Q&A Edition: this is what people asked during the AMA session.
Sharing for those who couldn't make it!
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Today, we are doing a bit of a different edition. As we just hosted our Ask Me Anything Session #2, we thought it would be a good idea to share what was discussed, in case you have similar questions and might benefit from the answers.
So here we go!
1. Can crypto companies “print” more coins, therefore reducing their value?
This is a great question, as we are currently at the mercy of our governments printing more money as a solution to all our economic issues, which ends up causing more inflation, making things even worse.
Memes apart, in the case of crypto, the answer is “it depends”. It depends because some can mint (in short, crypto word for printing) more, some can’t, and some others manage this with a different approach that will serve as a check and balance.
Let me explain a bit more:
Some cryptocurrencies have encoded in their protocol the maximum supply they will ever have, introducing scarcity in their “tokenomics”, and therefore making sure it’s a deflationary asset. For example, there will ever be a maximum of 21M BTC.
In some other projects, the supply isn’t capped, but they use other mechanisms to manage this. In the case of Ethereum for example, with its recent EIP-1559 Upgrade, for every new block created in the network, a certain amount of ETH will be burnt, therefore maintaining a balance here.
Then, there are some other cryptocurrencies that don’t really have a mechanism at all, which means that they might be able to freely mint more coins/tokens. Normally, this is the case for rather centralized companies, which essentially means decision-making power is held in a few people leading that organization.
If you are investing for longer-term, this is an important thing to factor in, as it might impact its value.
2. Following up on your answer, what other risks should we consider when investing in different projects?
More than risks, I think it comes down to 2 key things:
Understanding the projects
: not everything that shines is gold. There is a lot of noise in crypto, so as a rule of thumb always do your research to figure few key aspects that will help determine the likelihood of its long-term success. Below are what I typically look at:who the founders are,
what problem they are trying to solve,
what makes this project different from others that are doing the same thing,
who are the investors behind,
what’s the roadmap,
how big the community is.
Understanding what you want
:
knowing your goals (trading, short vs long term investment, diversify portfolio, etc), your risk tolerance, and your overall preference will help customize your approach to crypto.
These 2 things are extremely important because there is not a one size fits all sort of approach.
Additional call outs about some of the common risks/mistakes for beginners in crypto:
Trying to time the market: it is unlikely that you’ll buy at the bottom, or sell at the highest. If you do believe in a particular project, a great strategy is to dollar cost average it. This means buying a fixed amount every week or month: sometimes you’ll buy at a slightly bit higher price, sometimes you’ll buy at a lower price, but over time you’ll average it out, therefore minimizing the risks.
FOMO: there is a lot of noise, and you’ll never keep up with all of the projects that are being launched. Inform yourself and do your research, and if it becomes too overwhelming or confusing, just stick to the “safe bets” by going with the main cryptocurrencies such as BTC and ETH. Just by doing this, you are already way ahead of the majority of people.
Security & Wallets: everything is digital, so where you are storing your assets matter.
Here
is an article about Wallets if you’d like to understand a bit more.Fees & How to move your money around: whichever exchange you are using to buy your crypto, do always take a look at how you can sell and/or move it to another wallet, and what would the fee be.
3. In your article about Solana, you mentioned that Proof of History introduces the element of timestamp… but doesn’t all Proof of Stake blockchains already have this?
Proo of Stake (PoS) is a consensus mechanism that determines how and who gets to create and validate new blocks in the network, which contributes to its security.
It doesn’t come with an innate timestamp: what happens in the background is that different computers coordinate back and forth to agree on the right order of the different transactions, which can be quite time-consuming.
Think of it like trying to align the exact time in your computer, your phone, your apple watch, microwave, clock, etc. Which one is the right one?
Now, Proof of History (PoH) is not really a consensus mechanism itself. It follows a similar naming convention that PoS, and therefore can cause confusion, but what PoH does is to complement the existing PoS mechanism by tackling this time alignment issue.
What it does, in a nutshell, is to
add a timestamp to the encryption of each transaction that comes into the blockchain.
With this, it becomes the one source of truth that determines the right order of these transactions. This way, the computers in the network then do not have to do the back and forth, and by skipping this step, the network can achieve a faster speed.
4. If the Timestamp is so relevant, why don’t other blockchains do the same?
This is my personal thought… I don’t think other blockchains can’t do it. In crypto, most things are open source, and Solana’s whitepaper is out there, describing how PoH works, so if other blockchain platforms want to build it the same way, they can go ahead.
However, in this nascent and industry-shaping stage, most of the people behind the main blockchain platforms have a different vision and theory of what’s the best solution to a more decentralized, more secured, and more scalable network, that is fast and affordable for everyone.
This is probably why we have competing platforms with the likes of Ethereum, Polkadot, Cardano, Solana, Avalanche, etc. They all have their own approach, and we are lucky to be in the crypto space this early to witness how things unfold.
5. There are options to buy crypto through ETF/Funds, would you recommend this?
As far as I know, the ETFs and/or Index Funds getting created are mostly focused on the leading cryptocurrencies, such as BTC and ETH. By doing so, they are offering an alternative to people who want to diversify their portfolio and get exposure to crypto, but don’t really have the interest and/or time to educate themselves and set up the accounts required.
If you are one of these people, then I’d think it’s a good option. It’s better to access crypto through a 3P than having no access at all.
However, if you are already spending time to understand crypto, and maybe even hold your own account in an exchange, then I’d personally recommend buying crypto directly, because:
you have access to more options,
you can own it directly, without an intermediary,
most of the time, 3Ps will take up a fee and/or commission, so removing them from the equation will then make it cheaper.
A more advanced option…
If you’ve been longer in crypto and you are interested in exposing yourself to altcoins with a smaller market cap in a particular space, such as Defi or NFT, but there are too many projects so you are confused, then I’d recommend an Index Fund such as Tokenset. With them, you can buy tokens that represent a fund that has many Defi or NFT projects.
The earnings might be a bit lower, but you are minimizing your risks and also exposing yourself to many options at the same time.
The caveat is that it’s a slightly more advanced option, as you’ll need to have a Metamask Wallet, pay gas fee, etc. But if you all are into it, I can show you how to do this in our next session.
6. I’ve been reading a lot about crypto, but still find it hard to piece things together, what would you recommend?
This is completely understandable, crypto can get really overwhelming with the amount of information, the technical aspect, and how fast-moving it is.
I’d always recommend building a mental map that will serve as the foundation layer where you can place the different things you start learning about crypto in the right compartment and start connecting the dots.
The key to this, which helped me immensely, is to understand that there are different types of crypto: Bitcoin doesn’t offer the same things than Ethereum, and Ethereum isn’t the same as an NFT, which is also not the same thing as Uniswap, etc.
Here is an article
I wrote about the different types of cryptocurrencies that might help you build your own mental map.
7. Which areas do you think are going to be big?
Besides the ones that are already taking the crypto world by storm, such as Defi and NFT, there are definitely a few that I believe are going to be big areas:
Creators Economy: with the rise of Web3 and individuals being able to own their creations and forever get royalty out of it, will definitely empower more and more creators to put out their work to the world.
DAOs: I think DAOs are here to disrupt organizational management and change the way we work today, and we’ll see more organizations and people shifting towards this direction.
Virtual Reality: everything is going digital, so VR (alongside gaming) are going to have huge developments, and with this, even advertising in the virtual world will be a big thing.
Identity: as I said, everything is going online, so the way we manage our identities across the crypto world will be an important aspect of it.
Social Tokens: crypto falls back into the concept of community, which basically means how we can benefit and grow together, and as the Internet enables us to connect with like-minded people, small economies formed within these groups will increase.
Wallets: currently the options regarding how to store our crypto assets are still not really great, so as crypto becomes more mainstream, this should be an important area.
Lastly, I think Crypto Education will be a huge thing.
It’s a noisy, overwhelming and complex space, so as we move towards mass adoption, people are going to need a lot of help understanding and navigating through this.
This is exactly why Crypto Explained exists.
Crypto offers really powerful opportunities, and I strongly believe that if you can understand more and build your own mental map around it, you’ll be able to make informed decisions and make the most out of what crypto can offer.
Thanks for making it this far, I hope this Q&A was helpful to you. If you have any other questions, please share them with me in the comment section, I’ll make sure to get back to you soon!