A guide to cryptocurrency Exchange-Traded Funds, and whether investing in one is right for you.
If you’re unfamiliar with the concept of Exchange-Traded Fund (ETF), it is a type of pooled security fund that exists both in the standard investment world, and within the cryptocurrency space. It operates similarly to a mutual fund, although unlike a mutual fund, an ETF is a passively managed investment option. Like a standard ETF, a cryptocurrency ETF consists of a large number of securities. In the case of cryptocurrency ETFs, these securities consist of cryptocurrency.
Cryptocurrency ETFs fluctuate in value in line with the cryptocurrency securities that they consist of. For example, if the price of Bitcoin goes up in value, so will Bitcoin’s exchange-traded funds. The difference is that while you would trade Bitcoin on a cryptocurrency exchange, you would trade a Bitcoin ETF on a stock exchange, such as the New York Stock Exchange (NYSE) or Nasdaq.
But what are the benefits of a cryptocurrency ETF, and is it worth investing in one? Find out everything you need to know below.
The pros and cons of cryptocurrency ETFs
There are a number of benefits and drawbacks to cryptocurrency ETFs. Understanding what they are can help you to make a better informed decision as to whether you which of the two you might prefer to invest in.
Pros of cryptocurrency ETFs
More cost effective. What is usually considered to be the biggest benefit of investing in a cryptocurrency ETF as opposed to buying the crypto direct from an exchange or via a broker is that there are less hidden fees involved. Buying crypto from an exchange or via a broker usually entails overheads such as transaction fees, custody charges, commission fees, digital wallet purchase costs, deposit costs, network fees, withdrawal fees, and possibly more. None of these apply when investing in a cryptocurrency ETF, as these expenses are outsourced onto ETF providers.
Reduced risk. There is less risk of having your crypto stolen when buying shares in ETFs as opposed to buying cryptocurrency. There’s also no risk of losing your wallet keys and not being able to access your crypto, as there is with owning cryptocurrency outright.
More diversified. ETFs can hold more than one asset at a time. This means that your ETF could hold various different types of cryptocurrency, but it can also hold various stocks. Diversifying your portfolio also helps to reduce risk to your assets, as it makes it less likely to decrease in value.
Simplicity. Investing in a crypto ETF, rather than buying cryptocurrency outright, is generally easier and more user-friendly. First time crypto buyers may prefer to invest in ETFs because it is simpler and less time consuming – particularly if you are investing in more than one form of crypto.
Tax efficient. The unregulated nature of cryptocurrency means that most of the world’s tax havens and pension/superannuation funds do not allow for direct crypto purchases. ETFs, on the other hand, are regulated by the SEC. This makes them a more tax efficient purchase.
Cons of cryptocurrency ETFs
Limitations.Given that Bitcoin is unregulated and decentralised, the majority of the world’s tax havens and pension funds do not allow for purchases of Bitcoin. On the other hand, a Bitcoin ETF trading on traditional exchanges would likely be regulated by the SEC and eligible for tax efficiency.
Fees. While you may avoid many of the fees that are involved with buying cryptocurrency outright, you will still incur various management fees when opting for an ETF.
Systemic flaws. ETFs track the price of cryptocurrency and provide leverage on that price. However, crypto price may not be accurately reflected in the value of exchange-traded fund holdings. ETFs only trade during market hours, but cryptocurrency trades 24/7 – which can lead to discrepancies in pricing. This could potentially mean that you lose out on some of the value of your holdings.
Can’t be traded for other crypto. A cryptocurrency ETF cannot be traded for other cryptocurrency. If you own crypto outright, such as Bitcoin, for example, you can trade it for Ethereum, Dogecoin, or any other cryptocurrency in the same way that you can purchase it for fiat currency. Crypto ETFs, however, aren’t tradable for other crypto.
Lose decentralisation benefits. While the regulation of ETFs by governing bodies makes them more tax efficient, it does also mean that you lose some of the benefits that are associated with decentralised currency. Owning cryptocurrency outright means that you are protected by the blockchain, and it mitigates any of the risks associated with the standard financial system.
How to invest in a crypto ETF
There are three ways that you can invest in a cryptocurrency ETF. These include:
Via a brokerage. You can buy a cryptocurrency ETF by signing up to a stock broker online. You will usually be required to provide ID and a few personal details before transferring your funds.
Via an exchange. Some cryptocurrency exchanges also offer ETFs. The process of signing up with an exchange will be very similar to that of a brokerage.
Via private sale. You can only access some ETFs via private sale from the issuer. These will come with certain requirements, such as high minimum investment amounts.
Your step-by-step guide to purchasing the infamous meme crypto, DOGE.
Looking to invest in one of the most well-known lesser-known cryptocurrencies currently on the market? We’ve got you covered. See below for our handy guide to what Dogecoin (DOGE) is, and our 5 simple steps on how to buy it.
What is Dogecoin?
Like Bitcoin (BTC) or Ethereum (ETH), Dogecoin is a cryptocurrency. It was started in 2013 and based on the popular meme of the Shiba Inu dog, a Japanese breed of hunting dog (pictured). It was originally launched by crypto enthusiasts to poke fun at Bitcoin, but quickly gained traction and became one of the most popular niche decentralised currencies on the market.
Dogecoin’s success was partly down to big names such as Elon Musk and Mark Cuban publicly professing their support for the coin, with Musk even claiming it to be his favourite cryptocurrency back in 2021. That being said, its recognisability due to its origins as the first ever memecoin, as well as other forms of media attention, have also facilitated its meteoric rise which has, at times, brought it into the top 10 cryptocurrencies on the market.
While Dogecoin has been overall a success story, like most other cryptocurrencies, it has also seen its fair share of dramatic lows alongside the surging heights. Dogecoin is currently ranked as the 11th most popular cryptocurrency.
Before you start the buying process
Before you get into the logistics of actually purchasing Dogecoin, it’s imperative that you carefully consider how much you actually want to invest. While it may have made some people millionaires overnight, it’s still a very volatile currency with high risks attached.
To help you to better understand how Dogecoin is currently performing and how it is expected to perform over the coming months/years some websites, such as Finder, have made price predictions which are based on expert opinions and analysis. These predictions currently anticipate that Dogecoin’s “value should increase by roughly 16.5% by the end of 2022” which would make it a profitable investment, if proved accurate.
While these price predictions are based on the opinions of the best informed experts, and are therefore as accurate as they can be, some factors that affect the coin’s cost aren’t possible to estimate. One major such factor is how heavily its price is affected by Elon Musk’s tweets. Sadly, unless you are somehow a close friend of Musk’s, his tweets of endorsement for Dogecoin can’t be anticipated, and neither can their affect on the memecoin’s price.
When is a good time to invest in Dogecoin?
When exactly you invest in Dogecoin is still a crucial component to how much profit you will make. This is because the market fluctuates so much daily. This is partly due to the fact that unlike the stock market, which closes during non-business hours, the cryptocurrency market never sleeps – trading is active 24/7, 365 days per year.
Generally it is considered better to invest when the market is bullish, although a bearish, and even a neutral market can still prove profitable, depending on your level of trading experience.
Whatever your level of trading experience and whenever you choose to invest, it is important to never put in more money than you can afford to lose. No amount of trained experts can give you an 100% fool-proof price prediction. There’s always a chance, however small, that you could lose everything. So, don’t set the stakes too high.
How do you buy Dogecoin?
Buying Dogecoin is the same as buying any other cryptocurrency. While somewhat fewer exchanges might offer it due to its reduced popularity in comparison to bigger cryptos like Ethereum and Bitcoin, it is still a widely circulated coin that’s easily accessible to most.
You can purchase DOGE by following these simple steps:
Choose an exchange
Opt for either a centralised exchange (CEX) such as Coinbase Pro or Binance, or a decentralised cryptocurrency exchange (DEX) such as Uniswap, Bithumb, or PancakeSwap. There are also many more exchanges that offer Dogecoin.
Platform costs, such as service fees, and even the price of Dogecoin, will vary between platforms. So, it’s important to do your research and compare exchanges to find the right exchange for you.
Create and verify an account
Once you’ve researched and found an exchange that you think suits you, it’s time to set up an account. This process will vary depending on the provider you choose, but it usually only involves giving a few personal details to the service provider.
You may also be required to verify your identity with the exchange platform. This is known as a KYC (Know Your Customer) process. This might include submitting a photo of your driver’s licence or passport, and possibly a selfie to prove that you match your documentation.
Choose a payment option
In order to purchase Dogecoin, you will need to deposit money into your exchange. To do this you will need to link a bank account, or a debit/credit card to your account. If you already possess cryptocurrency, you will likely be able to trade your current crypto of choice for DOGE, depending on the currency you own and the exchange platform that you are using.
Once you have successfully added funds to your account, you can purchase DOGE, as well as other cryptocurrencies via your chosen exchange. Processing times will vary, but are usually pretty instantaneous. Remember, as mentioned earlier, that you can trade Dogecoin at all hours of the day, 7 days a week.
Store and/or withdraw your DOGE
To store your Dogecoin, you will need a cryptocurrency wallet. Some exchanges will offer these built in, but it’s still a good idea to compare your options to find the most convenient and secure way to manage your DOGE.
Thinking of investing in crypto or stocks? Find out if Binance is the right place for you.
Binance, launched in 2017, is currently one of the highest ranking cryptocurrency exchanges in the world. It is well known for its broad range of decentralised finance (DeFi) offerings, high liquidity, and interest earning opportunities.
New and experienced users can buy and trade cryptocurrency from the Binance platform with relative ease, although it is known for having somewhat a more complicated user-interface than other exchange platforms, eg. Coinbase. Binance’s Decentralised Exchange (DEX) offers fast trading performance and it’s Liquid Swap automated market maker (AMM) offers more stable prices and lower fees for large transactions.
Binance is accompanied by two blockchain networks: Binance Chain and Binance Smart Chain. These are both powered by it’s native blockchain-based token, Binance Coin (BNB). As well as facilitating Binance’s ecosystem of custom decentralised applications (dApps) that you can build yourself, these dual blockchains have made it easier and more accessible for people to earn money from cryptocurrency. You can also purchase and trade NFTs using the Binance platform.
Pros and cons of Binance
Large number of cryptocurrencies. You can buy, trade, and hold (HODL) over 600 cryptocurrencies on this platform.
Large user base. Over 90 million people currently trust and invest in Binance.
Secure storage options. Over 90% of Binance’s holdings are held in offline cold storage, meaning that they can’t be accessed by hackers.
Low transaction fees. In comparison to most cryptocurrency exchange platforms, Binance typically has low transaction fees.
Greater trading control. Binance DEX allows users to trade digital assets directly with each other, giving users more control over their funds.
Complex for new users. Binance can be a struggle for users that are not yet adept at crypto buying and trading.
Banned in several countries. Binance has limited or banned access in Ontario (Canada), China, Europe (for derivatives trading), Malaysia, Japan, Thailand, and the UK (although you can still deposit sterling on Binance via non FCA regulated payment providers). This is due to accusations that Binance has been operating without regulatory clearance from financial authorities.
History of hacking. Binance has previously fallen victim to numerous security breaches.
How much does Binance cost?
Binance charges different fees for different services. At the time of writing this article, Binance’s fees include:
Deposit Fees. Crypto deposits are free on Binance.
Transaction fees. Transaction fees apply and will vary. It’s worth noting however that you can use Binance’s native coin, BNB to pay for transaction fees, which will apply up to a 25% discount to your trading fee.
Futures trading fees. Futures trading (betting on the future price of crypto without having to own it) incurs a fee. Binance Futures Fee Structure varies depending on the circumstances of the trade.
Withdrawal Fees. Binance charges withdrawal fees that are based on its fee schedule.
Understanding the Binance user-interface
Binance’s user-interface can be complicated to wrap your head around, particularly for new users. Numerous drop down menus, including: Buy Crypto, Markets, Trade, Derivatives, Earn, Finance and NFTs, feature at the top of the homepage, with each tab hosting a variety of options in each. Tabs like “Derivatives”, which include head scratching choices like “Vanilla Options”, may seem obscure and difficult for the layman to wrap their head around without prior knowledge of the terminology, the system, how it works, etc.
Thankfully, there are numerous trading tutorials on YouTube which explain in detail how to navigate Binance’s platform. The site also offers services for all investor levels, so being a crypto expert isn’t requisite.
Which cryptocurrencies are supported on Binance?
Binance offers the following cryptocurrencies for purchase and trade*:
To sign up with Binance, you must follow these 5 steps:
Register. Sign up using the “Register” icon at the top right hand corner of the Binance homepage. You can do this by using a phone number, email address, or an Apple ID.
Create a password. Once you have registered, you will be asked to create a password. Follow the platform’s guidelines and ensure that this password is something that is not easily guessable.
Solve a puzzle. You will be required to solve a puzzle to prove that you are, in fact, a human.
Email verification. You’ll receive a 6-digit code to your email address that you must use to verify your account.
2FA and KYC verification. For security reasons, you will be required to provide either a second layer of verification (2-factor verification of 2FA), via either your phone number or Google account. You will then need to do KYC (Know Your Customer) identity verification. This will usually require ID, verification, face verification, and documents such as utility bills or proof of address.
A comprehensive overview of one of the world’s most popular cryptocurrency exchanges.
Coinbase Global Inc, launched in June 2012, is a secure cryptocurrency brokerage that can be used for purchasing, selling, trading, transferring, and storing cryptocurrency. It is one of the leading cryptocurrency exchanges currently available.
While it is an American company, Coinbase has a diverse fully remote workforce and is available in over 100 countries globally. At the time of writing this article, Coinbase has almost 90 million verified users across 11,000 institutions, as well as 185,000 ecosystem partners around the world. It also supports both fiat and cryptocurrencies. In fact, it supports the largest number of fiat currencies compared to any other exchange.
Coinbase is a beginner-friendly environment, because it makes purchasing digital currency as straightforward as buying stocks and shares online, while also offering educational tools to people who are new to crypto trading. Find out if Coinbase is the right cryptocurrency brokerage for you below.
Pros and cons of Coinbase
Beginner and user-friendly. Coinbase is an intuitive, easy-to-use platform that’s accessible to cryptocurrency beginners.
Large number of cryptocurrencies. Over 90 cryptocurrencies are currently supported on this platform.
High level security. Coinbase is considered to be one of the most secure cryptocurrency exchange platforms available. It uses two-step verification, biometric fingerprint logins, and more.
Insured. Unlike some cryptocurrency exchange platforms, Coinbase has crime insurance that protects crypto owners against theft losses, up to a certain limit.
Earn crypto while you learn. You can earn cryptocurrency rewards on Coinbase just from watching short informative videos and completing quizzes.
Cost-effective options available. You can access lower fees if you sign-up with Coinbase Pro.
Altcoin access. Coinbase previously had limited altcoin trading access, but now features over 40 altcoins that are available for purchase and trade.
High fees. Coinbase typically has higher fees than other similar exchange platforms.
Customer service issues. Coinbase has found itself the subject of criticism on multiple occasions. One of note was when it was hacked in 2021, numerous customers complained about the difficulty they faced in reaching a representative.
Availability varies. Coinbase’s crypto offerings vary depending on where you are in the world.
How much does Coinbase cost?
Coinbase isn’t particularly transparent in regards to its pricing. However, if you use the service, fees will be outlined in the trade preview screen before you submit your transaction.
How much you are charged in fees will depend on whether you are using Coinbase or Coinbase Pro. Factors that may also affect the cost of your transaction include:
Your payment method
The size of the order
Current market conditions, such as volatility and liquidity
Coinbase Pro features lower fees than the standard Coinbase platform, as well as more varied trading options. It also does not charge anything extra in sign-up costs. However, the interface is less user-friendly and is not suitable for crypto newbies.
Which cryptocurrencies are supported on Coinbase?
Coinbase offers the following cryptocurrencies for purchase and trade*:
Understanding the token art form that’s got everyone talking.
If you opened any social media app during pretty much the whole of 2021, you’ll likely have heard of NFTs. You may associate them with the blockchain, penguin communities, or even clip art – but what exactly does that all mean? In this article we will give you the full lowdown of what NFTs are, where to buy them, whether or not they’re a worthwhile investment, and what the future holds for the world of NFTs.
Find out everything you need to know below.
What are NFTs?
NFT stands for “non-fungible token”. This means that it is a non-interchangeable unit of data (or, in some cases, a physical object). To clarify that a little further: if something is fungible, it means that it can be replaced with something else that’s the same. For example, each individual bitcoin is fungible, because it is exactly the same as the next, and has the same value. In comparison, a non-fungible token is entirely unique. NFTs therefore, being one-of-a-kind, are popular tradable and collectible items.
While NFTs are generally associated with images, short videos, and GIFs, they can technically be anything. This could include Tweets, music, whiskey casks, etc.
How does an NFT work?
When an owner of an asset (either digital or physical) wants to sell/exchange it as an NFT, they must first have it ‘minted’ on the blockchain. This process generates a unique token for the asset and cements it as a one-of-a-kind piece, ready for auctioning on a marketplace. This is called a ‘smart contract’. These smart contracts are registered and recorded via the blockchain, which acts as an online ledger that keeps a record of all tokens and transactions.
NFTs originated from the Ethereum blockchain, on which the cryptocurrency ether (ETH) is held and distributed from. They are however different from ETH, ERC-20 tokens and other forms of cryptocurrency. They were launched three months after the launch of Ethereum, in October 2015 at DEVCON 1 in London, Ethereum’s first developer conference. However, it is not requisite of NFTs that they are part of Ethereum. Other blockchains, such as Cardano and TRON, have also recently started to introduce NFTs.
An NFT works in a similar way to an original painting. They are created by an artist and sold at a marketplace, usually at auction. You can copy and reproduce NFTs, but only a single person at any one time can own the original. They can be traded for other NFTs, cryptocurrency, or sold for cold hard cash. When you purchase an NFT you are often provided with a digital certificate (though there are other means of verifying NFT ownership) that authenticates you as the legal owner of that particular piece of data.
While it’s impossible to estimate the value potential of any NFT, they have been known, in the case of a digital artist known as Beeple, to sell for as much as $69 million USD. According to the auction house Christie’s, this ranks him as “among the top three most valuable living artists”.
Beeple’s collage, Everydays: The First 5000 Days, sold at Christie’s for $69 million
Are NFTs worth investing in?
This is a complicated question, as there is no way of knowing the intrinsic value of any NFT. Like any other piece of art, it’s only as valuable as the buyer deems it to be, making it a risky investment.
Unlike copies of physical art pieces, such as an original Van Gogh or a Picasso, the replicas made from downloading NFTs are identical to the original. On paper (or more accurately, digitally), this makes actually owning an NFT little more than a financial flex, because what you own can be reproduced a billion times over – at no financial benefit to you, the owner.
On the other hand, isn’t that quite similar to owning many things that are considered capitalistically “of value”? For many people, an NFT is an emotional investment as well as a financial one. You don’t necessarily buy things because of their payback potential, but because they bring you joy. You don’t buy a Versace dress you actually hate because it might be worth more than its current value in 20 years, you buy it because you love it, and you want to wear it and look fabulous. The potential accumulation of value is simply a bonus.
There is also much more to NFTs than just pieces of digital art. As mentioned earlier, NFTs can be anything that’s technically impossible to reproduce.
The future of NFTs
There has been a great deal of speculation as to what the future holds for the world of NFTs. In 2021, NFTs went from strength to strength, with celebrities from Grimes to Snoop Dogg, Linsey Lohan and even Paris Hilton jumping enthusiastically on the NFT bandwagon. In total, the sales volume of NFTs in 2021 was $24.9 billion USD. But has the initial hype fizzled out? Are NFTs really here to stay?
The overarching expert opinion is yes – but not necessarily as we know them now. As we progress further into the metaverse and Web3, NFTs are set to become more of a staple in our daily lives. For example, they are set to revolutionise the way we certify accolades, with the future of students potentially set to receive their degrees as NFTs. This will make it easier for people to prove ownership of their qualifications and will alter the face of the employment industry as we know it.
It is also already revolutionising the way we ticket events. For example, popular NFT art distributor Clay Nation currently holds open bar festival events and community meet-ups around the world for NFT ticket-holders. Because NFTs cannot be forged or faked, this kind of ticketing process enhances the exclusivity of such events.
Clay Nation offers unique NFT characters with handcrafted clay traits
Founder of Clay Nation, Lenna Onto says that “NFTs are and will be much more than digital art in terms of utility and use cases. There are endless possibilities.”
The company are also building a full scale digital environment in which holders will be able to attend immersive events and be part of a digital festival – as well as being able access physical events, just by holding the applicable NFT.
The creation, minting and trading of NFTs has made millionaires of many people across the globe in various forms; from artists and curators to agency owners and traders. This blockchain-based market has revolutionised the way we think about art consumption and engagement.
Investing in NFTs is undeniably risky, but if you do your research and compare your marketplace options, you may potentially find yourself in a lucrative trading position, (or the sole owner of your much-loved piece of art!). That being said, you should always be prepared to lose anything you spend on an NFT, as there are no guarantees.
Understanding your options for storing crypto securely both on and offline.
Cryptocurrency wallets is a digital wallet that you use to store your crypto coins or tokens, just as you’d store your cash and cards in a physical wallet. You can also access your tokens in a crypto wallet using your “private keys”. Private keys are the cryptographic information – essentially a string of secret randomised letters and numbers – that you use to access your crypto and make transactions. There are numerous different types of crypto wallets, all with different features and varying levels of security. So, which one is best for you?
While there are numerous crypto wallets available on the market, they can be separated into two main categories: hot and cold wallets.
A hot wallet, also known as a “software wallet” is a crypto storage facility that is connected to the internet. Centralised cryptocurrency exchanges (CEXs) usually offer hot wallet storage via their sites, but you can also download them.
Some hot wallets are specifically designed to be in partnership with certain web apps, which means that they may only be compatible with specific cryptocurrencies. So, if you’re interested in investing in more than one type of cryptocurrency, it is worth researching which wallets are compatible with the crypto you’re looking to buy. Many downloadable hot wallets that are compatible with multiple currencies are also free of charge.
There are 3 main types of hot wallet. These include:
As mentioned above, a web wallet is an online wallet that’s in partnership with various web apps. These services store cryptocurrency on your behalf. This means that the third party site has access to your private keys.
Ease of access. Web wallets can be accessed from anywhere and via any electronic device that is connected to the internet.
User-friendly. Web wallets generally have user-friendly interfaces, and only require an email address and username to set up.
High risk. There’s a risk of downloading viruses and malware with web wallets that leaves you open to phishing scams. The third-party provider having access to your private keys also poses a security risk to your cryptocurrency. This is because anyone with access to your keys can steal your crypto.
These wallets are, as the name suggests, downloadable as apps to your smartphone, tablet, or other mobile device. They are generally compatible with either iOS or Android.
NFC technology. Most mobile wallets are able to facilitate payments in physical stores through ‘near field communication’ (NFC) technology or by scanning QR codes. This means that you are able to spend your crypto easily where it is accepted via your mobile device.
Provide user control. No one else has access to your crypto or private keys with a mobile wallet, unlike a web wallet.
User friendly. These wallets are easy to download, with simple user interfaces. They are generally considered to be the easiest form of wallet to use.
High risk. If you lose your phone, you risk losing your crypto. That being said, you can opt for an app that allows you to back up your wallet with 12 or 24-word password protection, which will mitigate this risk.
These wallets, similar to mobile wallets, are hot wallets that you can download and install on your laptop or desktop computer. While they are hot wallets, any of these blockchain wallets offer cold storage options too. Essentially this is the same wallet, but it is not connected to the internet when it is considered “cold”.
User friendly. Desktop apps are usually considered to be easy to use.
Provide user control. No one else has access to your private keys with a desktop wallet.
Free to download. You often don’t have to pay for desktop wallets.
Secure. These apps are generally considered to be the most secure of the hot wallet options.
Cold wallet options. Desktop hot wallets generally have the option to also be cold wallets.
Virus risk. These apps can be susceptible to viruses and malware.
Lack of freedom. Unlike mobile apps or web apps, you can’t access your crypto easily on the go with a desktop wallet.
Cold wallets, also known as “hardware wallets” are physical devices in which you can store your crypto that are not connected to the internet. These can be on desktop apps, as mentioned above, or physical storage devices that are similar to USB sticks.
These wallets are particularly useful for people who have a lot of crypto, because of their high security levels.
Security. Cold wallets are by far the most secure way to store your crypto. This is because they are not connected to the internet and therefore cannot be hacked, and are not susceptible to viruses or malware.
User control. No one else has access to your private keys with a hardware wallet.
Cost. Cold hardware wallets are the highest cost crypto wallets on the market. They generally cost upwards of $100.
Physical theft risk. If someone steals your hardware device, you risk losing all of your crypto.
Less convenient. Unlike web wallets and mobile devices, you can’t access your crypto on the go with a hardware wallet. You must also transfer your crypto to a trading platform from your device in order to use it.
Earn rewards on your cryptocurrency by putting it to work on the blockchain.
“Staking” is a means of buying crypto in order to keep and hold (or “hodl“) it. The simplest possible explanation for what “staking” your crypto is to compare it directly to keeping your money in a high-interest savings account. You put your staking-compatible crypto in a cryptocurrency wallet that earns you a passive interest rate over time. This might require a bonding period. Once your crypto has successfully bonded, it will be viable for staking under the “Proof of Stake” process.
Still confused? Find out everything you need to know below.
Proof of Stake vs Proof of Work
Proof of Work (PoW) and Proof of Stake (PoS) are both means of verifying cryptocurrency. Because of the decentralised nature of cryptocurrency, it requires a consensus mechanism, such as PoW or PoS, in order to be produced.
A consensus mechanism is something that allows networks of nodes and application servers to successfully and securely work together.
Proof of Work
You might’ve heard of PoW in regards to Bitcoin’s mining process. PoW is a data solving problem that facilitates the mining of cryptocurrency, such as Bitcoin.
PoW is a means of adding new blocks of transactions to a cryptocurrency’s blockchain. This work requires generating a 256-bit number, or a “hash” that matches the current block’s target hash, which identifies it. Miners who succeed in solving these computational maths problems in order to generate this number are rewarded with a block of bitcoins.
PoW is a complex, labour intensive and energy resource consuming process. Mining requires extremely powerful computers that need to run constantly in order to generate a sufficient number of hashes to find the right combination. This uses vast amounts of electricity annually – more than some entire countries produce in the same timeframe.
Proof of Stake
PoS, on the other hand, is different form of consensus mechanism. It is a forging process that involves minting new coins, as opposed to mining them. To mint the new coins, staking compatible coins belonging to various owners are held in wallets on the blockchain. The transactions of the coins are verified when a PoS protocol chooses a validator node to review the block. If the transactions in question are all accurate, they add a block to the blockchain.
Once a new block has been added to the blockchain, the owners of the stakes coins receive crypto rewards for their contribution. The owners of active wallets are rewarded with roughly 10% of the value of the distributed coins. How much each owner receives will depend on the value of their stake and the rewards in question.
PoS is a much more energy efficient means of verifying cryptocurrency. This is because it requires much less electricity than mining. Staking can for instance be run from a simple home desktop or laptop computer.
Which cryptocurrencies are compatible with staking?
Cryptocurrencies that are currently compatible with staking include:
How much you can earn from staking crypto is based on a number of factors. These can include how much crypto you have, where you’re staking the crypto, what coins you have and the performance of those coins in a year.
Some of the larger cryptocurrencies, such as ETH, ADA and DOT average an annual return from 5% to around 20%. Some of the smaller cryptocurrencies, however, can make upwards of 20% per year, and sometimes even as high as 100%.
Is there any risk involved with staking?
Staking is generally considered to be a low-risk method of making a passive income on your crypto. That being said, this doesn’t make it completely risk-free. These risks include:
Validator faults. If the validator node that reviews the block finds inconsistencies with the transactions in the wallet(s) where your staked crypto is being held, you may lose some of your assets (or simply not earn money from them).
Hacking and breaches. If your wallet gets hacked, you could lose some, or all of your crypto.
Volatility. Crypto prices are notoriously volatile and can shoot up or down rapidly. If the crypto that you have purchased goes down in value, it will ultimately reduce its worth, losing you money.
How to stake crypto
There are 3 easy steps to staking cryptocurrency:
Choose a coin. You must first do your research on the best staking crypto for your goals. Once you’ve chosen, you need to then purchase the desired amount. In order to do this, you must first learn the minimum staking requirement for that currency. For example, ETH has a minimum staking requirement of 32 ETH. At the time of writing this article, that equates to about $134,324 AUD.
Download the wallet for the desired coin. Compare crypto wallets and choose one in which to store your coins for staking. This could require you to go directly to the main website of your specific chosen crypto and downloading its corresponding wallet.
Choose your hardware. Staking crypto requires you to have a 24/7 uninterrupted internet connection. While your run-of-the-mill desktop computer may be up to the task, this might be a less cost effective and environmentally friendly piece of hardware than others, due to the heavy electrical consumption. Therefore, it’s worth doing your research into what hardware could work best for you.
Once you’ve achieved all of the above, you can start to stake your crypto.
A guide to buying ETH on the Ethereum network. Is it a good investment for you?
If you’ve heard of ETH or Ethereum, you likely know something of the part it plays in the creation and sale of NFTs. You may also know that it is currently ranked as one of the highest performing cryptocurrencies currently on the market. But what exactly is Ethereum, how does it differ from Ether, and most importantly, how do you buy it?
What is Ethereum?
Contrary to popular belief, Ethereum is in fact not a cryptocurrency. Ethereum is the name for the blockchain on which the native cryptocurrency Ether, or ETH, is held and distributed from. If you’re new to the world of crypto, a blockchain is a decentralised public ledger that exists to securely facilitate and keep a record of multistep transactions. These transactions are known as “smart contracts”.
Smart contracts are created and issued by ERC-20 tokens. ERC stands for “Ethereum request for comment” and it is the standard token used for issuing smart contracts on the Ethereum blockchain.
Users of the Ethereum blockchain must purchase and spend Ether to make transactions on the Ethereum platform. This includes the purchase or trading of NFTs (though NFTs are now available on several blockchains).
Users who wish to purchase and trade Ether must have an Ethereum wallet in order to do so. Ethereum wallets are secure and can be downloaded and set up onto a computer, smartphone or other mobile device.
What is ETH?
ETH is a decentralised cryptocurrency, launched in 2015, which is available on the Ethereum blockchain. It can be used as a purchasable investment and to trade via a centralised or decentralised market platform. The value of ETH, much like any other crypto, fluctuates in line with the current market. At the time of writing this article, the value of a single ETH is roughly $4,064 AUD, $2,960 USD, or £2,215.
ETH is currently the second largest cryptocurrency after Bitcoin (BTC). This is largely due to the role it plays in the NFT market. Unlike BTC, however, ETH has a much larger circulation supply. While Bitcoin’s circulation will only ever be 21 million, ETH’s current circulation supply stands at 119.7 million.
A number of renowned digital currencies use the ERC-20 standard. These include Augur (REP), Basic Attention Token (BAT), Maker (MKR), and OMG Network (OMG).
How do you buy Ethereum/Ether/ETH?
Buying ETH is much the same as buying any other cryptocurrency. Most exchanges, both centralised and decentralised, offer ETH on their platforms.
In our last article “How to buy Bitcoin” I outlined a step-by-step guide to purchasing a cryptocurrency. Purchasing ETH follows the same steps:
Choose an exchange
Opt for either a centralised exchange (CEX) such as Coinbase, eToro, Binance, or a decentralised cryptocurrency exchange (DEX) such as Uniswap, SushiSwap, or Bancor.
In some instances, you may also be able to buy ETH directly via an Ethereum wallet.
Costs, such as service fees, will also vary between platforms. Therefore it’s worth doing your research and comparing exchanges to find the best fit for you.
Create and verify an account
Once you’ve found the right exchange for you, you’ll need to set up an account. This process will vary from platform to platform, but usually only involves giving a few personal details to the service provider.
You may also be required to verify your identity with the exchange platform. This might include submitting a photo of your driver’s licence or passport.
Add funds to your account
You will need to link a bank account, or a debit/credit card in order to buy your ETH. If you already own crypto, you will also likely be able to trade your current crypto for ETH, depending on the currency you own and the exchange you are using.
Once your account is funded you will be able to purchase ETH and other cryptocurrencies via your chosen platform. Be aware that because of the decentralised nature of the currency, the price of ETH may vary somewhat between exchanges. Processing times may also vary.
Withdraw and store your ETH
Once you have purchased your ETH, you will want to store it securely. You can do this in either a hot or a cold digital wallet. Centralised exchanges often offer to store your crypto for you. However, it’s a good idea to check the security of the platform in question before you decide whether or not you want to leave your money where it is.
Is investing in Ethereum a good idea?
As mentioned earlier, ETH is, at the time of writing, currently booming across the crypto market. This is largely down to its necessity in the purchase of NFTs, it’s secure blockchain (and therefore more secure currency than most cryptos), and Ethereum’s role as a network hub for emerging markets.
But does that necessarily make it a good investment?
A potential downside to buying ETH and investing in the Ethereum blockchain could include it’s unlimited nature. Unlike BTC, ETH’s circulation limit is not capped. This means that it is still being produced, and this could, in theory, bring its value down, because it lacks scarcity.
That being said, the uncapped nature of ETH is also a positive in some respects. Transactions come with practical utility, self-executing contracts and fast transaction times. ETH does not face the same constraints as Bitcoin or other limited currencies.
If you think that investing in Ethereum is right for you, it’s definitely worth considering the points outlined in this article, as well as doing your own research.
Understanding how and where to buy your crypto, and the potential risks involved.
Buying cryptocurrency can be a relatively straightforward process, and there are numerous ways to do it which are accessible to almost anyone. That being said, some methods of buying crypto come with higher risks and/or returns. So, it’s worth doing your research on how to buy cryptocurrency before taking the plunge.
Whether you’re new to crypto or a seasoned trader, see below for some useful insight into where to purchase your crypto and the benefits and risks involved.
What are cryptocurrencies?
A cryptocurrency is a digital asset that is traded on a global market. Unlike stock market trading, which operates only within certain hours of the day and on weekdays, cryptocurrency can be traded 24 hours a day, 7 days a week, 365 days of the year. There is no centralised governance of the market.
Being able to trade cryptocurrency 24/7 has some obvious advantages. Prospective investors do not need to wait around for the NYSE, NASDAQ or another exchange to open in order to buy crypto and start trading. The fact that the market is open around the clock also has the advantage of driving up profits for the industry.
A downside to the market never closing is that it results in huge fluctuations within the market at all hours of the day and night. Every few hours a part of the world wakes up and starts trading, which has a massive effect on market outcome. This can make the market unpredictable and can be exhausting for prospective buyers, traders, and sellers of crypto, who may feel that they need to trade round-the-clock in order to stay abreast of the latest updates.
Where can I buy crypto?
There are a number of different platforms where you can purchase cryptocurrency. These platforms are generally separated into two main factions: centralised exchanges (CEX) and decentralised exchanges (DEX).
Centralised exchanges (CEXs)
With around 99% of crypto exchanges being made via these platforms, the most common place to buy cryptocurrency is a centralised online exchange. While cryptocurrency is technically “decentralised”, as mentioned above, centralised markets do exist within the crypto space in the sense that the central aspect of said market is an acting “middle-man” service provider who enables users to buy, trade, and sell crypto via their platform.
Centralised cryptocurrency exchanges essentially act as third-party brokers which oversee transactions and provide customers with the knowledge security that they are getting what they pay for. Generally, these platforms facilitate the buying and selling of crypto at market value, while making a profit off of various service fees.
Some of these brokers deal singularly in cryptocurrency, whereas others allow users to purchase crypto alongside their standard stock offering.
Popular examples of CEXs that deal purely in crypto include:
Pros and cons of centralised cryptocurrency markets
Used by the vast majority of crypto buyers. Centralised exchanges account for roughly 99% of cryptocurrency trading volume. This can make them more straightforward and user-friendly for first-time crypto buyers, as they can guide you through the purchasing process.
Higher levels of liquidity. Due to there being more market participants, there is consistently high liquidity in centralised cryptocurrency markets.
More regulated. Centralised crypto exchanges are better regulated by financial authorities and follow more compliance procedures than decentralised markets.
Better infrastructure. Because of their higher popularity, and therefore profit, centralised markets are able to offer better infrastructure such as faster transaction speeds. This often allows users to make purchases, sales, or trades in less than a second.
Potential hacking. Because of high trading volumes, centralised markets are an attractive target for hackers. While some centralised markets, eg. Coinbase, are insured by the FDIC (Federal Deposit Insurance Corporation) this is only up to $250,000 USD, and this type of insurance is not requisite of, or available to, all centralised market exchanges.
The buyer does not retain full control of their assets. When purchasing crypto, you are given a private key, which is a randomly generated string of letters and numbers, which allows you to store and spend your crypto via a digital wallet. With a centralised exchange, you entrust your private keys to the market that you purchase from, meaning that you don’t have full control of your money.
They keep their systems off the blockchain. Centralised markets do not record their transactions on the blockchain, a database distributed amongst nodes in a computer network (Ethereum and Binance Smart Chain are examples of blockchains). This means that there is no totally secure record of these transactions, which can lead to security breaches.
Fees. Centralised markets make their money from charging their users fees for their services.
Decentralised exchanges (DEXs)
Decentralised exchanges, on the other hand, are markets that exist directly on the blockchain. Where centralised markets exist as third-party brokers, decentralised markets allow for peer-to-peer transactions. This is often referred to as a “trustless” environment, because you are not entrusting your private keys or information to an outside source.
Decentralised exchanges are notably less popular than centralised exchanges, although their popularity is currently rising. This is due to the fact that they offer solutions to many (if not all) of the problems posed by centralised exchange platforms.
Pros and cons of decentralised cryptocurrency markets
Secure. A major benefit of a decentralised market exchange is that there is almost 0% chance of hackers infiltrating the system and stealing your funds, or any other security risks.
Buyers retain total control. When buying through a decentralised exchange, you retain control of your private keys, rather than relinquishing them to a third-party. Trading is made directly from a personal wallet or cold storage device.
Greater diversity. You can access, buy, trade, and sell a greater number of coins using a decentralised market than a centralised one. Some centralised markets may only allow you to trade popular coins, such as ethereum or bitcoin, but decentralised markets offer full access to all available coins.
Low/no fees. Decentralised markets charge minimal or no fees for their services.
Lack of liquidity. Because these markets are lesser-known and lesser-used, they often lack sufficient liquidity to trade effectively.
Have centralised components. While in theory decentralised markets are “impossible” to hack, this is often not in fact the case, because many of them have centralised components, which could pose the same issues as centralised markets.
Experienced buyers only. Only people with a good understanding of cryptocurrency trading ought to attempt to make purchases via a decentralised market exchange. They have complex user interfaces, which can be confusing for new traders.
Less features available. Orders on decentralised exchanges tend to take longer, and the platforms themselves offer less features than centralised markets.
Whether you are looking to buy crypto on a centralised or a decentralised exchange, it’s good to do your research on as many options as possible prior to making a purchase by comparing exchange platforms.