Cryptocurrencies: what are they and how to be safe when investing?
In this article, understand what cryptocurrencies are, what are the main options on the market, how to trade securely and what are the most reliable platforms for you, who are starting in this market and for those who are already inserted in this ecosyste
What is a cryptocurrency?
“Cryptocurrency” is a digital and encrypted currency that is unique, non-dividable and transferable.
In other words, it is a means of transferring value over the internet, unlike paper banknotes and coins, which exist in the “physical world”.
The differential of cryptocurrencies is precisely the security provided by cryptography, which generates confidence for those who are using this technology and do not want to run the risk of having their data exposed on the internet.
Each transaction has an electronic signature that identifies who sent, to whom and how much is being sent anonymously.
Persons involved in a transaction do not use their own name, email and password. Instead, they create an address, which consists of a series of random letters and numbers that identify the sender and recipient of the transaction.
For ease of transfer, many of these bitcoin addresses have a QR code that can be scanned. So you need to have funds in your wallet before you send them to anyone.
These transactions are recorded on a blockchain, a digital system that does not allow the data stored there to be altered or deleted, ensuring security, transparency and immutability.
The blockchain shows all transaction data: sender, recipient, transfer amount, balance (of wallets) and date and time.
These transactions are recorded on a blockchain, a digital system that does not allow the data stored there to be altered or deleted, ensuring security, transparency and immutability.
The blockchain shows all transaction data: sender, recipient, transfer amount, balance (of wallets) and date and time.
What is the history of cryptocurrencies?
In 2008, the concept of bitcoin (BTC) emerged when someone named Satoshi Nakamoto posted an article called “Bitcoin: A ‘Peer-to-Peer’ Electronic Money System” on a mailing list for those interested in cryptography.
Although widely debated, few believed that this system would have any kind of success.
On January 3, 2009, Nakamoto brought the Bitcoin network to light by mining the first block of the record.
Cryptocurrency mining is the process of solving a mathematical puzzle to earn a reward (in this case, in bitcoins) by ensuring network security and transmitting the transaction block to the blockchain.
In the first block, known as Genesis Block, Nakamoto added the following sentence: “The Times, 03/Jan/2009: Chancellor on the brink of the second financial recovery of the banks”.
This is a possible allusion to the problems faced by the global economic crisis at the time:
Thus, bitcoin was created to go against the traditional market, in the sense that the individual can be their own bank instead of entrusting their funds to a financial institution, which charges very high rates or prevents financial inclusion in certain regions.
The crypto sector defends the idea of “decentralization” because, by becoming your own bank, you do not use the services of large institutions (“centralization”).
The idea also meets governments that are, at all times, applying monetary policies, such as the unrestrained printing of money, generating inflation and increasing the price of goods and services to their population.
The Bitcoin protocol is revolutionary in that its original programming code is available to anyone who wants to view it or even develop their own project from the code base.
A curiosity for beginners in this market: the identity of Satoshi Nakamoto was never discovered and it is a big enigma to this day.
Bitcoin was the first cryptocurrency in the world to gain widespread acceptance even 12 years after its creation. It has always been the target of doubts, criticisms and curiosities, but it opened up for other network and asset projects to emerge next.
What are the main cryptocurrencies on the market?
There are more than 8,800 cryptoactives on the market. The challenge is to find out which ones are legitimate and provide attractiveness to your investors (Image: Unsplash/executum)
Bitcoin is the largest cryptocurrency in the world; its market share is 51% in relation to the rest of cryptoactives.
Market share of the main cryptoactives (Image: CoinMarketCap)
Market share of the main cryptoactives (Image: CoinMarketCap)
However, bitcoin is not the only asset on the market because, according to the CoinMarketCap website, there are more than 9,000 assets created.
Here, we will talk about the ten assets with the largest market capitalization (“market cap”), that is, their total outstanding value.
Here, we will talk about the ten assets with the largest market capitalization (“market cap”), that is, their total outstanding value.
1) Bitcoin (BTC)
Because bitcoin (BTC) has been pre-programmed — all of its aspects have already been defined and cannot be changed — there can only be 21 million coins.
Currently, 18.6 million BTC have been issued and their market capitalization is US$1 trillion.
BTC is the largest cryptocurrency on the market, but it “scares” some investors because of its relatively high price (currently above US$55,000), but what many don't know is that it is possible to buy fractions of the currency, ie 0.00032 BTC = BRL 100.
Ether is the native cryptocurrency of the Ethereum ecosystem (Image: Unsplash/executum)
Ether (ETH) is the second largest asset in the crypto market. Launched in 2015, Ethereum was developed by Vitalik Buterin, Anthony Di Iorio, Charles Hoskinson, Mihai Alisie, Amir Chetrit, Joseph Lubin, Gavin Wood and Jeffrey Wilcke.
The idea was to create a supercomputer: a development platform so that anyone could create their own projects related to financial technologies.
Ether is the native token of the Ethereum network, used as payment for processing fees in this system (so-called “gas fees”). Many claim that ether cannot be used as money precisely because of its great usability in their own network.
BNB is the native token of the Binance ecosystem, which also wants to support blockchain authoring, as does Ethereum with its Binance Smart Chain (BSC).
BNB gives access to several features in the Binance brokerage, such as discounts on transaction fees on the network for those who own the asset, in an attempt to encourage the use of the network.
In February, it became the third largest asset by market capitalization, previously ranked tenth.
Tether is the largest stablecoin on the market, followed by U.S. Dollar Coin (USDC) and DAI (Image: Twitter/Tether)
Tether is a stable value cryptocurrency (or “stablecoin”), paired with the US dollar, where $1 = 1 USDT.
As it is issued by a large company (Tether), USDT raises suspicions among some investors because, on several occasions, it has failed to verify its dollar reserves — something essential to guarantee the transparency of its parity.
In February, the USDT's market capitalization exceeded $30 billion and currently there are $38.5 billion of coins in circulation.
Ripple is a privately held company responsible for the creation, development and application of assets and services such as XRP and RippleNet.
XRP is the native cryptoactive of the XRP Ledger. In the crypto market, they call it a “ripple” on account of its association with its parent company.
Currently, Ripple Labs Inc. is fighting several lawsuits alleging that the sale of the XRP token was promoted as a security.
Cardano is an autonomous contract platform (or “smart contracts”) focused on joint evaluation and scientific study, promoting itself as a “third generation blockchain” (Image: Crypto Times)
Founded by Charles Hoskinson — who helped develop Ethereum — and Jeremy Wood in 2017, the Cardano (ADA) network also aims to foster the creation of new projects.
However, unlike Ethereum, Cardano implements the “staking” tool, which values the participation of users in the security of the protocol instead of opting for cryptocurrency mining.
The development roadmap for the Cardano network includes five distinct phases: Byron, Shelley, Goguen, Basho and Voltaire.
It also has three eras: testing network, leverage and rewards. Although still in the second age, development takes place simultaneously in all five phases.
Dogecoin (DOGE) has an available supply of 126.6 billion coins among the largest outstanding supply of all cryptocurrencies.
Based on luckycoin (LKY) and litecoin (LTC) coins, which use Scrypt function in proof-of-work (PoW), DOGE has a fixed block reward of 10,000 DOGE and block interval of one minute, with no limit on the total number of coins created.
The coin was created as an experiment and an accidental joke, but it has stood the test of time because of its enduring position as a mascot of the crypto community.
Another potential competitor to Ethereum is the Polkadot network, created by Gavin Wood — another Ethereum co-founder — which makes it easier to communicate and function by connecting multiple blockchains into a single network.
DOT is the native token of the Polkadot network and has numerous functions. For governance — where the development team delegates decisions to their community — DOT holders control the direction of the network.
Governance functions include network rate determination, auction dynamics, and scheduling for adding parallel blockchains.
9) Uniswap (UNI)
Uniswap is one of the main protocols in the crypto sector, promoting the trading of thousands of assets (Image: Twitter/Uniswap)
Uniswap is a decentralized brokerage (DEX) protocol founded by Hayden Adams in 2018. Its DEX allows the trading of transferable tokens on a non-custodial basis — the user remains responsible for their funds — through a portfolio of software or hardware.
Uniswap released UNI, its governance token, through an airdrop in September 2020.
Governance tokens give holders the power to influence decisions regarding the protocol, product or development roadmap, as well as hiring and changing governance parameters.
Litecoin is a fork (“fork”) of bitcoin created by Charlie Lee in 2011. The network has an interval between blocks of two minutes and 30 seconds, different from the ten minutes in the Bitcoin network.
Forks are a protocol update that requires users to upgrade to the latest version of the platform so that old blocks and transactions are not invalid and have access to new features and services.
Thus, litecoin presents itself as a lighter and faster version of bitcoin, but it did not get as much adherence as the original protocol.
When investing in cryptocurrencies, it is important to remember that large cap assets are not necessarily the best. Always research projects before investing.
Understand who is involved in the project, what the goals of the developer team are, if there is a use for the asset and the platform, and if there are people talking about this asset constantly.
It is important that a crypto project has a large community and an active team who want to evolve as more and more people believe in their technology.
The second step is to decide where to store your cryptocurrencies.
There are those who prefer to buy and leave assets at the broker, but it is important to distribute them among different devices and platforms so as not to lose all your funds if something serious happens, such as hacks or scams.
Hardware wallets are similar to pen drives, where you can store and secure thousands of assets (Image: Ledger)
There are two types of crypto wallets: “hot wallets” (or “hot wallets”) are internet-connected, meaning they are a type of getting faster access to your funds, but they can be an attack vector for hackers.
“Cold wallets” (or “cold wallets”) are offline, meaning it is impossible to steal funds over the internet.
They come in many shapes, such as hardware wallets, which look like pen drives, or paper wallets, which are similar to receipts.
The suggestion is to invest about 5% of your net worth in cryptocurrencies, not all the money in your reserve.
Among these 5%, choose different percentages for different assets (it's common to invest the highest percentage in bitcoin) and balance your portfolio so that if a currency fluctuates a lot, you don't lose the rest of your investment.
Remember: cryptocurrencies were created to give the individual more autonomy. Do not give your private keys or passwords to anyone else, otherwise you could lose your funds and not be able to recover them.
Which cryptocurrency brokers are trusted?
Choosing the most suitable cryptocurrency broker for you requires some care and attention (Image: Freepik/stories)
There are many use cases for cryptocurrencies: you can use them as a store of value (buying and storing for future use, as a long-term investment) or a payment system (sending and receiving funds).
The best way to keep your cryptocurrencies safe is to choose which type of wallet is best for you. Next, research which brokers have options for you to trade cryptocurrencies securely.
For those new to this industry, a crypto broker is basically a digital marketplace where users buy and sell different cryptoactives.
A crypto broker is a platform where consumers can trade cryptoassets for other assets, such as fiduciaries (national currencies) or other cryptocurrencies.
For Brazilian citizens, the options are: Ripio, Mercado Bitcoin, Foxbit, BitPreço and BitcoinTrade (newly purchased by Ripio).
International platforms include Binance, FTX, Kraken, Bittrex, HitBTC, ItBit, Bitfinex, BitMEX… Here, care will depend on the platform's support in accepting trades from Brazil.
It all depends on your objective: if you are simply going to buy cryptocurrencies, you can see which brokers allow deposits, bank transfers, PIX, bank slips, credit cards etc.
Now, if you are going to invest, you can look for platforms that provide attractive options (such as those that allow loans in exchange for interest rates for yield) or brokers that provide derivatives, ie other investment vehicles related to crypto.
Another factor to consider is asset availability. Not all brokers trade all cryptoactives. Always do research before starting to trade.
Cryptocurrencies generate distrust in many people as they are not yet regulated in several countries, but they can provide some autonomy to people who do not have access to banking services or suffer from high fees charged by banks.