The Crypto Myth Buster (Part I) 🧠

by Aug 9, 2022Articles


Today I wanted to do a quick Q&A for anyone who’s newer to the crypto space.

I know the lingo can seem alien at first but please don’t worry. Once you get your head around the basics it’s very straightforward and we’re right here to help guide you.

Let’s dive straight in.

These are some of the top questions we’re asked:

Question: “I understand why Bitcoin exists but what are all these other coins or ‘tokens’ for?”

We’ve all heard of Bitcoin. It’s usually billed as a form of digital money, or more accurately as a digital asset.

The key thing to remember here (as we keep saying) is that crypto is about so much more than digital money in the same way the internet is about so much more than a single website or app.

If it’s helpful try to erase the term ‘cryptocurrency’ from your mind. In many ways it’s an outdated term because only represents a single use case.

There are now thousands of tokens representing completely different things:

– NFTs can represent unique assets like a piece of art or music for example (and much more besides)
– There are governance tokens which can represent certain voting and community rights
– There are cryptos which could form the foundations of a new internet, or Web3 (imagine owning a piece of the internet)

Still others will stretch way beyond our current, collective imagination as the space evolves.

This is incredible to watch and we really are only just getting started.

Question: “I only want to invest £100 – £200 to start with… but a single Bitcoin or Ethereum costs thousands. How can anyone afford to invest?!”

This frequently catches out new investors and is one of the biggest misunderstandings in crypto.

(And it can make people feel like they’re too late or they’ve missed the boat somehow).

You don’t need to buy whole units.

You can buy £10… £120…. £3,715 worth or Bitcoin or Ethereum if you want to, it’s totally up to you.

You can buy and own crypto in decimals.

Again, try not to see the these projects as units of money (unless you are trading something like USDC, which is a digital representation of the dollar!)

This can be hard for a lot of people to get their heads round at first because we tend to favour nice round numbers.

However, consider this:

Many (including Arthur Hayes, former CEO of BitMex and Cathie Wood, founder of ARK Invest) believe we will see Bitcoin trading at over $1 million a coin by 2030…

At that point owning 0.1 Bitcoin (or even 0.01 Bitcoin!) would be very worthwhile indeed…

Try not to let the lure of round numbers distract you.

Question: “I could buy 10,000 of this crypto compared to just 1 or 2 of this other more ‘expensive’ crypto. Is it better to own more?”

Again this is a common misconception and relates back to the last point.

A lot of new investors jump into crypto, see a candy shop of coins and tokens on offer then fall into a common trap…

They assume owning more of something (regardless of what it is) means they will own a larger, more valuable hoard.

A large hoard of something worthless is worth nothing at all, and it’s the same in the crypto space.

When a token is created there are a number of factors to consider:

– What is the total supply cap? (for example Bitcoin can never exceed 21 million coins, while there are others which have an infinite supply)
– What is the current supply on the market? (i.e. how much will the value be diluted in the future?)
– What does the particular project represent or do? Is the marketing pitch a picture of a cute dog, or is this something that could change the way we operate online in a meaningful way

Those are just some of the questions we regularly consider in the Crypto Traders’ Academy.

If you aren’t a member already you can start your risk-free trial here.

Question: “Why is it so hard to register on exchanges and trade crypto?”

It’s not! What was once difficult is now easy.

If you were around in this space in 2017, or before, you might remember a time when exchanges and staff were overwhelmed with the sheer number of new customers.

Some of the interfaces were a bit old fashioned as well…

These days in most cases you can get setup on an exchange (where you buy and sell crypto) in under an hour.

Sending money across from your bank (so that you can trade) is also fast if you do an FPS bank transfer (just like sending money between banks accounts).

This can even be instant if the exchange offers deposits via cards. Just be aware that the card method can sometimes involve fees.

The good news is you only have to do your exchange setup once.

From there on in it’s extremely quick and easy to make trades.

You can also easily place limit orders at the price you want to buy/sell and the smartphone apps are excellent.

Things are very different to how they were just a few short years ago.

Question: “Is it safe to leave money or crypto on exchanges and do I need to use wallet?”

It’s all down to your personal risk threshold.

Do you feel safe keeping your funds in a traditional bank after 2008?

One of the greatest benefits of keeping money in a traditional financial institution, covered by the FSCS, is that you are a protected up to £85k should they become insolvent.

With that said if you are using a reputable crypto exchange your funds are likely to be safe (although nothing is guaranteed).

Who do we use?

At the time of writing our preferred exchange is Kraken (note: we have absolutely no financial or personal affiliation with them).

They are a well established exchange (launched in 2013), their platform is easy to use and to date they have never been hacked.

That’s not to say that they won’t be comprised in the future but the key thing to bear in mind is this:

Compared to the early days of crypto the security on the top tier reputable exchanges has improved dramatically. Features like two factor authentication and other safeguards make such events increasingly a rarity.

You do of course also have the option of sending your crypto holdings to what’s known as an external wallet if you wish to.

This is a lot simpler than it sounds and gives you ultimate security, should you want it.

Hardware wallets such as the Ledger Nano are very secure options and solutions like these are definitely worth considering if you are investing larger amounts and are holding for the long term.

Ok, I’m going to leave it at the 5 questions today.

What did I leave any out and what would you find it helpful for us to cover here in the Vanguard?

Please leave a comment below and we’ll do our best to cover it in the future.

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