Investing 101: Cryptocurrency

The hottest topic in investing news is cryptocurrencies. I previously discussed how to get setup on Coinbase to enable you to start investing in crypto. But many people still aren’t sure what exactly cryptocurrency is. It’s a little complicated and technical but I’m going to break it down so it’s simple and understandable.

Wikipedia defines a cryptocurrency or crypto as, “a digital asset designed to work as a medium of exchange wherein individual coin ownership records are stored in a ledger existing in a form of a computerized database using strong cryptography to secure transaction records, to control the creation of additional coins, and to verify the transfer of coin ownership.”

Basically all cryptos use blockchain technology, which is essentially lots of computers linked together over a cryptography secured network, to store and verify all transactions involving that particular cryptocurrency or coin. So any transactions involving let’s say Bitcoin, are recorded on the publicly shared Bitcoin ledger, and that ledger is verified to be accurate by all the other computers on that blockchain network. That’s why crypto is considered a decentralized currency because it is regulated by all the computers on the network instead of by a central bank.

The process of verifying transactions is often referred to as “mining”. So when you hear people say things like “Bitcoin mining” or they’re a “crypto miner” they aren’t talking about breaking rocks with pickaxes. People are rewarded and incentivized to verify the transactions on the network, or mining, by receiving small amounts of that cryptocurrency that they are mining. Bitcoin mining for example requires the use of many high-powered computers to secure and verify its network, which also consumes a lot of electricity. Bitcoin mining in particular uses a specific form of mining called proof of work, which is what Elon Musk now infamously tweeted about on 5/12.

Tweet by Elon Musk

There are two different methods used for crypto mining, proof of work (like Bitcoin) and proof of stake (like Cardano). Proof of work involves one party proving to other parties (validators or miners) that the transaction is legitimate through complex mathematical calculations. These complex mathematical calculations require a lot of computational power and energy usage. Proof of stake is similar to the proof of work process but requires much less computer power and energy usage. Instead, the validators must own large quantities of the cryptocurrency in order to validate it. This prevents hackers from attacking the network because the attacker would need to first acquire a large amount of tokens/coins which means they have a large stake in that cryptocurrency and should then want to see it gain value.

Besides the computational power and energy usage required, Bitcoin has also been criticized for having a slow block time (the amount of time to verify transactions). Bitcoin has an average block time of 10 minutes, whereas faster networks like Ethereum have a 14-15 second block time. Bitcoin was the original cryptocurrency, but since it was first created in 2009, many new altcoins have been created and come onto the market. What’s your thoughts on Bitcoin, altcoins, or cryptos in general? Leave me a comment and let me know.

Photo by Thought Catalog on Unsplash

How to Buy Bitcoin and Use Coinbase

In my last blog, “Coinbase, Bitcoin, and Crypto are All Going Crazy“, I discussed Coinbase’s DPO that was released on Wednesday, 4/14, and all the hype around its launch and the cryptocurrency market in general. I mentioned that I’ve been keeping a close eye on the cryptocurrency market but I was still skeptical (mainly for not investing sooner). But I finally jumped on the bandwagon and downloaded Coinbase and bought some Bitcoin. I also bought a share of Coinbase (COIN) while I was caught up in the excitement of finally joining the crypto craze.

I’ve used a few different stock trading apps but this the first time I’ve used a cryptocurrency exchange and the process to get started was super simple. First, download Coinbase from your app store and enter your name, email address, and create a password. Then, you enter your bank information or debit card information, this is different than most brokerage apps that require your bank account and routing number. Although, you’re only allowed to buy cryptocurrency when you enter your debit card. You need to enter your bank account information in order to sell, that way the money can be transferred into your bank account if you choose to cash out.

Once you have a form of payment linked to your account, you’re all ready to join the crypto craze! Coinbase’s homepage shows you your portfolio balance, your watchlist, top movers, and some news articles related to cryptocurrency. The tab to the right of the homepage is the Portfolio page, which shows the number of coins, fractions up to eight decimal points over, of Bitcoin or whichever cryptocurrencies you own. This page also shows a line graph displaying the your portfolios performance. The middle blue button is like a quick buy/sell button. The tab to the right of the middle button is the Prices page and displays prices for a huge variety of different cryptocurrencies. This page has tabs towards the top where you can choose to see the top gainers and losers for the day. The last tab on the bottom right is the Settings page that contains your account information, settings, and a help/support section.

I’ve kept a close eye on Coinbase’s share price all day and it was hovering around $333 this morning but then dipped down to around $324 in the later afternoon. I jumped in and bought the dip, so hopefully the price doesn’t drop anymore. I been hearing analysts talk about this stock price possibly going up to $500 in the future. If people are literally buying into the crypto craze like I am, I’m hopeful Coinbase continues its strong growth which will fuel their stock price’s rise.

What are your thoughts on Bitcoin, Coinbase, and cryptocurrencies? Leave me a comment and let me know. Don’t forget to follow my Twitter where I’m constantly posting about investing, the stock market, and cryptocurrency.

Photo by Pierre Borthiry on Unsplash

Coinbase, Bitcoin, and Crypto are All Going Crazy

Coinbase, Bitcoin, and cryptocurrency in general has been in the news nonstop lately. Bitcoin is at its all time highs hovering around $63,000. Visa is piloting transaction settlement in stablecoins on the Ethereum blockchain, and Ethereum is now trading at its highest prices ever, trading around $2,400. Big banks like JP Morgan and Morgan Stanley are now offering their customers opportunities to invest in cryptocurrency through ETFs. Huge companies like Tesla and Apple have jumped on the cryptocurrency bandwagon and have invested billions of dollars into purchasing Bitcoin.

Cryptocurrency exchanges, such as BlockFi, Gemini, and Coinbase, allow how retail investors can buy Bitcoin and other cryptocurrencies. Coinbase (COIN) is among the more popular crypto exchanges and it went public today, 4/14/21, in their highly anticipated direct listing IPO. Shares initially had a target price of $250 early this morning but by the time it actually started trading it opened at $381 and quickly rose up to $429, hitting a valuation above $112 billion. Share prices sank throughout the day and ended at $328.28 by the closing bell.

Coinbase (COIN) has been the biggest IPO of the year with many experts valuation of them exceeding $100 billion. The Coinbase direct listing IPO offers investors the opportunity to enter the realm of crypto without actually purchasing any actual cryptocurrency. Personally, I am still hesitant on jumping into Bitcoin (mainly because I regret not purchasing some 6+ months ago). But I like idea of investing in a crypto exchange and with Coinbase being one of the biggest names in the game, I would like to invest in this one. I’m going to keep a close eye on this hot IPO and give it a couple days to cool off to see where the price goes before buying any shares. What do you think about cryptocurrencies and Coinbase’s IPO? Please leave me a comment with your thoughts, and if you like my blog, share it on social media!

Photo by Vance Alm