Cryptocurrencies for Beginners: Part 4 (Last Part)

Published in

Coinmonks

9 min readSep 29, 2023

Learn about Bitcoin IRAs in the United States, IEOs, Atomic Swaps, STOs, NFTs, earning interest on cryptocurrencies, and uniswap.

Disclaimer

!! I am not an expert on the subject. Please conduct your own study on how to research a coin and make your own decisions. In this sense, I accept no responsibility. This is NOT a financial advice !!

What is a Bitcoin IRA? Tax Free Bitcoin Trading (US Only)

Individual Retirement Account (IRA) is a retirement savings tool. People save on these accounts until they reach retirement age, and if they do not touch that money until they reach retirement age, the government pays them a percentage of the money in their account. The advantages of an IRA include tax-free trading, tax-free gains, and tax-deferred gains. In today’s market, investors have over $9 trillion in IRA investments. There are two kinds of IRAs.[1]

The 2 Types of IRAs

Traditional IRAs require you to pay no income tax on cash invested. You can also make an infinite number of trades on this account without paying tax. Taxes are paid after you withdraw from retirement (usually at the age of 60). If you withdraw before retirement, you must pay all unpaid taxes as well as the early withdrawal penalty amount.[1]
Roth IRA assets are taxed, but you can make unlimited trades without being taxed, and withdrawals are tax-free. It is extremely powerful, but not everyone is eligible to start a Roth IRA. For example, in order to join a Roth IRA in 2020, you must not earn more than 140k$ per year or 205k$ as a married couple.[1]

Cryptocurrency IRAs

Crypto IRAs are businesses that allow you to open an IRA and purchase and sell cryptocurrencies on their platform without having to worry about taxes on each transaction.[1]

IRA Limitations

Every year, you must donate a set amount of money. There is also a monetary restriction to what you can provide. For example, in 2020, adults over the age of 50 can only put up a maximum of $6,000 each month.[1]

How to start an IRA?

You can get started by opening an IRA account. Second, you can use a 401K rollover to fund your IRA. An investor can transfer a retirement account from an old employee to an IRA. You can also convert your existing account to a crypto IRA. None of these approaches are taxed.[1]

Choosing an IRA company

A trustee, a trading platform, a custodian for your cryptocurrencies, and a cryptocurrency exchange are all the things you need to consider. To hold and secure cryptocurrency for its consumers, crypto IRA firms may charge fees for the initial purchase, trading fees, and recurring fees.[1]

What is an IEO? Initial Exchange Offerings Explained

IEOs are token sales that are overseen by a cryptocurrency exchange.[2]

Because ICOs are not regulated, STOs are launched. STOs are properly regulated and exclusively deal with security tokens. Initial Exchange Offerings (IEOs) are ICOs that are managed by a cryptocurrency exchange. The corporation pays a fee and transfers some tokens to the exchange, which in turn markets IEOs, manages funds, vests investors, and lists tokens. When the IEO’s timeframe expires, the exchange automatically offers the coins for trading. IEOs strive to fund small amounts of money. Companies may combine ICOs with IEOs, for example, by offering ICOs to large investors and IEOs to the general public. The disadvantages of IEOs include that firms may not pay the price, and citizens may be unable to join if an exchange is not supported in their nation.[2]

What are Atomic Swaps?

When you try to switch between cryptocurrencies, you pay a significant switching fee. Atomic swaps are the direct exchange of cryptocurrencies between strangers without the use of an intermediary or trust. Atomic word indicates the swaps are not divisible, which means a process can occur or not. Atomic swaps only operate with cryptocurrencies and not fiat currency.[3]

Atomic swaps make use of Hash Time Lock Contracts (HTLC), which are smart contracts. The currencies are stored in a box known as hash, and the combination used to open the lock (key) is known as preimage. These HTLC smart contracts can be inspected publicly on the blockchain. If any participant cancels the swap at any stage, the cash will be returned to the original owner. Atomic swaps contain limits, such as the requirement that both currencies use the same hashing technique and enable specified types of smart contracts. When atomic swaps are combined with the lightning network, the outcome is immediate, frictionless, and trustless currency transactions. [3]

What are STOs and Security Tokens?

Because the ICO hype peaked in 2017 and many companies lost money, Google and Facebook banned ICO marketing on their platforms.[4]

The Howey Test

A security sale occurs when a person invests money in a joint venture and is led to expect benefits only from the efforts of the promoter or a third party.[4]

Simply you need to ask these questions:

Was there any money invested? Yes, for ICOs.[4]
Was this money invested in a joint venture?Yes, for ICOs.[4]
Was there a profit expectation?Yes, for ICOs, however some people trade on a daily basis, so no.[4]
Are the earnings generated by third-party efforts? Who makes the final call? Is this a low-risk investment? Yes, for ICOs.[4]

Many public ICOs have been fined or even imprisoned, therefore ICOs are now largely private for large investors. STOs created as a result of these circumstances. A security token offering (STO) is the act of selling security tokens to the public without going through the time-consuming and stressful procedure of an IPO. STOs are financial assets, similar to bonds, and a type of investment. Whereas utility tokens guarantee a product or service, security tokens guarantee a profit. And all participants are considered investors. STOs are in compliance with anti-money laundering regulations. This is accomplished through the use of exemptions.[4]

Security Exemptions

If you fall under one of the three regulations, you are exempt from registering with the SEC in the United States.[4]

Regulation D

This is only available to approved investors, and there is no cap on the amount of money that can be raised.[4]

Regulation Crowdfunding(CF)

Both accredited and unaccredited investors can participate, although there is an annual cap of 1.07 million dollars that a STO can raise. There is also a one-year investment lock, which requires the investor to wait one year before selling their asset. This is beneficial in preventing pump and dump tactics.[4]

Regulation A+

The SEC (a tiny IPO) must qualify these regulations. There is no lock up restriction, and the annual cap is 50 million dollars. STOs are advantageous because they prevent frauds through rules, are traded on recognized exchanges, have a larger market for investors, and provide simpler access to investors. The downsides include a lock-up period that prevents immediate gains and accredited investors.[4]

What is NFT (Non-fungible Token)?

Fungable refers to being interchangeable or not being distinctive. Unless it has a very uncommon serial number, you would trade a dolar for another dolar. Bitcoins store transaction history and are hence fungible. You would not want to utilize a Bitcoin that has a history of illicit behavior. NFTs are one-of-a-kind tokens used for digital authentication. Instead of a painting, you own an authenticity certificate, the value of which is determined by potential buyers.[5]

Only the attributes relevant to digital items are stored within the token. NFTs are indivisible, transferable, fraud-resistant, and programmable. You have the option of using both centralised and decentralized nft exchanges. NFTs can be displayed in an art gallery, digital frame, tangible print, or internet galleries. NFTs are also useful for establishing ownership of domain names, gaming objects, decentraland, and collective in DeFi. NFTfi is one example of a collateralized lending marketplace.[5]

How to Earn Interest on Crypto

Holding (hodl) is a good long-term strategy that allows you to earn money.[6]

Staking

By locking up your currency, staking contributes to the creation of new coins. Stakers gain incentives in the form of APR (Annual Percentage Rate) or APY (Annual Percentage Yield). A higher percentage rate usually indicates either a risk or significant inflation (coins are utilized for operations and then destroyed, similar to polkadots) or promotion (more coins are distributed as stake rewards to encourage staking). For newbies, staking via wallet or exchange is a better alternative. Staking via exchange incurs an exchange fee, and you lose custody of your cash if the exchange goes offline. Wallets only support a few coins for staking.[6]

Saving Accounts

Saving accounts are accounts that earn interest and are sponsored by centralized companies such as Blockfi, Nexo, and Celsius Network. There is no lockup time, you retain ownership of your assets, and it is a viable alternative to staking.[6]

DeFi

Decentralised finance refers to financial services that do not require the intervention of a central authority. On DeFi platforms, you can lend, stake, provide liquidity, and farm. Aave and compound are loan and borrowing platforms that are decentralized. UniSwap is a decentralized exchange that offers liquidity. By investing in UniSwap, you can receive interest on your assets.[6]

DeFi Downsides

DeFi only accepts a limited number of coins. Because DeFi is a new technology, it is not suitable for beginners and may contain bugs and technical concerns.[6]

Yearn Finance

Yearn Finance is a yield optimizer that automatically switches your holdings amongst DeFi networks, so you don’t have to seek for where you can receive the best yields. It works by depositing stablecoins into the Yearn network in exchange for Yearn tokens (DAI yDAI).[6]

Yearn Vaults

Yearn offers an advance service called “Vaults” in addition to just depositing coins to a restricted number of lending protocols. Vaults are more advanced services with greater hazards. Vaults are actively maintained deposits where money can be used for trading, borrowing, or supplying liquidty. Vaults also support a wide range of coins and more than a year’s worth of services.[6]

Uniswap

ERC-20 tokens can be traded on a permissionless decentralized exchange. Uniswap is Ethereum’s most popular decentralized app and the most forked project. Traditional exchanges are centralized, deposit-required, and governed by KYC (know your customer) standards. Decentralized exchanges (DEX), on the other hand, are part of the DeFi system, have a set of automated rules that are executed by independent computers, and they are open to everyone without the requirement for an account on their own wallets. [7]

DEX has no order book contrary to centralised exchanges, liquidities are created through liquidity pools. These liquidty pools are created by liquidty providers in return pool fees. [7]

The price is defined by the AMM (Automated Market Maker) formula. [7] Simply:

Amount of ETH available * amount of DAI available = ETH/DAI trade constant.[7]

Uniswap supports any ERC-20 token for free, which means you should not trust a exchange just because it exists on uniswap.

How to Use Uniswap?

To make advantage of uniswap Install the MetaMask decentralized wallet in your browser, go to uniswap.org, connect uniswap to metamask, and begin swapping exchanges.[7]

Price Slippage

The difference between an order’s predicted and actual pricing. On Ethereum, price slippage is caused by transaction delays, however the amount of slippage can be limited. [7]