Cryptocurrency Quetions

Answers to the most popular crytpo questions

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What is cryptocurrency?

Cryptocurrency, or simply crypto, is a form of digital money that leverages blockchain technology to create a form of payment that does not rely on central financial intermediaries such as brokerages, exchanges, or banks to offer traditional financial instruments. This is called Decentralized Finance (Also known as DeFi). The most prominent cryptocurrencies are Bitcoin, Ethereum, and Cardano, among others. Blackchain networks leverage encryption techniques and therefore people adopted the word “cryptocurrency” for the digital currencies. The cryptocurrency market is still in its infancy and with only about a decade ago history is currently worth over $2 trillion in total market capitalization.

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What is the purpose of cryptocurrency?

Traditional financial system (also known as TradFi) relies on trusted third parties like banks or credit card companies for secure transactions, and therefore transactions in TradFi experience delays and incure charges for execution (e.g. bank wire transfers between two parties, or credit card transactions). DeFi on the other hand hold the promise of making it easier to transfer funds directly between two parties, without relying on third parties by secured the transactions through the use of blockchain technology. With DeFi, you can securely transfer funds across the world with lightspeed and at no cost. Many experts compare the impact of blockchain technology and the resulting cryptocurrencies to the introduction and adoption of internet in the 1980s. Blockchain has the potential for many types of transactions, not only financial transactions, such as online voting and crowdfunding, and major financial institutions such as JPMorgan Chase (JPM) see the potential to lower transaction costs by streamlining payment processing.

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Is cryptocurrency taxable?

Cryptocurrency is considered "property" for federal income tax purposes, meaning the IRS treats it as a capital asset. Just like other types of properties, you need to report your capital gain or loss to the IRS. What you need to know about cryptocurrency investment is that crypto exchange (meaning converting one crytpo to another) is considered sell/buy transaction by the IRS, and therefore you will be responsible for paying taxes on your cpital gain on the crypto you are converting from, even though you technically did not cash your crypto. We highly recommend you consult your tax advisor before making crypto investment to fully understand the tax laws for crypto currencies.

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Who controls cryptocurrency?

The decentralized nature of the blockchain technology allows cryptocurrencies to be decentralized. This means, instead of being governed by a government or organization (like a country's currency, or like central banks), cryptos are governed by the public through blockchain nodes. For example, for the Bitcoin network, the control of the system is delegated to thousands of nodes (each node is a machine running the Bitcoin software). No central authority makes decisions in regards to the Bitcoin network; instead, all the nodes are in charge. No one owns crypto networks (or in other words everyone owns crypto networks)

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Are cryptocurrencies secure?

The short answer is yes. A legitimate cryptocurrency network is secured by cryptography, which makes it nearly impossible to counterfeit or double-spend. However, most people do not "mine" cryptocurencies or do not host "nodes". They invest in crypto through exchange wallets (e.g. Coinbase, Binance, Uphold, Robinhood, etc.), and therefore security of their funds will rely heavily on the security of their account. Account security is a shared responsibility between you (the owner) and the broker (the host of your wallet). Most exchanges use the latest sybersecurity measures and their platforms are as secure as the your online banking accounts. That does not mean your account cannot be compromised. On the broker side, there has been some rare instances of crypto brokers’ security breaches that led to unauthorized transfer of funds of our customer accounts, however, those were immediately rectified and funds restored. Generally speaking, you do not need to be concerned about security of your funds as long as you take security of your own account seriously.

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How to start investing in crypto?

It’s very simple! Create an account with a cryptocurrency broker (e.g. Coinbase, Robinhood, or Uphold), verify your identity and your account, transfer money to your account, and buy the supported cryptocurrencies. It should be noted that not all cryptocurrencies are supported on all crypto broker platforms.

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How much of my portfolio should I invest in crypto?

It depends. There are investors who are 100% invested in crypto, and others have 0% exposure to crypto. What you are willing to invest in crypt depends on your investment strategy and risk tolerance. Generally, we recommend starting small, and growing your exposure after you understand the underlying crypto asset, its applications, and also the general trends and sentiment of the market. Leveraging our proprietary Crypto Risk Index can help you make more informed decisions.

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Should I invest in crypto or more traditional funds?

That also depends. Crypto market is generally much more volatile than the traditional securities market. That means higher risk and very volatile price movements. For instance, Bitcoin rose from the level of around $4,000 at the height of the coronavirus pandemic sell-off in March 2020 to almost $65,000 in April 2021, before plunging by over 50% to around $30,000 in June 2021, and then coming back up to around $66,000 in October 2021. So imagine you bought Bitcoin in April 2021! Yes, it can go up, and in some cases it wouldn’t or it may take a long time to recover (Just like what happened after Dec 2017 crash). But price movements in stocks and other securities are not as volatile. Therefore, you need to first understand the market, and also which cryptos are better for investment.

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Which cryptocurrency should I invest in?

There are hundreds or even thousands of cryptocurrencies, with market caps ranging from as high as over a trillion dollar (Bitcoin) to as low as a few million dollars. Where you want to invest your money depends on your risk tolerance and investment strategy. Some of the cryptos with very low market caps have seen tremendous growth over the past few months. However, small coins are just like penny stocks, so you need to be extra cautious about them. One way of strategizing your investment is to look at their market caps and invest in the top 10 coins. We are listing them below:

  • Bitcoin (BTC)
  • Ethereum (ETH)
  • Cardano (ADA)
  • Solana (SOL)
  • XRP (XRP)
  • Polkadot (DOT)
  • Dogecoin (DOGE)
  • Shiba Inu (SHIB)
  • Terra (LUNA)
  • Avalanche (AVAX)

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Can my crypto account be hacked? How do I protect myself?

Just like any other account, security of your crypto account (also known as a Wallet) is a shared responsibility between you as the account holder, and the crypto broker as the host. Therefore, you need to make sure you protect your account with strong passwords, two-step verification, and other security measures, and never share your account information with others. On the broker side, there has been some rare instances of crypto brokers’ security breaches that led to unauthorized transfer of funds of our customer accounts, however, those were immediately rectified and funds restored. Generally speaking, crypto wallets are as safe as your online bank accounts and stock accounts, which are very secure.

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What is the future of crypto market, especially Bitcoin?

There is no correct answer to this and no one really knows what the future of cryptocurrency will look like. However, what we know is that blockchain technology has already made significant impact on many aspects of our lives (e.g. supply chain management). Cryptocurrency also holds the potential to revolutionize the financial ecosystems around the world. There are a couple of aspects of the crypto ecosystem that we will be paying more attention to. Currently, many investors look at cryptocurrency as a store of value, with significant growth projection over the next few years. However, the real value of cryptocurrency is in its application as a form of payment for daily transactions, from purchasing goods to converting currencies to transferring funds. Recently, El Salvador declared Bitcoin as their legal tender, marking them the first country to do so, and other countries are planning to follow suit. Projected growth for crytpcurrencies has also led to many institutional investors trying to get into the market and also multiple Bitcoin ETFs submitted to the SEC. The future of cryptocurrencies is unknown but bright, with many forms of applications and adoptions around the world over the next decade.

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What is altcoin?

The term "altcoins" refers to all cryptocurrencies other than Bitcoin. As of October 2021, altcoins accounted for nearly 60% of the total cryptocurrency market, with more than 12,000 cryptocurrencies and counting. Some of the main types of altcoins include mining-based cryptocurrencies (Ethereum, Dogecoin, Monero, Grin, Ravencoin, etc.), stablecoins (whose value is fixed to anohter asset such as US Dollar, e.g. Tether, Dai), security tokens, and utility tokens (built on a specific blockchain, mostly on Ethereum, e.g. Shiba Inu, Uniswap). Ethereum and Binance Coin were the largest altcoins by market capitalization as of October 2021.

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What is crypto mining?

In mining-based cryptocurrencies (e.g. Bitcoin), mining is referred to the process by which new cryptocurrencies are entered into circulation (just like minting US coins).Crypto mining is performed using powerful computational hardware (e.g. multiple graphical processing unit or GPU) that solves an extremely complex computational math problem. The first computer to find the solution to the problem is awarded the next block of bitcoins and the process begins again. As a matter of fact, mining is the way that new transactions are confirmed by the network, making it a critical component of the maintenance and development of the decentralized financial system and the blockchain ledger.
Many years ago, you could have probably mined Bitcoin on your laptop, but Bitcoin mining has become extremely difficuly and computationally demanding that it currently requires super sophisticated hardware and could be very costly. Nonetheless, mining has a magnetic appeal for many investors interested in cryptocurrency and many compare the craze to California gold prospectors in 1849.

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What is Fiat money?

Any government-issued currency that is not backed by a physical commodity (such as gold or silver, but rather by the government that issued it) is called Fiat money. Fiat money gets its value from the from the relationship between supply and demand and the stability of the issuing entity, instead of thevalue of a commodity backing it (e.g. Gold). Most modern paper currencies are fiat currencies (e.g. the U.S. dollar and the euro).

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What does HODL stand for?

In crypto world, "HODL" (or Hold On for Dear Life) is an investment strategy where the investor holds crypto positions even through highly volatile markets with significant drops. HODL is a term crypto investors use to encourage fellow investors against panic selling and FUD effects on crypto prices. This term originates from a typo in a Bitcoin forum and became mainstream afterwards

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What does FUD stand for?

FUD (Fear, Uncertainty, and Doubt) is a term commonly used by crypto investors to refer to the resistance against crypto adoption outside of the crypto workd. For example, government policies, crackdowns, politican figure speeches, and other socio-economical factos that create volatility in the markets. HODL is a strategy agains FUD.

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What are Sats?

“Sats” is short for “satoshis,” a term derived from the first name of "Satoshi Nakamoto", the name used by the presumed pseudonymous person or persons who developed bitcoin in 2009. Sats refers to the smallest fraction of a bitcoin that can be sent. Each Bitcoin is 100 million satoshis (or sats), and therefore each Sats is 0.00000001 of a Bitcoin.

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Who is a crypto whale?

A crypto whale is someone who owns a lot of cryptocurrency. It is mainly used to refer to Bitcoin HODLers with hundres or thousands of Bitcoins in their wallets, but the term has become mainstream and can be applied to any other cryptocurrency, for example, "Dogecoin whales". Whales can affect the market by selling a large chunk of their cryptos and significantly increase the supply, leading the imbalance between demand and supply and market volatility

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What is Pump and Dump?

Pump and Dump is a practice used in some crypto forums (e.g. Reddit, Slack, or Discord), where through an orchestrated effort, many members buy large chunks of the subject crypto in an effort to pump the price. This can mislead other naive investors into the gimmick thinking. When other investor follow suit and buy the crypto, the people behind the Pump will Dump (or sell) their cryptos at high prices. Such practices have been declared illegal in many coutries, and crypto investors should be cautious about such gimmicks. Always, research the cryptocurrencies from trusted sources before making investments.

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What is FOMO?

FOMO or Fear Of Missing Out is an emotional state where the investor, influenced by external factors such as peer pressure, price increases, social media influencers, gets into a crytp investment when the price is at its peak, without proper technical knowledge or analysis. FOMO usually leads to the person being bagholder when the prices drops significantly due to the crypto being overbought with high premiums. Generally speaking, FOMO investment is never a good idea and comes with significant risks of losing capital. You should not let external factors influence your investment and should always follow your own research and technical analysis, or consult trusted advisors.

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Who is a bagholder?

Crypto markets are highly volatile with swift price changes and unforeseen market fluctuations that can be the result of external socio-economical or political factors, or orchestrated Pump and Dump activities. Price of a cryptocurrency can drop over 30% over night without any underlying reason, or due to FUD, Pump and Dump, or a whale dumping a very large chunk of crypto in the market. When such significant drops happen, some investors who did not act promptly, may end up being a bagholder, who is a person with cryptocurrencies they didn't want to HODL bought at prices much higher than the current market price. Being a bagholder in the crypto market is not uncommon. Most FOMO buyers end up as bagholders. In many cases, bagholders end up selling their assets at a fraction of what they paid for. However, as history has shown, HODLing has led to recovery of prices and in some cases profits. In should be noted, that in some cases, history may not repeat itself. So you should try to avoid FOMO buying, and always research the cryptocurrency and get the information from trusted sources before making investments.

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Legal Disclaimer

No Investment Advice

The information provided on this website are for infromational purposes only, and does not constitute investment advice, financial advice, trading advice, or any other sort of advice and you should not treat any of the website's content as such. We do not recommend trading cryptocurrencies, including buying, selling, or holding any type of cryptocurrencies. You need to do your own research and understand the underlying volatility and legal and political aspects of cryptocurrency markets. Also, you need to consult your legal, financial and tax advisors before investing in cryptocurrencies. There are risks in cryptocurrency investments. Do your own research and invest wisely. We are not responsible for your capital loss.