You invest in ETFs, shares, real estate, gold, savings accounts or similar, have recently heard about these "cryptocurrencies" and would now like to join the discussion with the cool kids? Then please read on. This series of articles reveals the basics of the crypto world, touches on a variety of topics and remains superficial at beginner level - the perfect basis for delving deeper into individual areas on your own or shining at the regulars' table with dangerous half-knowledge.
Part 1 was about what cryptocurrencies actually are and what added value they can generate. You can find part 1 here: https://app.getquin.com/activity/buTJFYxcSD
In the second part, I looked at the technology and security of cryptocurrencies, which you can read here: https://app.getquin.com/activity/QHAzXeXlSO
This part is probably about the most important question for you: How can I earn money with cryptocurrencies? This is purely my personal experience, with no claim to completeness and certainly no investment advice!
𝗩𝗲𝗿𝘀𝘁𝗮𝗻𝗱𝗲𝗻, 𝗘𝘀𝗲𝗹! 𝗪𝗮𝗿𝘂𝗺 𝗴𝗶𝗯𝘁𝘀 ü𝗯𝗲𝗿𝗵𝗮𝘂𝗽𝘁 𝘂𝗻𝘁𝗲𝗿𝘀𝗰𝗵𝗶𝗲𝗱𝗹𝗶𝗰𝗵𝗲 𝗞𝗿𝘆𝗽𝘁𝗼𝘄ä𝗵𝗿𝘂𝗻𝗴𝗲𝗻, 𝗶𝗻 𝗱𝗶𝗲 𝗶𝗰𝗵 𝗶𝗻𝘃𝗲𝘀𝘁𝗶𝗲𝗿𝗲𝗻 𝗸𝗮𝗻𝗻?
Cryptocurrencies can differ, for example, in how quickly coins can be sent from A to B, how high the fees for such a transaction are and how much electricity is consumed in the process. The range of functions and the "specialty" of cryptocurrencies can also differ. Bitcoin is mainly seen as a store of value and means of payment, Ethereum has made smart contracts and DApps socially acceptable, Iota was designed for micro-transactions in the Internet of Things (IoT) and Cosmos is trying to act as a link between different crypto networks.
However, the majority of cryptocurrencies only exist to make a profit. The overwhelming majority of all cryptocurrencies will disappear into insignificance in months or years and are only worthwhile for short-term and highly speculative investments, which can sometimes fall to 0.
𝗚𝗲𝗶𝗹, 𝗵𝗶𝗻𝘂𝗻𝗱 𝗵𝗲𝗿 𝗺𝗮𝗰𝗵𝘁 𝗧𝗮𝘀𝗰𝗵𝗲𝗻 𝘃𝗼𝗹𝗹! 𝗜𝗰𝗵 𝗺𝗮𝗴 𝗵𝗼𝗰𝗵𝘀𝗽𝗲𝗸𝘂𝗹𝗮𝘁𝗶𝘃𝗲 𝘂𝗻𝗱 𝗸𝘂𝗿𝘇𝗳𝗿𝗶𝘀𝘁𝗶𝗴𝗲 𝗔𝗻𝗹𝗮𝗴𝗲𝗻. 𝗩𝗼𝗿𝗿 𝗮𝗹𝗹𝗲𝗺 𝘄𝗲𝗻𝗻𝗻 𝗶𝗰𝗵 𝗸𝗲𝗶𝗻𝗲 𝗔𝗵𝗻𝘂𝗻𝗴 𝗱𝗮𝘃𝗼𝗻 𝗵𝗮𝗯𝗲. 𝗘𝗿𝘇ä𝗵𝗹 𝗺𝗶𝗿 𝗺𝗲𝗵𝗿!
Cryptocurrencies are generally highly speculative and very volatile. They are also unregulated, which means that absolutely anyone can create a cryptocurrency. These are often tokens that do not have their own blockchain but use an existing blockchain. For example, there are a large number of so-called ERC-20 tokens on the Ethereum blockchain [1]. Such tokens/coins can generate brutal short-term price gains or losses due to wild promises, hype, a meme or people like Elon Musk. If you want to multiply your stake in the shortest possible time or send it to 0, you can deal with such hype coins and try to identify favorable entry and exit points. For example, the meme coin Shiba Inu cost €0.000004 on 02.10.2021 - only to rise to €0.000104 at its peak on 28.10.2021. The coin has multiplied its price by a factor of 26 in less than a month. By February 2022, however, it had fallen again to 0.000016 euros. [2]
As there are so many cryptocurrencies, it is extremely difficult to find the right coin and the right entry and exit time. So-called exit scams and rug pulls [3], where developers of a coin simply make off with investors' deposits, pose a further danger. The Squid game rug pull, in which investors were cheated out of USD 3.3 million at the end of 2021, is one of the more recent examples [4].
Personally, I would therefore only invest in established projects that I believe generate added value and have potential. Of course, it is tempting to gamble a little with smaller sums. However, if I enter into an experiment with 100 euros, for example, and make 100% profit, I still only have 200 euros. Everyone has to decide for themselves whether the thrill and risk is worth it. For example, I took part in an ICO (Initial Coin Offering, the equivalent of an IPO) in 2017 and invested 5 Ether worth 1,000 euros at the time. Unfortunately, the project never really got off the ground and my money is long gone. If I had simply kept my 5 ether and not taken part in the ICO, I would have turned the 1,000 euros into over 10,000 euros today.
𝗠𝗼𝗺𝗲𝗻𝘁, 𝗷𝗲𝗱𝗲𝗿 𝗸𝗮𝗻𝗻𝗻 𝗺𝗶𝘁 ü𝗯𝗲𝗿𝘀𝗰𝗵𝗮𝘂𝗯𝗮𝗿𝗲𝗺 𝗔𝘂𝗳𝘄𝗮𝗻𝗱 𝗲𝗶𝗻𝗲 𝗞𝗿𝘆𝗽𝘁𝗼𝘄ä𝗵𝗿𝘂𝗻𝗴 / 𝗲𝗶𝗻𝗲𝗻 𝗧𝗼𝗸𝗲𝗻 𝗲𝗿𝘀𝘁𝗲𝗹𝗹𝗲𝗻? 𝗜𝗰𝗵 𝗿𝗶𝗲𝗰𝗵𝗲 𝗚𝗲𝗹𝗱!
Yes, this is another way to make money with crypto. You can create your own currency - e.g. as a token on an existing blockchain. I've never done this myself, so I won't recommend any articles here. But you are welcome to google "create erc20 token" - you should find plenty of instructions and examples here. Maybe you can also advertise your token properly and then do your own little rug pull? With honest means and without added value / unique selling point, it might be difficult to earn money with your own cryptocurrency.
NFTs are currently very popular. With NFTs, you can create unique tokens that make, for example, your farts [5], your tweets [6] or pictures of monkeys [7] tradable on a blockchain. Perhaps someone will soon be auctioning off the rights to their GetQuin posts? So you can create "digital art" and sell it via platforms like https://opensea.io/ sell it. If you can now find a buyer and you actually own the rights to your art, nothing stands in the way of immeasurable wealth. And unlike rug pulls with self-created cryptocurrencies, it's not even illegal.
Conversely, you can of course also buy NFTs and speculate on a higher sales value. The whole thing becomes more exciting in the context of computer games, where you can purchase unique items as NFTs, for example. With https://sorare.com there is even a soccer manager and trading card game in which you can purchase player cards as NFTs, form your team from them and, ideally, sell them again later at a profit.
𝗗𝗮𝘀 𝗸𝗹𝗶𝗻𝗴𝘁 𝗷𝗲𝘁𝘇𝘁 𝗱𝗼𝗰𝗵 𝗮𝗹𝗹𝗲𝘀 𝘇𝗶𝗲𝗺𝗹𝗶𝗰𝗵 𝘄𝘆𝗹𝗱. 𝗞𝗮𝗻𝗻𝗺𝗮𝗻 𝗮𝘂𝗰𝗵 𝗵𝗮𝗹𝗯𝘄𝗲𝗴𝘀 𝘀𝗲𝗿𝗶ö𝘀 𝗺𝗶𝘁 𝗞𝗿𝘆𝗽𝘁𝗼𝘄ä𝗵𝗿𝘂𝗻𝗴𝗲𝗻 𝗚𝗲𝗹𝗱 𝘃𝗲𝗿𝗱𝗶𝗲𝗻𝗲𝗻?
Definitely! You can analyze crypto charts and buy / sell based on them or follow a buy & hold strategy (or hodl, as the crypto community says). When hodling cryptocurrencies, you should pay attention to the fundamentals - just like when buying shares. You can pay attention to market capitalization, trading volume, the age of the cryptocurrency, security, decentralization, energy consumption, transaction speed, developer (individual(s) vs. company vs. large community), projects / use cases, usage and / or the specialty of the cryptocurrency.
In general, many cryptocurrencies try to solve similar problems. Analyze what makes the cryptocurrency of your choice different and better than other cryptocurrencies and what added value it generates. What is its unique selling point? Why should someone use exactly this cryptocurrency in the future and not another or even a centralized solution? It takes work to find suitable cryptocurrencies for an investment. And once you have found them, you will probably find other cryptocurrencies with similar fundamentals shortly afterwards.
So-called Proof of Stake (PoS) [8] cryptocurrencies such as Ada can also be staked. By staking, you support the network and receive interest in the respective cryptocurrency. The amount differs from cryptocurrency to cryptocurrency and is around 5% per year for Ada [9]. Note, however, that the additional coins have to come from somewhere and imply a corresponding inflation of the respective cryptocurrency. As staking is a native function of PoS cryptos, you do not need a central instance such as a crypto exchange. The investment and payout takes place directly within and through the crypto network. If you don't want to deal with the manual staking process, you can often also stake via central crypto exchanges. This is of course convenient, but does not support the network and you lose control over your coins (see part 2 https://app.getquin.com/activity/QHAzXeXlSO ). If you are invested in a PoS cryptocurrency, I would therefore recommend native staking in the network without a central instance.
If you hold a Proof of Work (PoW) cryptocurrency such as Bitcoin, it cannot be increased by staking for the time being. Instead, PoW coins are created by solving arithmetic operations, known as mining [10]. To obtain new PoW coins, you can equip yourself with special hardware, install software and mine new coins from home. Nowadays, however, many cryptocurrencies require huge initial investments in the corresponding hardware. In addition, there is extreme power consumption and highly volatile cryptocurrency prices. In my view, mining is not normally worthwhile for private individuals in Germany.
𝗢𝗸𝗮𝘆. 𝗞𝗹𝗶𝗻𝗴𝘁 𝗷𝗮 𝘀𝗰𝗵𝗼𝗻 𝗳𝗮𝘀𝘁 𝗹𝗮𝗻𝗴𝘄𝗲𝗶𝗹𝗶𝗴. 𝗚𝗶𝗯𝘁𝘀 𝗻𝗼𝗰𝗵 𝗶𝗿𝗴𝗲𝗻𝗱𝘄𝗮𝘀 𝘇𝘄𝗶𝘀𝗰𝗵𝗲𝗻 𝗵𝗼𝗱𝗹𝗻 𝘂𝗻𝗱 𝗥𝘂𝗴 𝗣𝘂𝗹𝗹?
Definitely! On platforms like https://crypto.com you can also generate "interest" on your PoW crypto deposits. However, this is done by the respective platform and independently of the network. For example, by lending your coins to other market participants. On many platforms, this also works for so-called stablecoins [11], whose value is linked to another asset such as the dollar. This means that when investing in such stablecoins, you at least don't have to endure the additional price fluctuations of "normal" cryptocurrencies.
Some platforms such as Binance also offer other investment products for your cryptocurrencies. These include, for example, futures or the provision of liquidity for certain crypto trading pairs. If you want to avoid central platforms - in line with the crypto concept - you can use DeFi (Decentralized Finance) [12]. DeFi allows you to trade cryptocurrencies in a decentralized manner and invest your coins - for example in lending products, i.e. lending your coins.
One request: Read up on the subject in detail before you invest money in cryptocurrencies or increase (or decrease) your cryptocurrencies with a corresponding product. Especially if you want to generate interest income with your cryptocurrencies, you should take a close look at how the respective product works and the associated risks. The market is not regulated. If you make a mistake or don't understand an investment product and your money is gone as a result, no one will replace it! In principle, the operator of a product can also go bust at any time.
𝗞𝗼𝗺𝗺𝗲𝗻 𝘄𝗶𝗿 𝗻𝗼𝗰𝗵 𝗲𝗶𝗻𝗺𝗮𝗹 𝘇𝘂𝗺 𝗞𝗮𝘂𝗳 𝘂𝗻𝗱 𝗩𝗲𝗿𝗸𝗮𝘂𝗳. 𝗦𝗶𝗻𝗱 𝗞𝗿𝘆𝗽𝘁𝗼𝘄ä𝗵𝗿𝘂𝗻𝗴𝗲𝗻 𝘇𝘆𝗸𝗹𝗶𝘀𝗰𝗵? 𝗚𝗶𝗯𝘁 𝗲𝘀 𝗶𝗿𝗴𝗲𝗻𝗱𝘄𝗲𝗹𝗰𝗵𝗲 𝗢𝗿𝗶𝗲𝗻𝘁𝗶𝗲𝗿𝘂𝗻𝗴𝘀𝗽𝘂𝗻𝗸𝘁𝗲 𝗮𝘂ß𝗲𝗿𝗵𝗮𝗹𝗯 𝗱𝗲𝗿 𝗙𝘂𝗻𝗱𝗮𝗺𝗲𝗻𝘁𝗮𝗹𝘀?
In general, a distinction is made between Bitcoin, as the first of all cryptocurrencies, and the cryptocurrencies that followed it, the so-called altcoins. It can often be observed that altcoins also react accordingly shortly after Bitcoin has risen or fallen significantly and move in the same direction [13]. This can be observed for the vast majority of altcoins, but of course not always for all of them. If altcoins rise after a rise in Bitcoin, this is referred to as an altcoin season [14].
In recent years, Bitcoin seems to have correlated with equities. This was not always the case, but could be observed in 2020 to 2021 [15]. An investment in cryptocurrencies therefore currently only insufficiently diversifies you from the stock market. At the same time, you can of course try to use this knowledge for your investments. However, bear in mind that this correlation does not have to last forever.
In the past, one recurring event in particular has caused enormous increases in the price of Bitcoin: the so-called halving. Halving occurs approximately every four years, the next time in 2024, when the amount of Bitcoin that miners receive as a reward for providing computing power is halved. The miners currently receive 6.25 Bitcoin per block and from 2024 only 3.125 Bitcoin. In other words, they will only receive half the dollar equivalent for the same performance. Enormous price increases have been observed in the past as a result of such a halving. After the first halving in 2012, the Bitcoin price rose from USD 12 to over USD 1,000 at the end of 2013. Before the second halving in 2016, the price stood at USD 650, only to rise to almost USD 20,000 within 1.5 years. Before the last halving in May 2020, the Bitcoin price was below USD 10,000 and has peaked at over USD 60,000 to date. In the past, a halving has therefore been followed by a rapid rise in the price, followed by a huge drop in value, but never below the price level before the halving. If we look at past price trends on this basis, the last ATH may not be broken again until 2024 / 2025. There could also be further price losses, but never below the USD 10,000 mark. [16] [17]
𝗜𝗰𝗵 𝘄𝗲𝗶ß, 𝗸𝗲𝗶𝗻𝗲 𝗔𝗻𝗹𝗮𝗴𝗲𝗻𝗯𝗲𝗿𝗮𝘁𝘂𝗻𝗴. 𝗔𝗯𝗲𝗿 𝘀𝗮𝗴 𝗱𝗼𝗰𝗵 𝗺𝗮𝗹: 𝗔𝘂𝗳 𝘄𝗮𝘀 𝘀𝗲𝘁𝘇𝘁 𝗱𝘂?
I hold Bitcoin and Ether because they are the largest and most important cryptocurrencies and I consider the risk with both of them to be significantly lower than with all other altcoins. I also own Iota and Hbar. Both rely on DAGs (decentralized directed graphs) instead of a blockchain. In theory, DAGs are superior to blockchains and could become something like blockchain 2.0. In practice, however, this still needs to be proven. So this is a bet on highly speculative coins. Otherwise, I believe that the top 3-100 cryptocurrencies differ only very slightly (exceptions such as Iota and Hbar prove the rule) and that almost any of these currencies can go to 0 or 100. However, I would like to diversify my portfolio a little, which is why I have relatively randomly added Ada to my hardware wallet as a fifth currency.
I stake my Ada and Iota in the respective network. BTC, ETH and Hbar are sitting quite uselessly in their wallets, waiting for prices to rise. I also have a few stablecoins that I have invested with Binance to generate a little return.
𝗛𝗮𝘀𝘁 𝗱𝘂 𝘀𝗼𝗻𝘀𝘁 𝗻𝗼𝗰𝗵 𝗲𝗶𝗻𝗲𝗻 𝗧𝗶𝗽𝗽 𝗳ü𝗿 𝗺𝗶𝗰𝗵?
Deal with the taxation of your crypto income (sale, staking, DeFi, ...) in good time. In Germany, for example, there is a tax-free contribution. In addition, cryptocurrencies can be sold tax-free after a holding period of one year.
𝗜𝗰𝗵 𝗳ü𝗵𝗹𝗲 𝗺𝗶𝗰𝗵 𝗷𝗲𝘁𝘇𝘁 𝗯𝗲𝗿𝗲𝗶𝘁 𝗺𝗶𝘁 𝗞𝗿𝘆𝗽𝘁𝗼 𝗠𝗶𝗹𝗹𝗶𝗮𝗿𝗱ä𝗿 𝘇𝘂 𝘄𝗲𝗿𝗱𝗲𝗻! 𝗪𝗼 𝗸𝗮𝗻𝗻 𝗶𝗰𝗵 𝗸𝗮𝘂𝗳𝗲𝗻?
A comparison of the most popular crypto exchanges has @Europoor already created. I recommend you take a look at his site: https://app.getquin.com/activity/PfAxjKLYpc
I personally use Binance, Kraken and Bison. If you enjoyed this series of posts and would like to sign up with Binance or Bison, feel free to use one of my ref links.
Binance (refund 10% of your transaction fees to you and me): https://accounts.binance.com/en/register?ref=YQXHXPWS
Bison (15€ in BTC to you and me if you trade more than 50€): https://join.bisonapp.com/pd2u9c
Alternatively, you are of course welcome to leave a Lambo on my doorstep as soon as you become a billionaire.
Sources
[1] https://www.bitpanda.com/academy/de/lektionen/was-ist-der-erc20-token-standard/
[2] https://coindaten.at/kurs/shiba-inu/
[3] https://coinmarketcap.com/alexandria/glossary/rug-pull
[4] https://www.washingtonpost.com/world/2021/11/02/squid-game-crypto-rug-pull/
[6] https://v.cent.co/tweet/20
[7] https://boredapeyachtclub.com/
[8] https://www.btc-echo.de/academy/bibliothek/proof-of-stake/
[9] https://www.adatainment.com/index.php?page=staking_calculator
[10] https://www.bitpanda.com/academy/de/lektionen/was-ist-bitcoin-mining-und-wie-funktioniert-es/
[11] https://www.coinbase.com/de/learn/crypto-basics/what-is-a-stablecoin
[12] https://www.coinbase.com/de/learn/crypto-basics/what-is-defi
[13] https://www.commpro.biz/why-does-bitcoin-have-such-a-big-influence-on-other-cryptocurrencies/
[14] https://zipmex.com/learn/what-is-altcoin-season/
[15] https://blogs.imf.org/2022/01/11/crypto-prices-move-more-in-sync-with-stocks-posing-new-risks/
[16] https://bitcoin-2go.de/bitcoin-halving/
[17] https://finance.yahoo.com/quote/BTC-USD/history
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