I love trends, and I love technology. There isn't a whole lot else that is constantly evolving year after year at such a rapid pace. One of the many technologies trending just as much in the news as it is during a typical dinner conversation, is that of cryptocurrencies. An easy definition of cryptocurrencies is that they're digital currencies that use an online ledger technology with strong cryptography to secure transactions. The money can be used to buy goods & services. Cryptos rely on blockchain, a digital, decentralised, widespread technology that manages and records transactions. The whole idea is to increase transparency and security across the network.
Like most hot topics that trend in the news, cryptocurrencies have also been subject to misinformation, misconceptions and scams over the past few years, with everyone trying to get on board the crypto train in the hopes of making a quick buck. Scammers capitalise on this by incentivising people with quick money-making schemes to get their information. Getting started with cryptocurrencies can be a fun, yet tricky affair. This is where getting a better insight from someone who has experience in the cryptocurrency space can be really helpful.
For this episode, I was joined by Michael Fioretti. Michael is a software engineer and blockchain enthusiast who has been in the cryptocurrency space since 2014. He runs a YouTube channel and a podcast titled 'CryptoRetti' where he shares his knowledge and talks about topics such as investments, securities, decentralisation and deep dives into blockchain and cryptocurrencies.
How do Cryptocurrencies work?
Cryptocurrencies have been around for a while, but it wasn't until 2014/15 that they really began to blow up online. Everyone was either interested in knowing, buying or even trading crypto. One of my objectives through this episode was to dispel some of the myths surrounding this technology, not just for myself but for anyone out there looking to get started with cryptocurrencies. Before getting started with doing anything with cryptocurrencies, it's important to understand what they actually are and how they work. Let's dive in.
A cryptocurrency is essentially just a digital asset on top of a blockchain. To put it simply, it's pretty much a distributed database. So normally you would have a centralised server with a database. You log into something and it reads the database, checks your credentials and logs you in. If that server goes down, then you won't be able to access your account. A blockchain is a cluster of many different servers. Say there's a hundred servers all across the globe and they all replicate the exact same set of data. Even if 20 servers go down in the US, once they come back up they're re-synced to the latest version of the blockchain. It's more secure that way since the data is replicated all across the network. On top of a blockchain, you can have a native asset, which is the cryptocurrency or the digital token. That's what you use as a unit of account such as Bitcoin.
"Before buying crypto, I usually suggest asking oneself: 'why do I want to buy this token? Who are the founders? Do they have a social media account? Is there code open source? Like, there's so many questions that so much research that you can do. I can't stress it enough. At the end of the day, it's all speculation. People often go on YouTube and they type in a cheap crypto, see an influencer with a million subs and watch him. He says you should buy this coin because it's going up Like, we'll tell them, Hey, you should go buy this coin because it's going to skyrocket. The truth is that no one really truly knows what's going to happen. Even by doing a bunch of technical analysis and reading charts, there's no crystal ball so people putting money into one currency is like they're yolo-ing it as a bet."
Cryptocurrencies are highly volatile. We've all seen it. Elon Musk tweets about Bitcoin and the next day, Bitcoin prices skyrocket because of how many people rush to buy it. Not to say that Elon doesn't know what he's doing, but for the average consumer trying to dip their feet into crypto, a little bit of research can go a long way.
Taking the First Step
Investing in crypto requires having the right mentality, like putting your money in a wallet such as CoinsSpot or Coinbase, controlling it with private keys and holding on to it for a couple of years to see where it goes. Don't put in more than you're willing to lose, in the hopes of making 10 or 20 times the amount in return.
"Honestly, what I usually tell people to do if they just want to pick a crypto and start: learn how to buy cryptocurrency. Learn what a transaction is, how to store private keys, how to use their wallets. I would tell them to buy Bitcoin just because it is the original. Now, everything after that, it's up to you. But in terms of research, again, you could use websites like Coin Gecko that have a lot of information. The difference between a cryptocurrency and a token is that a cryptocurrency is the native asset of the blockchain that we talked about earlier. Taking Bitcoin for example, we have the Bitcoin network and the Bitcoin asset. With Ethereum, we have the Ethereum network and then Ether, the native asset. So starting with learning about these differences, how to store crypto properly, how to buy & sell, buy & hold, whatever you're looking to do."
Online forums like Reddit and Discord are useful for information on cryptocurrencies as well. You can find out about a crypto's founders, how old it is, whether their code is open sourced. Clubhouse is an app where you can visit different online rooms and listen to a speaker talk about a topic. Once you've done your own research, be careful not to put all your eggs in one basket.
Another way to trade smartly is to know when to stop and when to keep going. Say for example, you put in $500 into a coin, and decide that once it reaches 5 times its value, you'll stop. Doesn't matter if it's skyrocketing, doesn't matter if you think you can make more, you'll withdraw your amount once it hits $2,500. This approach ensures that you got in and made your money. Alternatively, you can put in the $500 and once it reaches $2,500, you can choose to withdraw $1,000 and keep the remaining amount in your wallet. That way, you got your initial investment back, along with a profit as well. Even if the amount tanks to zero, you're still better off than when you started. Approaching crypto trading like this can help you a great deal versus hoping to make more and more like gambling.
Buying crypto is just what it sounds like. You create an account on CoinSpot or Coinbase and have a wallet. You deposit funds into your account and choose which cryptocurrency to buy and how much. Depending on the price of the crypto, the value of your portfolio will appear on your dashboard. For a simplified example, if a cryptocurrency's buying price is $1 and the selling price is $0.8 for one crypto, you can evaluate how much you can expect to get if you buy and sell a bunch. In this case, spending $50 for this currency will give you $40 worth of it if you choose to sell. The caveat is to wait and hold onto your cryptocurrency until the selling price exceeds the buying price, so you can profit. That said, it's also important as mentioned earlier not to buy solely one cryptocurrency and diversify your wallet with multiple cryptocurrencies to lower your risk. Here's an example of how the buying and selling page may look like on CoinSpot:
As of this moment, one Bitcoin can be bought for AU$66,955.83 and sold for AU$66,466.93. Other metrics like Market Capitalisation, volume and the change in value over the past 24 hours is also visible. A useful chart to get started.
Crypto scams to watch out for
Where there's money involved, it's no surprise that scams and fraudulent activity are present as well. People who are new to cryptocurrencies can often fall victim to having their details lost or money stolen at the hands of scamsters who incentivise them to share information in the hopes of making a quick buck. In order to prevent falling victim to such incidents, be mindful of some of the following scams you may come across as you start with crypto:
1. The Easy Money
Earlier this year, an 18 year old teenager hacked Bill Gates and Joe Biden's Twitter account, and tweeted the following:
He was arrested and sentenced to 3 years in prison, but not before numerous people and celebrities fell for his act. More information on this can be found here. Transactions on blockchain are one way, meaning that once you make a transaction, it's forever been confirmed on the network. So if you come across someone sliding into your Instagram DMs, proposing an offer of making you rich if you send them x amount of Bitcoin, you're going to lose that forever....unless you request it back from them which is just as good as gone anyway. Anyone asks you to send Bitcoin or any other of your cryptocurrency, run in the opposite direction.
2. The Seed Phrase
A Seed Phrase, also known as a Mnemonic or Recovery Phrase is a list of words which store all the information needed to recover Bitcoin funds on chain. These words can be literally anything, from 'Apple', to 'Chair', 'Lamp', etc. and are an easy way to give you your private key. This is similar to a social security card, plus a passport plus a birth certificate. Wallet softwares will usually ask the user to write this down on a piece of paper. The reason the software doesn't keep it online for you is that if the database is hacked, the seed phrase codes could be compromised. Since it's a centralised network, the software wouldn't want to lose people's keys. If your computer breaks down, you can still download the wallet software again and use the paper backup to regain your funds back.
"It doesn't matter if your house burns down, there's water damage, you break up with your ex, whatever. If you lose that piece of paper with the seed phrase, you're screwed. You've got all this cryptocurrency on a wallet that you won't be able to access. There are people unfortunately who visit a website or give their seed phrase to someone without realising how easy it is to compromise from an engineering point of view.
With scams, it's useful to just think intuitively with common sense. Usually in bull markets when everything is up 20%, that's when the scammers come out because everyone's feeling good and their guard is down."
And then of course, we cannot forget all the influencers and pseudo-crypto experts who promise to help you make $30k in 30 seconds. Watch out for those, keep your guard up and there's nothing for you to worry about.
The realm of of crypto is now yours to explore.
I'd like to offer my sincere gratitude to today's guest: Michael Fioretti. Check out:
Michael's content here.