Understanding Cryptocurrency (BTM’s layman view)
After dabbling in the world of cryptocurrency for over a year, I know some basic stuff. For the bulk of it, it is still an overwhelming beast as it is filled with a lot of technicalities, terms and jargons.
Some commonly seen terms are like CEFI, DEFI, DApps, blockchain, fork, gas, hash, hot/cold wallet, ICE, IEO, NFT, ERC20, BEP20, Node, Smart Contract (is there stupid contract?), and the list goes on….
Unless you’re into the whole blockchain and crypto space, most of these are like algebra to kindergarten kids.
But I get it…
You don’t want to miss out on the hype…
Just like me.
For those Crypto die hard fans, this article is not for you and may not even represent a fraction of what cryptocurrencies actually are. It’s for those who just can’t/won’t understand the crypto language.
Of course, if you’d like to learn and immerse yourself in the world of crypto knowledge, there are a lot of resources in the web that can help you out. My go-to knowledge portals are Binance Academy and Youtube.
Part 1: The Market
Since time immemorial, humans have been going to market(place) to trade one thing for another. This is where you buy goods in exchange for your goods (barter system) or money (fiat/money system).
Similarly for the Crypto space, we have a marketplace where all exchanges and trading of cryptocurrencies happen.
- If you are new to cryptocurrencies, here is where you can take your fiat money (MYR, USD, etc) and exchange for the cryptocurrencies of your choice
- For those who already own cryptocurrencies, here is where you can trade what you hold for other cryptocurrencies or even back to fiat money
They call this market… The Exchange. In Malaysia, the Securities Commission calls it Digital Asset Exchange (DAX). SC publishes on its website a list of DAX that is registered with them (Click Here).
Also akin to a market, where you find some goods in one market but not in another market, different DAX may carry different list of cryptocurrencies on their platform.
Unfortunately due to the control asserted by the SC, the Malaysian registered DAX can only have limited cryptocurrencies for Malaysians. 5 as of writing – BTC, ETH, LTC, XRP, BCH.
On the other hand, one of the largest exchanges – Binance, has more than 500 cryptocurrencies trading on their platform.
*Please take note that Binance have been banned in Malaysia (news here)
Part 2.1: What is Cryptocurrency
Cryptocurrencies are essentially digital money, but digital money is still money. And there’s good money and bad money.
To draw reference from the real world, we take a look at 2 currencies – Malaysian Ringgit (MYR) and Singaporean Dollar (SGD).
Over the last 10 years, we could see how our MYR has depreciated against SGD, for reasons we all know in our hearts of hearts.
Or in another example, Greece’s money used to be Drachma (since ancient times in the 1800s) until it was replaced by the Euro as their official currency in 2001 just because it was phased out by the passing of time.
With cryptocurrencies as digital money, one person can make payments or exchange items of value with cryptocurrencies. Check out this Malaysian news that happened back in 2018 of a land deal sealed using Bitcoin!
It is common that one cryptocurrency may fetch a higher value compared to another cryptocurrency. Just like how foreign exchanges work in the real world.
However, I’m guessing that most people involved in cryptocurrencies are actually trading them like the stock market. As an investment asset.
Part 2.2: The Cryptocurrencies
There are so many cryptocurrencies out there so how do we know what is what?
It’ll be endless if I were to go into each cryptocurrency (>4k cryptocurrencies in the market). Instead, I’d like to group them under 4 simple buckets that are easy to relate to.
One thing in common with all these buckets (Except Bucket 2) is that demand and supply drives the value of the cryptocurrencies.
1) King of Cryptocurrencies
Everyone knows it. It’s also the largest in market capitalisation (aka value) in the crypto space.
Yes, I’m talking about Bitcoin (BTC).
Many people who aren’t familiar with crypto equates cryptocurrency to bitcoin. That is the kind of fame it garners.
In essence, BTC is very similar to Gold. People buy into BTC for the same reasons that people buy into Gold.
Is there any use? No (other than used as payment now)
Is there value? Yes (As of writing 1 BTC is priced over $49k)
That’s why it is called the digital gold. It’s like the futuristic version of gold. Shiny stuff.
2) Digitalised Money
Yeah, this seems like a play of word, but I’m referring to what the community calls “Stablecoins”.
These are basically cryptocurrencies that hold the same value (or close to it) as real world currencies (mainly the US Dollar).
Its value does not fluctuate based on demand/supply of the cryptocurrency but is pegged to the USD.
Remember those times when you visited arcade machine stores where you had to change real money into fake coins but bearing the same value so that you can play them arcade machines?
Yes, that’s how this works. You convert your actual USD (or whatever currency) into Stablecoins on the digital market so that you can buy cryptocurrencies in those markets.
The only difference is that there is a whole bunch of Stablecoins – USDT, USDC, BUSD, DAI, TUSD, HUSD, PAX, and on and on… No digital MYR. Maybe after a century.
3) Useful Cryptocurrencies
Due to the complexity of the blockchain & crypto world, there are a bunch of cryptocurrencies that has some form of use and purpose.
Let’s take Ethereum (ETH) as an example. Whilst it is the 2nd largest cryptocurrency in value ($380b), it holds a lot of features that is valuable to developers including allowing users to send cryptocurrencies, powering applications, creation of non-fungible tokens (NFT)*.
Basically very useful for those who are in the know and mean absolutely nothing for the rest of us other than it being a good investment (maybe…).
My point is… these are like growth stocks in the stock market. We are investing in the potential and if it grows in usage then the value will increase. Hence, investing into them is like investing into a potential company with growth prospects. Whether it becomes a reality or not… only time will tell (and the price of the cryptocurrency, of course).
*NFTs are like art pieces in the crypto world. It holds value to those who appreciate them and those don’t appreciate can never understand how a jpeg can be worth so much.
4) Shitcoins
Whilst there are useful cryptocurrencies, there are also those that are created for fun or to prey on those newbies in cryptocurrencies.
One that got a lot of attention not too long ago – Dogecoin.
And I’d like to take a snippet from Coindesk.com:
Can you make money if you were to invest? Sure. A lot of people did when it shot sky high with Elon Musk’s multiple tweets on Dogecoin.
So buy these cryptocurrencies at your own risk.
As with all things when it come to investment… Do your own research (DYOR)!
Part 3: Earning Interest
This last part is one of the most interesting features of cryptocurrencies, but sadly at this juncture is not applicable to Malaysian DAXs.
There is a function called “Staking” and it functions like a savings account & fixed deposit in traditional banking sense.
In the crypto world, we could lock up our cryptocurrencies for a period of 7 / 14 / 30 or more days to earn rewards. The rewards will only be paid out at the end of the lock up period. This is known as “Locked/Fixed Staking”. This is like Fixed Deposit in the real world with much shorter lock in period (at most times).
We could also opt to put in a “savings” account to earn rewards daily but with rates that are lower than Locked Staking. This is known as “Flexible Staking”. In the real world it’s called “High Interest Savings Accounts” or HISA.
The biggest different with banks is the % that we can earn from this. We could easily earn anywhere from 4% – 8% interest per annum with cryptocurrencies’ staking and this can go as high as 50% too.
I recently have also come across a new crypto interest earning platform – Celsius Network. Deposit your cryptocurrencies there and get paid in interest every Monday.
- Stablecoins earn 8% – 11%
- BTC earns 6.2%
- ETH earns 5.35%
It is pretty amazing and you must consider it you intend to hold your cryptocurrencies for the long term. Remember to use my Celsius promo code: 115594dd3c or sign up with this link here to get some goodies! The link must be accessed via your mobile only.
The thing is… the returns far exceed what banks gives us. These crypto reward returns are guaranteed.
The down side? Your capital is not protected by PIDM like in banks and you are responsible for your own crypto.
Closing Thoughts
Cryptocurrency is a big world with many things to learn and pick up.
In most cases, there isn’t a reason for you to dive deep into the crypto world unless you are involved in it yourself.
Hopefully this gives a basic understand to you of what crypto is and what it can offer.
If you want to kick start your crypto journey, feel free to hop over to my referral / promo code page and use one of those codes for the DAX / exchanges (Luno, Binance, Huobi) that you prefer and also Celsius for interest-earning!
Remember to DYOR and HODL to the moon!
*HODL = Hold On for Dear Life or just a play of word on hold your assets!
