SHOULD YOU INVEST IN BITCOIN, DOGECOIN, OR STYRONCOIN?
Disclaimer: Good Day, Readers. WealthBuildingPowers blog is a financial literacy/competency blog and does not provide specific investment recommendations.
An Elon Musk joke tweet can send Dogecoin soaring for no logical reason. But some people have become millionaires (at least for now) by buying Dogecoin. Mark Cuban summoned up Dogecoin, “Overall, when someone brings up Dogecoin to you and asks you if it’s a good investment, I would say it’s not the world’s best investment, but it’s a whole lot better than a lottery ticket, and it’s a great way to learn and start understanding cryptocurrencies…..”.
CRYPTOCURRENCIES ARE TRANSITIONING TO MAINSTREAM
Several publicly traded companies invest large sums (Millions), but nominal sums to their bottom line, in cryptos. Some, such as Tesla, now allow cryptos as currency. These companies include Tesla; PayPal, Square; Bank of New York Mellon; MicroStrategy; J. P. Morgan (recently released crypto mutual fund/ETF), Morgan Stanley (developing a crypto mutual fund/ETF), etc. These companies are only investing money they can afford to lose 100%.
MY STRATEGY
- NEVER, EVER buy any investment you do not understand.
- Build your competency BEFORE investing your HARD-EARNED-MONEY!
- Only invest money you can afford to lose.
- Limit exposure to a tiny percentage (I suggest a maximum of one percent) of your portfolio.
GROWING MY COMPETENCY IN BLOCKCHAIN TECHNOLOGY
I love reading and recently completed: BLOCKCHAIN TECHNOLOGY EXPLAINED 2021: The Ultimate Beginner’s Guide About Blockchain Wallet, Mining, Bitcoin, Ethereum, Litecoin, Monero, Ripple, Dash, IOTA, and More – Larsen, Warren.
EXCERPTS FROM: BLOCKCHAIN TECHNOLOGY EXPLAINED 2021
“CHAPTER ONE: CRYPTOCURRENCIES AND BITCOIN
Cryptocurrencies, also known as virtual currencies, are part of this process of innovation and technological adaptation. Bitcoin has been in use since January 2009 and was the first cryptocurrency. The second cryptocurrency, Namecoin, emerged in April 2011. Since then, thousands of virtual currencies have emerged, and HUNDREDS are being traded on exchanges.
Virtual currencies are digital, equal and decentralized.
- Decentralization lies in the fact that, unlike all traditional currencies, cryptocurrencies do not have a central body that deals with their issue, there is no Central Bank that controls its value and no intermediaries that are required for the validation of transactions.
The joint process of “creation” of the cryptocurrency and validation of operations, is carried out thanks to the work of the “miners”.
A first linguistic misunderstanding that needs to be clarified, is the difference between the concept of electronic money (through which an electronic payment is made), and that of cryptocurrency (digital money).
The European Central Bank (ECB) is the central body that controls the euro through a monetary policy in the countries of the Euro Zone; similarly, the Federal Reserve (Fed) control the US dollar. For bitcoin, on the other hand, there is no subject, be it a public body or a private body, to perform this function. Despite this, saying that the Bitcoin network has no control is profoundly wrong, in fact control exists. It is widespread (in the sense that it is shared among the network participants), and distributed in the network, guaranteed by adherence to a common protocol.
As a reward to the node that first manages to execute the algorithm, a quantity of bitcoin is released, this process in IT terms is called “hash”, and essentially consists in the transformation through an injective (noninvertible) function of a sequence of characters of arbitrary length (commonly known as a message) in a predefined length sequence called “hash value” or “message digest”. {Yeah- you might want to read that again! BUT if you comprehend this LONG sentence, congratulations, you may be qualified to buy crypto!}
In the beginning, mining could be done with a normal computer. However, as the number of participants in the network increases, this function can only be performed with expensive and sophisticated machinery, designed and created specifically to perform this function. Nowadays, in reality, not even these types of devices guarantee efficiency in resolving hashes. The energy cost to power this type of tool is considerable, for this reason very often the minators come together to increase the probability of being able to solve the hashes and continue the blockchain. The so-called “mining pool” was born from the ever-increasing difficulty of being able to “mine” efficiently.
WALLETS
Bitcoin wallets are similar to a checking account.
- The first wallet, the most common one, is the “desktop wallet”. It consists of software being installed on your computer. This type of wallet can be risky, if you do not pay due attention by entering periodically changed passwords, and having an updated antivirus system, your computer could be hacked. In this way it would be possible to recover the private key and therefore steal the bitcoins held in the wallet.
- The “mobile wallet” is similar to the “desktop wallet”, the only difference is that it is installed as an application on your smartphone. The same goes for the “tablet wallet” which, as is evident from the name, will be installed on your tablet.
- The last category of wallet is the hardware one; it consists of a device created specifically to keep the private keys of bitcoin addresses and other crypto.
CHAPTER 2: THE MAIN CRYPTOCURRENCIES
The cryptocurrencies created after Bitcoin, can be divided into three groups:
- The “Altcoins” (or “Alternative Coins”, alternatives to Bitcoin),
- The “Innovative Cryptocurrencies” and
- The “Cryptocurrency platforms”.
Finally, the “Cryptocurrency platforms”, such as “Ethereum“, allow the creation of “smart contracts”. Ethereum is the second largest cryptocurrency by market capitalization after Bitcoin, and is considered, due to the substantial innovation it has introduced, as a 2.0 cryptocurrency. The substantial innovation of Ethereum lies in the fact that, in addition to being a cryptocurrency, it is also a platform within which “applications” can be developed and can run other cryptocurrencies.
There are two types of cryptocurrencies: “Coins” and “Tokens”.
- The “Coins” are independent cryptocurrencies, whose functioning does not depend on any other cryptocurrency, they have their own blockchain and their own network.
- The “Tokens”, on the contrary, are cryptocurrencies that operate on the same platform as a “Coin”, and substantially depend directly on that “Coin”. Tokens do not have their own blockchain or platform but are developed within the blockchain and the platform of a Coin. This type of cryptocurrency can only be developed within a cryptocurrency 2.0 platform, i.e. crypto such as Ethereum or NEO.
The market capitalization of the cryptocurrency is calculated by multiplying the number of units of cryptocurrency, in circulation with the average market price of that crypto.
Those who hold a cryptocurrency, in fact do not become the owners of that company, but simply own an “asset” issued by the company itself. This asset, however, is different from all assets known by law. It is neither a share, nor a bond, nor a hybrid financial instrument.
The most important feature of most cryptocurrencies is that they have a limited number of units that can be issued. For this reason, it is certainly important to take into account the amount of currency already issued; the closer you are to the maximum number envisaged for the cryptocurrency, the more you may be led to think that the value of the cryptocurrency can increase (and the asset is limited).
BITCOIN CASH
This cryptocurrency aims to continue the Bitcoin project and overcome some inefficiencies. The developers decided to make a similar amount of Bitcoin Cash available to everyone who held “Bitcoin” at the time of the fork. The cryptocurrency therefore depends on Bitcoin at its birth. The blockchain of the Bitcoin Cash binds to the Bitcoin Blockchain from the start.
Litecoin
The fifth Altcoin by market capitalization is Litecoin. The cryptocurrency has been distributed since October 7, 2011 and as stated by the main page of its website, is “a decentralized global currency based on Bitcoin technology”. Also, with regards to the inventors of Litecoin, the aim of the project was to improve the technology of Bitcoin by overcoming some gaps in the latter. Litecoin software was first
DASH
The last “Altcoin” that will be considered in this thesis is Dash. Like Bitcoin, Dash is an open-source peer-to-peer cryptocurrency. Its creator and current CEO is Ryan Taylor, former manager of the US company McKinsey & Company. The digital currency was put into circulation starting from 18 January 2014 with the name of XCoin (XCO). On the 28th of the same month, the name was changed to DarkCoin, only to be changed again in March 2015 to Dash (from the English Digital Cash). Despite having a similar operation to Bitcoin, Dash has introduced a series of improvements in the operation and speed of transactions.
INNOVATIVE CURRIENCIES
After analyzing the panorama of Alternative Coins, now we look at innovative cryptocurrencies, i.e. those that have a substantially new characteristic feature in their functioning, compared to Bitcoin. Among them, two of the most important cryptocurrencies can be identified; the first is Ripple and the second is IOTA.
ETHEREUM
Vitalik Buterim who is a Canadian programmer, of Russian descent. He is the inventor of Ethereum, which was designed in 2013 when he was just 20 years old. The idea of the Canadian programmer, was to exploit the 360-degree blockchain technology, not limiting its use to the application in the world of cryptocurrencies. Almost parallel to Buterim’s idea, another similar operating platform developed, that of NEO.
Ethereum, unlike Bitcoin, is not just a cryptocurrency; it is a decentralized platform for managing smart contracts. While Bitcoin is intended to serve as a virtual medium of exchange, Ethereum founder Vitalik Burerim did not want to limit his project to just this function. The concept of a platform is much broader than that of cryptocurrency. The Ethereum platform is also a cryptocurrency, the coin that runs in the Ethereum network is precisely the Ether (ETH in acronym), but its main feature is being a platform within which it is possible to develop applications, software and “Smart Contract “. The operation of
these contracts are embodied in the programming of applications that autonomously perform exactly what was programmed at the time of the agreement between the parties. This way there is no possibility of downtime, censorship, fraud or interference from third parties. Buterim’s idea, when he started developing Ethereum in 2013, was to make the most of all the potential of the blockchain. In fact, he believed that the use of technology as a simple “ledger” for exchanging a cryptocurrency was limiting.
SMART CONTRACT
The distinctive feature of Ethereum, as well as its most important innovation, is the introduction of “Smart Contracts”. Smart contracts are computer protocols that facilitate, verify, or enforce, the negotiation of partial or total execution of a contract. In short, they are contracts that are executed automatically by a system. With contracts of this type, many types of contractual clauses can be made partially or fully automated, self-fulfilling, or both. Smart contracts aspire to ensure greater security than existing contracts and to reduce costs of the transaction associated with bargaining. The Ethereum platform itself guarantees smart contracts, which is responsible for authorizing, validating and authenticating contracts.
NEO
NEO is the second most important blockchain platform after Ethereum; it is a Chinese developer project, launched shortly after Ethereum in February 2014, which aims to compete with the first platform. NEO’s ambitious goal is to help economic change through the development of the “Smart Economy”.
CHAPTER 5: INVESTMENTS IN CRYPTOCURRENCIES
TOP TEN CRYPTO STRATEGIES
This system starts from the assumption that in the Top 10 crypto market capitalization, there is always a “hard core” formed by bitcoin, Ethereum, Litecoin, Bitcoin Cash, Ripple and Dash, while the other positions are quite variable and are traded in turn by coins such as Monero, Iota, Cardano, Ethereum Classic, NEO and NEM.
For example, starting with a budget of $ 1,000, you have to buy $ 100 of each of the cryptocurrencies in the top ten. Be sure to check them monthly and cash out when you reach the established goals.
ACCUMULATION PLAN STRATEGY (CAP)
This system was originally applied by banks to investment funds, but it is perfectly replicable also in the world of cryptocurrencies. The basic assumptions of CAPs are the progressive accumulation of capital and the reduction in risk thanks to “dollar cost averaging”. Applying it to cryptocurrencies, for example, it is necessary to purchase three different tokens, two perhaps already established, such as bitcoin and Ethereum, and one “emerging”, as it can Stellar Lumen. You then decide which sums to invest and how often you have to check the portfolio to see the trend. Cryptocurrency investment strategy by value Among the medium / long-term strategies, the “by value” strategy also stands out, which partly resembles the previous one (CAP), but differs in terms of the choice of currencies to bet on. In this case, cryptocurrencies must be chosen based on their future potential, influenced by values such as; a solid project (see EOS, Verge, Tron), low prices, community of users andthe introduction of any new technologies. Research and analysis on these factors will help you in choosing the right coins for the strategy. Millesimal cryptocurrency strategy This is a crypto investment strategy that is based on the analysis of the performance of those tokens that started from a few cents and have made a bang, reaching prices of hundreds of dollars. We are talking about real “gold nuggets”, and your task is to find them among the Top 100. It is advised to select at least five, invest 100 euros in each and keep the investment. Crypto-trading strategy in the short term After analyzing strategies indicated for the medium-long term, let’s close this roundup with short-term crypto-trading. In this case, the goal is to speculate on the fluctuations that determine the price of an asset every day, or of a crypto in our case.
The strategy requires a lot of time and energy to follow the market, and is based on the simple concept of buying when the price goes down and selling when it goes up.
CHAPTER 6: WHAT ARE THE FIVE STEPS TO SUCCESSFULLY INVEST IN CRYPTOCURRENCIES?
Learn the basics Don’t invest in what you don’t know! First understand the functioning of the blockchain, the terminology, the technical aspects and the dynamics that are involved in this world. Don’t be rushed, in-depth knowledge of a topic requires a long period of study. Get experience Crypto markets are quite young and subject to extreme volatility compared to traditional ones. Trading is not improvised and requires experience; you should always only risk an amount that you can afford to lose. Follow the developments in the world of cryptocurrencies on a daily basis. The world of Blockchain is running faster than any other traditional sector, so keep up to date with its developments through news sites, social media and by participating in discussion groups on Telegram and other platforms. DYOR-Do Your Own Research
Ensure that you do your research before investing in a project! Check all of the details of the cryptocurrency that you want to invest in, and ask yourself: What is its capitalization? What are the market volumes and what is the price history? Are the people on the team real and verifiable? Is the business registered according to law? Is the project popular enough? Does the whitepaper I am consulting reflect a specific mission, or do the objectives of the project seem unrealistic? Is the team available to answer my questions and is the community following the project active? Is the exchange I am using to trade safe and registered according to the law? And when all this is not enough … Use your intuition It’s okay to be skeptical. If a project doesn’t fully convince you, it may not be worth the investment. If you find that something is wrong or you are not confident enough, perhaps it is time to stop or exit the investment. Immobility is the enemy of a world in constant evolution, so try to inform yourself as much as possible and move in the market according to the knowledge you have acquired and your intuition. Happy trading!”
CONCLUSION
Before investing your money, take the time to learn more about this relatively new and complicated technology, cryptocurrencies. Countries, including the U. S., are considering regulating cryptocurrencies, so it is unknown what impact this will have on the price.
Investing in cryptocurrencies is a high-risk investment.
As an alternative, investing in the stock markets, U. S. and Global have been excellent tools for building sustainable wealth.
For those interested in buying “Styroncoin,” let me know. Happy to accept your $$$$$$
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ABOUT ME
I am a proud nerd (as my beautiful wife and daughter have told me) investment and finance blogger with an NC. State, Chemical Engineering, University Rutgers, MBA and Harvard University, Advanced Management education.
I left a corporate career because I desired to make a difference as a speaker and writer. I was blessed to be coached and mentored by strong women and men in my family and professional life. It is my time to serve and give back.
DISCLAIMER
I started my first business at ~13 years of age (a small but brilliantly created plant nursery). I am a successful investor in stocks, options, real estate, and happy to share my finance and investment lessons. I am NOT a licensed financial advisor. Please do not construe my suggestions on this blog as recommendations for your situation.As an investor, you must establish your risk/loss tolerance. Investment in any asset involves risk, including complete loss.
Please seek your licensed CPA or fiduciary financial advisors for individual financial advice.
I write this weekly blog to make an impact by reaching an audience and demonstrating the need for financial literacy. I will help you get there.
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