4 Things People Get Wrong About Crypto PlatoBlockchain Data Intelligence. Vertical Search. Ai.

4 Things People Get Wrong About Crypto

Debunking the myths

4 Things People Get Wrong About Crypto PlatoBlockchain Data Intelligence. Vertical Search. Ai.

There is a lot of information about cryptocurrencies on the web, but unfortunately there is a lot of misinformation too. I hope to clear some of the misconceptions that you might have heard from your misinformed neighbour or friend.

I have found that most people obsess over the price of a cryptocurrency. While price is a good indicator of whether or not a project is undervalued or overvalued it is not the only indicator. More important than the price, is the market capitalisation of a cryptocurrency, commonly referred to as market cap. To calculate the market cap of a coin is quite simple, multiply the total amount of tokens circulating by the price of a token. For instance, as of writing this article there are about 18.7 million bitcoins and the price of one bitcoin is $37,100; meaning the market cap of bitcoin is roughly 18,700,000 multiplied by 37,100, which equals $691,900,000,000.

So why is the market cap of a coin more important than the price? Let’s have a look at one of the meme coins that recently became famous, Shiba Inu. This coin has recently gained a lot of popularity and has been framed as the new ‘dogecoin’. Although dogecoin is a meme coin too and does not have a lot of fundamentals behind it, Shiba Inu is far far worse. As of writing this there are roughly 437 trillion Shiba Inu tokens and each token is worth $0.0000883. Now, beginner’s and newcomers in the crypto space might look at the price and compare it to the likes of dogecoin, which is currently trading at $0.39 and think that Shiba Inu deserves to be at a similar price. By following the logic above, one would think that Shiba Inu deserves to have its price multiplied by 5000! Meaning a return of 500,000% on your investment. Now if this sounds too good to be true that’s because it is. I can bet my life savings that Shiba Inu would never reach a price close to $0.4 unless they fundamentally change the project. Let’s have a look at why I’m so confident on that.

There are 35x more Shiba tokens than dogecoin, the total circulating supply of dogecoin is only 129 billion (35 times smaller than Shiba Inu’s 437 trillion!). Now, instead of comparing the prices of the two tokens. Let’s have a look at their market caps instead.

Market cap of Dogecoin = 129,000,000,000 * 0.39 = $50,310,000,000. Roughly 50 billion US Dollars.

Market cap of Shiba Inu = 437,000,000,000,000 * 0.0000883 = 3,973,500,000. Roughly 4 billions US Dollars.

Now if we were to look at the market cap of these coins and we believe that Shiba Inu is a project that should be valued roughly the same as Dogecoin, then the project’s worth is roughly 12.5x undervalued, this is because 4 billion times 12.5 equals 50 billion dollars. While this would still be a very good return on your investment it is nothing compared to the original 500,000% figure contrived initially looking at just the prices of the two coins. Now I’m not saying that Shiba Inu deserves to be valued at roughly the same valuation as Dogecoin, I’m instead showing you how to calculate the value of a project in a more calculated way rather than just looking at the price of a token.

A lot of people think that it’s safest to store crypto with exchanges they use to buy/sell. That might be because most people store their cash with banks or other financial institutions, since it’s infeasible to bury cash in your backyard. However, since crypto is all digital you don’t need to worry about having a backyard to store your assets. Why would you want to store crypto yourself? Why not let a company handle it for you?

When you store cryptocurrencies on an exchange you also store the private keys with the exchange. Private keys are used to access a user’s cryptocurrencies. That means if an exchange gets hacked the hackers will also have access to your private keys, consequently gaining access to your cryptocurrencies.

There have been numerous cases of exchanges being hacked, which meant the crypto stored on these exchanges was stolen. In 2019, one of the biggest crypto exchanges, Binance was the victim of hackers who used phishing attacks and malware to steal 7,000 bitcoins (worth $259 million today). This wasn’t a one of event, there have been numerous hacks in the past and the likelihood is that they will continue for the foreseeable future. Here is a website that shows you some of the most recent hacks on a cryptocurrency exchange. So, since we know that cryptocurrency exchanges can get hacked, why not store the crypto yourself?

In order for you to store your cryptocurrencies yourself, you will need to keep your private keys, private, surprisingly enough! You might have heard the common phrase ‘Not your keys, not your crypto’, and this can be achieved in a few different ways. The two most popular ways to store cryotocurrencies without using an exchange are to make use of a hardware wallet or a paper wallet.

“Not your keys, not your crypto”

Hardware wallets

Hardware wallets are very similar to USB drives but are specifically designed for the storage and encryption of cryptocurrencies. It is important to note that a hardware wallet does not actually store your cryptocurrency, it instead holds your private key. The private key is needed to access your cryptocurrencies on the blockchain, thus making hardware wallets a nice portable option for a lot of people. Hardware wallets are also usually, what we call ‘cold storage’ meaning they are not connected to the internet, thus significantly reducing the risk of your cryptocurrencies being hacked.

Paper wallets

Paper wallets are similar to a hardware wallet, however the difference is that they are not USB drives, but pieces of paper instead. A paper wallet usually has a QR code and an alphanumeric string, which is used to access your cryptocurrencies. Like hardware wallets, paper wallets are a form of ‘cold storage’ too, meaning they are just as safe as hardware wallets. In fact, some argue that paper wallets are safer since they do not require any updates on their hardware and/or software.

I personally prefer to use hardware wallets as I feel like a piece of paper is easier to misplace than a USB stick, but whether you decide to use a hardware or a paper wallet, you will need to think of a safe place to store it. Additionally, it is also worth noting that it is usually not convenient to store cryptocurrencies in your hardware or paper wallet if you actively trade them. Therefore it is advised to store some crypto that you actively trade on exchanges and store other cryptocurrencies that you don’t actively trade in your wallet.

A lot of people and the media are under the impression that all cryptocurrencies are anonymous and therefore are used in illegal trading of goods. The fact of the matter is that most cryptocurrencies aren’t anonymous. Bitcoin addresses are unique alphanumeric strings, this does not actually make transactions anonymous, it makes them pseudonymous; meaning the address acts like a placeholder for the address owner’s identity. Additionally, since all of bitcoin transactions are logged on the blockchain there is no way of hiding your identity, as it could be traced back to you.

An example of this was when the FBI caught Ross Ulbricht, the founder of Silk Road. Silk Road was one of the earliest dark markets found in the dark net. When the FBI arrested Ross Ulbricht, they made sure to arrest him with his laptop switched on and logged into the admin role of the dark market, this allowed them to connect his online presence to him physically. The admin of the dark market was acting as a middleman to process transactions, meaning that each bitcoin transaction and each bitcoin wallet address could technically be traced to buyers and sellers and ultimately reveal their identity using blockchain analysis.

People claim that cryptocurrencies are too complicated to be used by regular people, but what does that mean? You don’t need a deep understanding of how it works in order to use it. Do you understand the technology and code we used in 1969 to land a man on the moon? Do you understand the technology used by Instagram, Facebook or Snapchat? No, because you don’t need to in order to use their services. Technology has become more complex to suit our needs in our society. A deep understanding of how the code works is not necessary for you to understand in order for you to use cryptocurrencies. I do encourage everyone to have some knowledge of how crypto works because I do think that it is the future. However technology over time becomes easier to use as more complicated details are abstracted away from end users. A baseline knowledge of cryptocurrencies and some of the surrounding themes will definitely be beneficial to you. I have written a beginner’s guide which aims to provide you with some basic information about crypto, you can find the article here.

I hope you liked the article, as always if there’s anything that you want me to go more in depth on let me know.

Source: https://medium.com/geekculture/4-things-people-get-wrong-about-crypto-15a8fd6c8792?source=rss——-8—————–cryptocurrency

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