares, a crypto market cap equals the number of tokens/coins issued multiplied by the price for each token/coin.

Market Maker - These are either individuals or companies that provide liquidity to a market to profit from the bid-ask spread.

Market Order - These are trades which are entered to be executed immediately at the best possible price.

Maximum Supply - The total number of coins or tokens ever minted by a cryptocurrency issuer.

Merkle Tree - A data structure popularized by Bitcoin and other cryptocurrencies that is used to improve the efficiency and security of the blockchain data encoding process.

Millisatoshi Amounts - Smaller than 1 satoshi can be sent on the Lightning Network. The smallest denomination is 1 millisatoshi, which is one thousandth of a satoshi.

Mining - Each transaction on a blockchain needs to be verified. To achieve this, a process called mining is used. There are two mining models – Proof of Stake (PoS) and Proof of Work (PoW).

Moon - A term popularized in crypto communities to refer to the price of an asset rising steeply in price.

Node - In blockchain terms, nodes are crucial to keep blockchain networks operating. They are computers which each possess a copy of the entire blockchain. They can create, receive, and transmit data, and are connected to other computers in the network.

Non-Fungible Token (NFT) - Unlike coins like Bitcoin, which can be mutually interchangeable, NFTs (often called “nifties”) are type of token which represent a unique item and so cannot be replaced like for like.

Off-Chain - Transactions that take place outside a blockchain network.

Oracle - Oracles serve as the intermediaries between smart contracts and the rest of the world. They transmit data from real world events to a blockchain for smart contracts to use.

Order Book - A list of all the buy and sell orders for an asset on an exchange.

Ponzi Scheme - A scam where the funds received from new investors are used to pay existing investors.

Private Key - A long number that gives users the ability to sign off on transactions and create addresses to receive cryptocurrencies.

Proof of Stake (PoS) - An alternative to the Proof-of-Work (PoW) model, Proof of Stake (PoS) creates mining power in a different way. Instead of providing computing processing power, miners engaged in staking (often called stakeholders) stake their tokens.

Proof of Work (PoW) - A PoW mechanism is used by some blockchain networks to prevent double spend and achieve consensus. It is called proof of work because for consensus to be achieved, there needs to be proof that work has taken place. This work is undertaken by crypto miners providing computer processing power. The most famous example of a blockchain network run on PoW is Bitcoin.

Rekt - Synonymous with “liquidated”, this term has slang origins from the crypto community. It is mainly used to refer to a catastrophic depreciation in the value of an asset.

Relative Strength Index (RSI) - A technical analysis indicator used by traders work out whether an asset has been overbought or oversold.

Satoshi - The smallest denomination for Bitcoin (BTC) and named after its mysterious creator, Satoshi Nakamoto. There are millisatoshis on the Lightning Network.

Satoshi Nakamoto - Satoshi Nakamoto refers to the one or more persons who created the Bitcoin white paper, implementing the first blockchain network in the process. His name is thought to be a pseudonym, and his identity has never been confirmed.

Scalability - This refers to the limitations of certain blockchains when it comes to processing transactions quickly and efficiently.

Securities and Exchange Commission (SEC) - The US-based SEC is an independent government agency that operates on the federal level and regulates the securities market, protecting investors’ interests in the process.

Smart Contract - A feature of blockchain technology, a smart contract contains lines of code that allow it to self-execute agreements and rules in the absence of a centralized authority.

Stablecoin – Stablecoins are a type of cryptocurrency that are intended to reduce volatility. This is achieved by the stablecoin being pegged in value to a reserve asset or collection of assets. Examples of these would be cryptocurrency, fiat money, commodities, etc.

Staking Pool - A staking pool gives cryptocurrency holders the opportunity to earn shared rewards by collectivizing their computational power and validating blocks on the blockchain.

Technical Analysis - A method of analysis used by traders to predict price movements for assets. Based primarily on historic price and volume data, some popular indicators among traders include Moving Average (MA), Relative Strength Index (RSI), Bollinger bands, Moving Average Convergence-Divergence (MACD), Fibonacci retracement and extension, and the Ichimoku cloud.

Ticker - In the cryptocurrency world, a ticker is used to identify each cryptocurrency. These are abbreviations used to represent a currency on an exchange/trading chart. For example, the ticker for Bitcoin is BTC and the ticker for Ethereum is ETH.

Token - A cryptocurrency that serves as an exchange of value. Typically, a token does not have its own blockchain, and uses another instead.

Transaction ID (TXID) - A TXID is used to identify a blockchain transaction. Every transaction has one, and they comprise a sequence of random numbers and letters.

Transactions Per Second (TPS) - In the blockchain world, this means the number of transactions that can be processed on a blockchain network every second.

Trustless - In the cryptocurrency world, “trustless” means that everyone in a system can reach consensus on the truth without needing to rely on trust. This is a common feature of blockchain and cryptocurrencies generally.

VALOR Token - The native cryptocurrency for the SMART VALOR exchange. The VALOR token’s value is designed to correlate with the scaling of the host platform.

Wei - The smallest denomination of ether (ETH), the cryptocurrency used on the Ethereum network. It is comparable to a satoshi, which is the smallest denomination of bitcoin (BTC). Named after the founder of B-money.

White Paper - For cryptocurrencies, white papers are the equivalent of pitch decks. Created by the founder of a cryptocurrency to raise funds, they explain the purpose and technology behind the idea.

Wrapped Tokens - A wrapped token which runs on the ERC-20 standard and has a value identical to the asset it represents. An example is WETH, which is the wrapped token for ether (ETH).

Zooko's Triangle - Describes the three desirable properties for participant names in a network protocol: decentralized, secure, and human-meaningful