Decrypting Cryptocurrency: Riding the Data Path to Financial Freedom
Magnus Carter’s latest book targets millennial investors who would like to navigate the world of cryptocurrency and understand how it works.
I remember the very first meeting I attended on crypto and blockchain around six years ago. Eye roll here, eye roll there! What was this new technology? How utopian did this sound?
It did not help that the meeting was given by a couple of young white men working in tech.
Six months later, I quit my job and found myself writing my very first blog post on Blockchain. That is when I started doing my research on the subject and found it infinitely interesting.
This is not to say that I am unhealthily obsessed with crypto or that I am totally in favor of it.
I am still skeptical! Extremely skeptical!
There are too many crypto scams hovering around, simply because this is not an easy matter to understand. Even if you are a financial expert, it does not mean you will grasp this quickly. If you are into finance and technology, then your chances of grappling with it fare better. Cryptocurrency is a multidisciplinary topic, encompassing finance, technology, legal practices, and psychology.
Why psychology? Because if we intend to rid ourselves of the middlemen, such as banks to have a decentralized financial system, then the element of trust steps in. Trust here all depends on people’s values and psychological behavior.
History of Crypto and How Blockchain Works
The first chapter of the book looks at how crypto started through the birth of bitcoin. This took place in 2009 when an unknown programmer/s developed bitcoin using the pseudonym Satoshi Nakamoto.
Carter walks through the first four chapters by explaining terminology and giving us facts based on the definition of these crypto terms. I was somehow perplexed that he did not go into Proof of Stake versus Proof of Work in detail. These are two major concepts underpinning the working of the blockchain platform and ignoring them for the sake of semantics lessened my credibility in how well he was going to explain the investment aspect.
With that said, the book is not to be dismissed.
Chapter 2 guides you through different coins or alternative coins as well as the reason why crypto has blown up the way it has thanks to open-source, massive profits, forking (which should not occur because it trumps the purpose of blockchain in the first place), innovation and stable coins.
Carter explains the use of the Blockchain explorer and what this does ‘as it involves specialist tools for managing and viewing the assets produced, transferred and distributed.’ This works like a search engine that analyses data stored in the Blockchain.
Chapter 3 also looks at the importance of data storage structure. Storage capacity is different for every cryptocurrency. Carter then proceeds to walk the reader through the differences between the Public Blockchain and the Private one.
Next, he instructs the reader on the different research tools, giving a short definition of what each one does- starting with Messari and then moving on to Glassnode, LunarCrush, Coin Metrics, Santiment, CoinGecko, and CoinMarketCal.
CoinGecko is the website you search for prices and data aggregation whilst Coinmarketcal is a platform that informs you about events occurring in the crypto world. The data has a researched and community-managed system.
Carter does not continue without posing for reflection. He warns the readers that while the above sites can provide you with a detailed description of the price and market environment, it is important to remember that crypto is still volatile. Due to the significant price surges, people get emotional, and their judgment gets clouded when investing. You should never put all your savings in cryptocurrencies.
While he acknowledges that investing in cryptocurrency can change the way we look at money, it is essential to understand where and what currency to invest in. Carter goes on to mention companies with some great stocks, such as NVIDIA, CME, Square, Amazon, Mastercard, IBM, and DocuSign. He mentions NFTs only slightly and gives a brief description of this; however, I was hankering after a longer explanation.
The NFT market is still relatively new and there aren’t enough experts in it. People are having long discussions about them but those who are not knowledgeable on NFTs are doing the right thing by steering clear of it- at least for now!
The Perils of Investing in Crypto, Regulations, Tax, and Cashing Out
Crypto is still volatile and not regulated well enough. This means that there are hackers and scams ready to pounce on those investing emotionally in crypto and not doing sufficient research on the topic. Cybercriminals can steal cryptocurrencies by hacking into users’ digital wallets.
Cryptocurrencies still cannot be replaced by fiat currency like the dollars or pounds or euro. They are still fluctuating, and they are not as safe as one thinks. There are adverse effects to investing heavily in crypto and unless more investors, institutions, and reliable trading platforms jump on the bandwagon, the industry will remain subject to volatility.
Each cryptocurrency is different; they have distinct levels of traceability and ledgering modes. There are separate levels of trust and fiduciary responsibilities for each of them. Therefore, there is a range of risks when investing blindly in them. Coins can disappear overnight or there may be a cyber ransomware attack.
Simple mistakes can cost you a fortune. Carter points out that being locked out, having faulty hardware, or just spilling coffee over your laptop cause significant losses.
Forks and disputes may also arise. Cryptocurrency investors can also swallow small investors by deploying market manipulation tactics. Cryptocurrency is all based on your tolerance to risk as this market is not regulated yet and getting your money back is unheard of.
In Chapter 6, Carter instructs the reader on where to buy cryptocurrencies such as Coinbase, Binance, Kraken, and Bitstamp. Some great advantages to using online exchanges are that few of them will let you use coins for free. Thus, you can explore different services provided by these online exchanges; some will even allow you to invest in part of a coin for as little as five dollars. Carter also goes through different platforms for trading and gives a short outline of each of these.
When the market is unstable, check your stock page several times a day; however, doing this every day can seriously mess with your mental health. Keeping up with the media is important, not to the point of getting too emotional about it though. That is why you should never part with money you are not ready to lose.
Having the right smart tools to check your data can help you ease the pain; not let the experience make you feel overwhelmed, emotional, or paranoid.
Keep in mind that there are several websites on crypto that lack credibility and spread misinformation. If you haven’t done your research well, you will be more susceptible to these sites and waste your time on unsubstantiated information.
Chapter 8 lets you know how the taxman should have his cut. So, what is taxable and what is not where crypto is concerned?
Selling digital coins for local currency is taxable. So is changing Bitcoin to Ethereum and other types of digital currencies to another. Exchanging digital coins for a service or a product is also taxable as well as getting digital coins through forks, airdrops, or mining.
Non-taxable events include getting cryptocurrency with local currency, giving crypto coins to tax-exempt organizations like charities, sending someone crypto coins as gifts with a value less than $15000, and transferring crypto from one wallet to another under your name.
Carter covers the necessary details, such as laws around airdrops and forks not to mention mistakes involving crypto tax calculations as well as tax-loss harvesting.
Closing Thoughts
In his conclusion, Carter invites all those newbies interested in investing in blockchain to join the Investing on A Budget Facebook Group.
Although there are a few missing words and rare typos here and there, I did enjoy going through this book. It has a lot of useful nuggets of information, especially if you want to invest in the crypto world and have no idea where to start. I found the structure well-thought-out and fascinating for those who are still new to this world.
On my end, I am still not interested in investing in cryptocurrency just yet. I am more interested in the interdisciplinary aspect of it. For this reason, I am looking forward to reviewing Kevin Werbach’s book ‘The Blockchain and the New Architecture of Trust’.
Contents distributed by Learn.Block6.tech
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