The world of Cryptocurrency is a wild one: an ever-changing landscape where the most brilliant minds and boldest degens alike persist on the perilous path through blockchains’ most treacherous tundras in hopes of reaching the oasis (see The Moon).
It’s no surprise that Cryptocurrencies can be intimidating for the novice adventurer.
Where do you even start? And what on Earth is a blockchain?
Don’t worry folks, the NetFlow Fam got you covered. We give you Cryptocurrency for Dummies: Surviving and thriving in the on-chain jungle.
Before we get into it, let’s take a step back and look at how it all started. In the late 90s, a group of anonymous netizens began a chain of discussions on various online forums. The topic? The dangers of the increasing centralized state control of services and individual information. Rooted in Libertarian ideals, this group sought to find a way to safeguard individual privacy in the ever-expanding age of information.
After a long thread of discussions, these brilliant anonymous minds came to a consensus that cryptography was the best protection against the machine. This group would later be known as the Cypherpunks: the originators of blockchain technology. Now you may be thinking that this is where Bitcoin enters the scene. Not exactly. Bitcoin was not the first Cryptocurrency.
Around this time, American Cypherpunk David Chaum made a breakthrough in the form of blind signatures: users could sign off on transactions without revealing their identities. As the existing financial system was a threat to private security, David would soon utilize this technology to create DigiCash: a peer-to-peer anonymous transaction network.
But DigiCash fell victim to what it was created to protect against. As the entire network and its transactions were hosted and validated by David’s company, if his company went down, so would the network. At the end of the day, DigiCash was another centralized entity. But his efforts would not go unnoticed. Shortly after, a wave of eager Cypherpunks sought to improve upon David’s idea.
This spawned the likes of Hashcash which introduced the concept of proof of work, and later B-Money which merged the concepts of DigiCash and Hashcash while implementing a distributed ledger system. While B-Money never made it past the conceptual stage, its genius was fully appreciated by the community, particularly by a pseudonymous netizen, Satoshi Nakamoto.
Ten years after the conception of B-Money, Satoshi created Bitcoin: the ultimate hedge against the financial system. Bitcoin was created as a decentralized blockchain-based peer-to-peer transaction network that protected the identities and security of its users. This became the foundation of what is known today as Web 3: a decentralized, transparent, and all-inclusive ecosystem, home to thousands of protocols coexisting on the blockchain. The birth of Cryptocurrency.
To get your hands on some of these magic internet coins, first, you’ll need to set up an account on a platform with a fiat on and off-ramp. This will be your gateway into the world of Cryptocurrency as you must first acquire Crypto using your native currency (usually always directly from your bank account). Coinbase, Uphold, and Binance are excellent platforms for beginners because they host a variety of Cryptocurrencies from diverse market segments, have a (relatively) friendly UI, and allow you to purchase crypto directly with fiat as well as sell Crypto for fiat.
Now that you have your on and off-ramps established, it’s important that you consider setting up a wallet. For beginners, this isn’t completely necessary as you can leave your coins on an exchange’s wallet however this isn’t recommended for the long term. In reference to the golden rule, “Not your keys, not your crypto”, leaving your coins on exchange wallets is technically trusting your coins in the hands of another centralized party (because they own the private keys to the exchange wallet). So if anything were to happen to that exchange, your crypto would go down with it. Therefore, for long-term holding, we recommend a cold storage wallet or a desktop wallet and storing the private keys offline.
When choosing the right crypto to invest in it’s important to first consider if it’s the right time. Cryptos are bound to price fluctuations which often reveal patterns over time. These can be viewed as market cycles, which have trends of up and down: Bull and Bear. When looking to buy, it would be advantageous to invest during The Bear (when the market is macro trending down) and near its bottom.
But the true bottom is difficult to predict, therefore it’s recommended to dollar cost average into an investment position in the form of daily/weekly/monthly consistent contributions. Curiously, this almost always performs better than a consolidated single buy. Perhaps it’s because the dollar cost average places multiple same-size buys over a consistent period thus effectively buying more cheaper coins and buying less expensive ones, resulting in an optimized buy-in price for your selected range.
After you have determined the when and how you can begin building your portfolio. CoinGecko and CoinMarketCap are two excellent analytics platforms that can assist you in your research.
A good start would be to differentiate coins by their market caps rankings for your analysis. This will help you determine your risk tolerance when crafting your portfolio.
While market cap differentiation is relatively subjective, a good measure could be Bitcoin (the market driver), Ethereum (second-largest market cap), Large Caps (Solana, Terra, XRP, etc.), Mid Caps (anything between rank 50–150), Small Caps (anything between rank 150–???), and Micro Caps (anything with a market cap below $100 million).
A conservative portfolio could consist of mainly Bitcoin, ETH, and Large Caps, a balanced portfolio could consist of an even spread of safe assets (Bitcoin, ETH, Large Caps) as well as risker ones (Mid Caps, Small Caps), and a growth portfolio could have a higher focus on riskier plays (Mid Caps, Small Caps, Micro Caps).
After you have determined your risk tolerance the last step is choosing your coins. You can start by researching the different market segments within crypto and using Twitter, Youtube, and Discord to discover market trends such as GameFi, Defi, etc. After you have identified a promising segment, take a look at the coins within that space, differentiate based on market cap, choose one, and research. Keep an eye out for solid teams, tokenomics, utility, adoption, and social presence.
If you end this process with conviction then you may have found a decent candidate, and if not, keep looking. The most important thing to realize is that while this market moves fast, trends within the market move even faster. You’re gonna miss a bunch of opportunities, but that’s the name of the game. Because “time in the markets is better than timing the markets,” and any exposure to Web 3 is better than none.