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Ready to dive into the world of crypto? Hold your horses, because there are a couple of things you should know first.
For starters, although crypto has been around for more than 10 years, it’s still considered the cool new kid in the trading scene. The meteoric rise of certain cryptocurrencies and dramatic market swings have generated quite a huge buzz amongst investors.
Whether you’re thinking of jumping in or just want to feel less clueless when your friends start talking crypto at the dinner table, here are some things you should know about the world of cryptocurrencies.
1. What are some crypto key terms to know?
It’s all going to be Greek to you if you don’t first familiarise yourself with crypto lingo. To make life easier for you, check out Gemini’s nifty glossary of crypto terms.
Here are some of the most common terms you’re sure to come across:
- Blockchain — This is a public ledger of transactions that is maintained and verified by a decentralised, peer-to-peer network of computers that adhere to a consensus mechanism to confirm data. As each computer in the blockchain network maintains its copy of the ledger, it’s almost impossible to alter this shared record.
- Cryptocurrency — Similar to the money we have but this is a digital asset that circulates on the internet. Cryptocurrency also employs blockchain technology and is secured by advanced cryptography (where data is encrypted) so the tokens or coins cannot be double-spent.
- Altcoins — Short for “alternative coin”; basically any cryptocurrency that isn’t Bitcoin.
- dApps — This stands for “decentralised applications”, which make use of blockchain technology to address use cases ranging from investment to lending to gaming and governance. dApps may appear similar to web applications, but are distributed in a peer-to-peer fashion (decentralised) instead of from a central server.
- Cold wallet — This is a cryptocurrency wallet that is not connected to the internet, such as hardware wallets that are physical devices.
- Hot wallet — The opposite of cold wallet, this is a cryptocurrency wallet that is connected to the internet (online).
- Proof of Work (PoW) — This is a blockchain consensus mechanism that relies on a process of “mining” to maintain the network. These “miners” provide computer hardware that compete to solve the complex cryptographic puzzles required to confirm data transacted on the network, and are rewarded with the tokens themselves.
- Proof of Stake (PoS) — Another blockchain consensus mechanism, but unlike PoW, this incentivises participants to stake native coins in a network of validator nodes. Upon the close of a transaction block, validator nodes are eligible to be randomly chosen to validate block data, thus generating the subsequent block, and earning native coins as a reward.
- DeFi — This stands for “decentralised finance”. DeFi offers peer-to-peer financial services and technologies built on Ethereum. DeFi exchanges, loans, investments, and tokens are said to be significantly more transparent, permissionless, trustless, and interoperable than traditional financial services, and trend towards decentralised governance organisational methods that foster equitable stakeholder ownership.
2. What is blockchain and what does it have to do with cryptocurrency?
Blockchain, the technology that crypto is based on, is a digital ledger or account book that can log transactions on a decentralised network. In short, all records are immutable (cannot be altered).
When you buy or sell crypto, your transaction is made up of code gathered in chunks called blocks, containing all the information relating to the transaction. These blocks are recorded, verified and validated on the blockchain network as proof of your transaction. Your transaction is one of the many blocks that make up the entire blockchain ledger, and a copy of the transaction is shared with everyone on the network therefore making it difficult for anyone to change the transaction.
3. What’s the difference between a cryptocurrency and a token?
Though both of them are digital assets and available to trade on exchanges like Gemini, cryptocurrencies are the native assets of blockchains while crypto tokens are built on an existing blockchain.
For example, Ethereum is a blockchain with ether as its native cryptocurrency, but tokens like LINK and MANA do not have their own blockchain, but instead are built on the Ethereum blockchain.
While you might hear these terms used interchangeably, the technicalities behind tokens and cryptocurrencies are a bit more complex and cannot be explained in just a few sentences. Check out the other differences in this article.
4. What are stablecoins?
Cryptocurrency price fluctuations may be intimidating to some, but the price of stablecoins buck the trend — they are designed to be more stable than a chair with four legs.
To achieve this stability, they are typically fiat backed, backed by commodities like gold, or even other cryptocurrencies. For instance, the Gemini dollar and TerraUSD are both pegged to the US dollar. This means that these currencies’ value are the same as the value of the USD.
With stablecoins you can be sure that your asset value remains largely unchanged even when the market moves.
5. How can I buy my first crypto?
Your first step to buying your own crypto is to set up an account with a trusted cryptocurrency platform like Gemini. Signing up for an account is simple as you can use your Singpass to register on the spot.
With zero-fee deposits, you can transfer SGD directly from your bank to your Gemini account without any charge. You can then access Gemini either through their mobile or desktop platform (or both!), which enables you to perform instant crypto transactions and set up recurring crypto purchases.
For experienced traders, Gemini’s Activetrader is equipped with advanced or niche trading tools like advanced charting or multiple order types.
6. DYOR — Do Your Own Research
You’ve digested the basics of blockchain and opened an account. Great, what should you do now? Well, the next step is…(drum roll)… more research!
No, we don’t mean going on the hunt for the next coin that will make you rich. Instead, take the time to read up about the different cryptocurrencies on Gemini’s Cryptopedia and learn why they are popular with investors.
With a wide selection of cryptocurrencies in the market, it is tempting to follow market trends and buy whatever others are buying into. But with knowledge on the utility of each cryptocurrency, you can avoid being swayed by the volatile market prices.
7. Can I use crypto to generate passive income?
Yes! Believe it or not, many new crypto investors aren’t even aware that you can use your crypto assets to generate passive income by earning interest.
The main way you can earn interest on your crypto is by lending your coins through a crypto exchange. Gemini makes this easy to do with Gemini Earn*, which enables users to lend their crypto to borrowers in exchange for an annual percentage yield (APY) of up to 7.99%.
All you have to do is opt-in to set aside your crypto to start earning interest on a daily basis. The longer you keep your crypto in your account, the more you’ll earn.
8. Are there risks when trading crypto?
Of course lah! Like any form of investment, crypto trading has its risks. Crypto traders need to be prepared for the volatile market. As the crypto market is considered speculative, there is the potential for high returns, but the trade off is a relatively high level of risk.
So, when you enter the crypto market, open your eyes big-big, and pick up good strategies (such as Dollar Cost Averaging) to limit your risk
When it comes to safeguarding your own assets, security should be a top priority to keep your cryptocurrencies protected. That’s why it is important to do your own research first, and pick a secure exchange like Gemini before you start trading.
Now that you’ve got the basic crypto concepts down pat, learn more about the exciting world of cryptocurrency or get started with Gemini for as little as $5. Gemini is also the world’s first SOC 1 Type 2 and SOC 2 Type 2 certified crypto exchange and custodian. Learn more about Gemini’s commitment to security.
*Depending on availability. Gemini Earn is a lending program through which you may choose to lend your cryptocurrency to certain institutional borrowers. Gemini, as your custodian and agent, will offer you lending opportunities when and if available. While we expect sufficient borrower capacity for all interested Gemini customers, we cannot guarantee demand for particular cryptocurrencies or at particular rates. Loans you make through Gemini Earn may be called back by you at any time. Most withdrawal requests will be funded immediately after you call back your funds. Under some conditions, it may take up to five (5) business days from the date you call back a loan for your funds to be available for withdrawal. Earn currently supports GUSD for U.S. and Hong Kong users only.