Cryptocurrencies

Distributed cryptographic currencies




Home



Introduction

Main currencies

Resources

Investment strategy



Emoney


Introduction

A cryptocurrency is a peer-to-peer distributed, digital currency.

For some currencies, the entire amount of available coins is issued at the beginning, which means that there is a central authority which issues the currency. However, for some currencies, the coins are created / mined in time, according to a slow cryptographic algorithm, which means that there is no central authority which issues the currency. Note that in both cases, the software which manages the currency can be modified by its issuer to issue more currency later.

In a cryptocurrency there is no central authority which keeps track and validates the transactions. The peer-to-peer network, in which transactions occur, keeps track and validates the transactions in a distributed manner.

Most cryptocurrencies have a finite amount of available coins, fact which helps them increase their value over time.

The source code which manages a cryptocurrency is always open; ignore any which uses closed source code.



Main currencies

Listing is by market capitalization, descending.

Bitcoin is the currency which has started the entire industry of cryptocurrencies. Its proof of work transaction algorithm has performance issues, and the solutions for this are not only controversial but also provide a limited performance growth.

Ethereum. Has some performance issues, but intends to switch to the more performant proof of stake transaction algorithm.

Neo (former Antshares). A Chinese cryptocurrency which can handle a huge number of transactions per second, due the its byzantine fault tolerance transaction algorithm. English documentation is available at Github.



Resources

CoinMarketCap = Statistics for all cryptocurrencies.

Bitcoin Magazine = News.

Coindesk = News.

Bittrex = Exchange.

Coinbase = Exchange. Accepts fiat.

Kraken = Exchange. Accepts fiat.

Poloniex = Exchange.



Investment strategy

The purpose of a very long term investment strategy is to maintain, and possibly grow, the value of your investment over years and decades.

Your investment value will be likely maintained even if, after years, the prices of the bought assets are below the prices that you've paid when you originally bought them. This is important because some people believe that you should invest a lot of money when the prices are low. The problem is that you can never know if a price will raise or drop after you invest (a lot of money). Even for an emergent market, you can bet that it will keep on growing, but you don't have a guarantee.

If you want to invest safely then you have to follow the prices, not an average of the prices, so you have to invest small amounts of money, often (for example, daily). Following the prices gives you the potential of small gains in exchange for small risks, that is, your are investing rather than betting (on the market).

The average of the prices shows you the past, not the future, but since nothing can guarantee what the prices will be in the future, following the average will make you either miss the fast movements which can bring you a lot of profit, or will make you buy when the market is already saturated and the prices start dropping.

To follow the market prices, buy once a day, at a preferred hour, at the market price, with a budget which is a fixed percent of your regular income, for example 5% of your daily wage.

In order to capture large movements which can bring you a lot of profit, set up multiple orders to automatically buy assets at significantly lower prices, using the (cumulated daily) budget for an entire year; the budget can be equal for each such order, since each order would be able to buy increasingly larger parts of the related asset.

Set up each such order at, say, every 30% below the highest price from the previous few weeks or months; small(er) percentages are not worth the effort (and risk) because the gained difference is too small. If the prices never drop that low then the orders are not executed and that money is safe; note that the money is reserved / unusable while the order is active. Of course, there is always the risk that the prices do drop and these orders get executed, but the prices drop even more and never recover.

Invest (early) in emergent markets, if the business model seems sound, because you can buy larger shares than in mature markets, for the same amount of money, and once the emergent markets become mature, the investment value will have grown much more than it could have grown in the mature markets.

For example an asset with a market capitalization of 1 billion (at investment time) requires 99 more billions in order to grow your investment 100 times, however, an asset with a market capitalization of 10 billions requires 990 more billions in order to grow your investment 100 times, and obviously, it's far easier for a market to grow with 99 billions than 990 billions. Of course, a small market is also riskier for investments since it could disappear easier than a large market.

Sell only when absolutely necessary, like when you can sell a part of the assets to buy a home.

Never do margin / leveraged trading; this is reserved for betting on the market, not for investments.

Don't waste your time and energy trying to predict, intuit or guess future market prices. Money is made with smart investment, trading or luck, not with guessing.

Chart overlays and indicators are like astrology, but these can cost you serious money. Still, the volatility (= the difference between the high and the low prices of a day) is an indicator of the market nervousness, which is a sign of potentially large price movements, up and down, in the next few hours or days. The reason why technical analysis fails is because it's a predictable tool which is applied to unpredictable scenarios. The reason why it may work sometimes is because it's used to look at markets which (will) move in the expected direction, for most of the time, like up.

If you want to buy or sell an asset, check the orderbook chart for that asset in order to see the strong support and resistence levels; in order to qualify as "strong", a price level must show orders with a very high volume (compared to the rest of the price levels).

Invest in a diverse set of assets whose prices are not moving in synchronicity, since it's pointless to invest in multiple assets which move up or down at the same time, with the same values.

How do you decide which asset to buy? Look at the volume / market capitalization ratio, and choose one of the top assets. Why is this? Because a high ratio indicates that the asset is being actively used, and there may even be a practical use for it, even if you can't see it; this is especially interesting if the market capitalization is small. Of course, a small market is also riskier for investments since it could disappear easier than a large market, so you might prefer to go for the larger market capitalizations.

Never invest more money than you can afford to lose!







License | Contact