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Dealing with Cryptocurrency has its interesting dynamics. There are, however, many hidden facets making it still a mystery to the masses. Not knowing about it makes you prone to, get rich-schemes or outright scams.
We are all by now aware of the mania caused by the soaring prices and then, the subsequent decline that followed early this year.
What we don’t pay attention to, however, is just how complex it is to physically “acquire” and store these Cryptocurrencies.
Mining coins can be described very basically as the process where users “or miners” become part of a Cryptocurrency network. This by making hardware (processors & graphics cards) available to support that specific network’s operations.
As a miner, you contribute towards the working of the Blockchain. The technology requires millions of calculations to validate transactions into what are known as public ledgers.
Click here for more about how the Blockchain works.
There are three main ways to mine these coins but we will not be highlighting them in this post. The matter to be covered here, however, is the business aspect: how the Blockchain has created a new line of commercial entities and ‘profit-takers’.
These modern tech “enterprises” offer you a specific or cluster of altcoins and tokens as a reward for helping them maintain their Blockchain.
Sounds like a win-win situation right? Or is it?
If you have actually looked into the methods of mining, you will discover that only those with high-end hardware are able to produce enough energy to power the Blockchain. This is called “hash power” or “hash rate”. This is kind of like horsepower for cars, but for PC processing.
There are sites that illustrate how to calculate potential profits such as one conveniently called ‘what to mine’.
The opportunity cost of operating the customized computer systems (known as Mining Rigs), will have to be offset with the cost of acquiring hardware such as the Antminer S9i. Then there are energy costs associated with running the rigs for long periods of time.
Your profit would, therefore, be the balance of the costs versus the revenue involved in mining coins.
The mining profit = revenue (quantity multiplied by the price of the coin in local fiat currency). Then subtract the cost of the mining devices + annual electricity costs (measured in local currency per KWh).
The problem with going at it alone is that it is very hard to break even. You are also faced with a conundrum: the more powerful your hardware is, the more electricity it consumes.
It also takes a lot longer to acquire the coins which you are awarded by the respective blockchain network after successful hashing is completed.
To make it worth your while you would hope that the coin you mine’s market value exceeds the costs of the monthly/annual electricity bill.
There a now hundreds of these so-called Crypto/Tech companies spurting up by the day. Their modus operandi: to relieve you of the burden of the high electricity and hardware costs. This in exchange a monthly or once-off fee.
In return, they promise to mine coins and provide you with daily or monthly profits. They can do this because they presumably have more powerful mining setups and therefore, larger economies of scale.
Some of these establishments use big rooms, whole buildings or even warehouses to run thousands of mining rigs throughout the year.
The payments you make supposedly help them with maintenance costs and pay for the said electricity bills. They are also usually stationed in countries where the cost of electricity is very low.
You are likely to, however, run the risk of dealing with the occasional Ponzi-scheme – setup. Such companies dive at the opportunity to swindle those not familiar with Blockchain and Cryptocurrencies.
By dazzling you with the price increases and potential astronomical returns, they take your money and make a run for it!
You can also ponder, it is incredibly difficult and expensive to mine Bitcoin these days. If these setups are actually just people who have already made their millions from acquiring Cryptocurrency.
The acquisition naturally, would have been when they were dirt cheap, and are now offering the residue to make more profit off unknowing investors.
How it would work is: let’s say you owned 100 Bitcoins mined in 2010 for the opportunity cost of $100 each (cost of electricity). You then sold half at the height of the Crypto ‘bull-run’ in January 2018 when they were worth $19 000 each. You would have been $945 000 richer.
So, with almost a million bucks in the kitty and another 50 units of coins (which would be now worth a lot less); the natural inclination would be to look at ways to make the extra coins ‘work for you’.
And what better way than to be your own boss and head a Crypto company! You can with your new setup, sell off the residue of Crypto coins in bits for profits in cash.
This is likely what some of these companies offering you coins for an opportunity to get Bitcoins. This under the false pretence of partaking in a ‘mining operation’. Meanwhile, in reality, the actual mining probably took place almost a decade ago!
Read more via BTC running low on battery?
You can still tap into the pool of 17-odd million Bitcoins that is now in circulation. You can even purchase them in the fiat currency equivalents.
But where do you get them then? After all, Cryptocurrency is this dark and mysterious transaction system used only by criminals and drug addicts.
So you acquiring them would naturally be in a shady place like the dark web – where it is used to acquire illicit things – right?
Not quite and there are publicly accessible marketplaces where one can securely purchase Bitcoins.
Find out more via A peer-to-peer Crypto marketplace
With all the negative and positive commotion surrounding the Crypto market – it still begs the question, for those still curious. What does it take to engage in the trading of Cryptocurrency?
And by trading, we are not referring to the price speculation in a portfolio as one would with the price of a company’s shares or even CFDs.
We are rather referring to trading it as a commodity against other ‘Cryptos’ in a properly regulated online market setting. Similar to how a Foreign Exchange (Forex) market operates.
As with trading traditional fiat currencies, the price is purely determined by good old supply and demand for the currency and monitored by the availability versus volume traded.
It is therefore just a medium between traders where they can set limit orders to buy/sell Bitcoins for a certain price.
So, in the true approach of Debunqed, we will decipher crypto-exchange trading by looking at what you need to do to get into it, and what you stand to gain.
The first step would be to open a secure Crypto wallet to physically purchase (own) some altcoins. Bitcoin, Ethereum, and Litecoin are the main coins offered by Crypto wallet providers.
They hold the most value and can thus be broken down into smaller denominations (Altcoins). The same way the dollar is used as the main exchange for other fiat currencies. This example helps to put things into perspective.
Make sure you do your research into which wallet you will use. Obviously, if you are mining a certain Cryptocurrency you would naturally purchase them directly from that software provider of the Altcoin.
Using Ripple mining as an example, the platform is supplied by RippleNet and naturally, it follows that the Ripple company mines all the volume and controls its supply.
Getting the digital currency into a wallet can be a quick exercise.
It can take as quickly as between 5 – 20 minutes via a peer-to-peer Bitcoin marketplace connecting buyers with sellers like at Paxful.
Make sure you deal with reputable sellers. This wallet provider rates suppliers based on how reliable they are so only deal with sellers of the highest ratings.
The actual purchase (mostly conducted via online chat) can be made via a Credit/Debit Card, online banking or convenient money transfer facilities like (Europe-based) N26 Bank, Skrill or PayPal.
You can even purchase and send gift cards from Amazon for instance, to the seller (to the value of the currency being purchased) for the seller to release the Altcoins.
The actual coins are stored as an alpha-numeric key code – with the currency value in the wallet once acquired.
This after the wallet-broker takes a small fee for the transaction. This code/key needs to be kept secure – backed up online and offline (highly recommended). This is possible on special flash-drive (Crypto wallet) like the Trezor or a Ledger Nano. The device would hold the deposit key if you were transferring it to another wallet or to an exchange to trade.
The next step would be then to source a robust and user-friendly platform to trade your newly acquired currency on.
The best cryptocurrency exchanges would allow you to swap fiat currency such as dollar/euro for the digital currency directly. Naturally, you can trade one digital currency for another as well.
There are quite a few to choose from so it is good to read the reviews. You should then select one based on the number of deposit/withdrawal methods, the fee structure level, number of countries served, availability of security tools and features.
The last aspect is a huge determining factor: exchanges can be prone to hacking, or loss from outages. Lastly, their margins and exchange trading functions are good to observe too.
For serious and equally secure trading, you will likely need to use an exchange like Binance that requires the user to verify their ID before being opening an account. Make sure you have all your documents ready and up to date!
When it comes to the actual trading, let’s take a scenario where two people want to sell an altcoin but not for the market price. One sets a limit order for lower and the other for a slightly higher price. So, the best price to purchase Bitcoins, in this case, would be the median of the two prices.
If the buyer wants to purchase more than one altcoin, they will continually take the lowest price available. By doing this, the “price” of the altcoin will increase as the lower-price sell orders are no longer available.
You will then, as with Forex, purchase pairs of where you think your digital currency will be stronger against another e.g. BTC (Bitcoin) vs XRP (Ripple).
This combo would look like this on the exchange: BTC/ XRP – 0.00011960. What this means is that one Ripple coin is worth that much Bitcoin for instance.
This type of trading, like commodities or forex, requires constant attention and the monitoring of prices. But there are tools that can also help you set prices and have the trades auto-execute.
So, a platform which provides such tools conveniently allows you the time to do other important things. Like paying attention to your spouse, formal job or family and friends. That would be ideal.
If you have the cash, time, expertise and financial clout, it is even possible to run your own Crypto Exchange!
This is another benefit of a decentralized currency system that will allow you to earn some cash by charging for the usage of your robust platform.
Well, this may be until the fiscal authorities’ crackdown on all of the platforms with restrictive legislation.
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