From BTC & ETH to Staking & Farming to Metaverse & NFTs!
Like the early internet era, the current crypto industry is a melting pot of frenetic-paced innovation.
In this article, I’m going to give you a high-level overview of what’s going on in 2022.
- Who buys crypto? Investors vs political idealists vs Web3 techies.
- Where to buy crypto? CeFi vs DeFi.
- What & When to Buy? BTC or altcoins? Invest vs trade?
- Passive income! Staking / farming / lending.
- Market trends in 2022. DeFi 2.0, Web3, metaverse, NFTs, DAOs & so on.
If you’re new or need a refresher, strap in!
Crypto buyers typically fall in the following camps:
- The get rich crowd. Who really wants to work 9–5 until they’re 65? Give me that Lambo life, baby!
- The political idealist crowd. Think libertarians who distrust government and the small guys screwed by corporate greed and Wall Street.
- The blockchain crowd. Think smart contracts and Web3. The future of the internet is decentralised.
This is how most retail investors enter the crypto space. Who doesn’t get lured by captivating tales of rags to riches?
Bitcoin (BTC) has outperformed stocks, real estate and bonds by an order of magnitude over the past decade. Had you put aside $4 for that cup of coffee in 2010 into BTC instead, you’d be sitting on $700,000 right now.
Ethereum (ETH), the second largest cryptocurrency, has done even better.
There are over 10,000 smaller cryptocurrencies beyond BTC and ETH.
One savvy investor’s $8000 investment into Shiba Inu (SHIB) last year exploded into $5.7 billion months later. Yes, you heard right.
Let’s Get Political
But why has bitcoin’s price exploded?
Part of the reason is political. BTC appeals to an increasing number of people around the world who are sick of censorship and centralisation and downright government tomfoolery.
In the wake of the global financial crisis, where unbridled greed by the few ultimately sowed chaos and ruin for the many, Satoshi Nakamoto released bitcoin into the world. It was a revolution in both technology and money — it was unique.
Before bitcoin came along in 2008 — humankind had never known something that was simultaneously
Being scarce like gold, bitcoin preserves the value of your money — unlike our ordinary fiat currencies, whose value can be inflated away at whim by central banks around the world.
Bitcoin is a decentralised network. With 10,000+ BTC nodes around the globe verifying transactions on the blockchain through mining, bitcoin is not owned by any individual or organisation. The bitcoin network is open to anyone and everyone.
Being a digital asset, this ultimately allows ordinary folks like you and I — or entire countries — to send money across the world without the need or approval of centralised intermediaries like banks.
On an individual level, bitcoin returns economic power back to the people.
On a global level, bitcoin evens the playing field by providing smaller countries leverage against the might of the US dollar.
Understanding these concepts turns a ‘get rich’ newbie into a crypto advocate.
A Decentralised Utopia?
What’s the deal with the other 10,000+ cryptocurrencies besides bitcoin — collectively known as the altcoins?
You’re now looking at the broader disruptive potential of blockchain technology, which have the power to transform the way we do business and interact with each other.
It all started a few years after bitcoin.
In 2014, a set of smart lads, including Vitalik Buterin, Charles Hoskinson and Gavin Wood, invented the Ethereum blockchain and introduced a revolutionary technology called smart contracts.
Smart contracts are pieces of computer code that solves a very important problem — the need for trust during some sort of transaction.
As a result, smart contracts cut out the need for centralised intermediaries (i.e. middlemen) to babysit deals and transactions.
Take for example, Kickstarter.
Individual investors give Kickstarter their money, which they provide to a project team once the funding goal is reached. Kickstarter is simply a centralised intermediary who ensures everyone abide by the rules.
On a blockchain like Ethereum, Kickstarter is replaced by a smart contract which investors pay into. Once the funding goal is met, some code executes and the project team is paid.
The key is smart contracts are immutable (cannot be changed) and distributed (lie on a blockchain). This makes tampering almost impossible — facilitating efficient transactions without the need for parties to trust each other.
This opens a world of peer-to-peer interactions without intermediaries and middlemen. A few scenarios include:
- money exchange, loans and repayments → decentralised finance (DeFi)
- payment on deliveries
- processing insurance claims
- buying and selling real estate
And so on. The possibilities are endless.
Each time a transaction is executed on the Ethereum blockchain, code is executed and a small amount of the cryptocurrency ETH is paid from the user to the node adding your transaction to the blockchain. This is called a gas fee.
In short, cryptocurrencies lubricate the activities of a blockchain.
There are many blockchains beyond Ethereum because people have different ideas on how a blockchain should be designed.
Charles Hoskinson left the Ethereum project in 2014 and created his own chain, Cardano, whose technical design is informed by academics. Gas fees on the Cardano are paid with the cryptocurrency ADA.
Gavin Wood left Ethereum in 2016 and created Polkadot, a blockchain focused on interoperability — connecting all the different blockchains out there together. Gas fees on Polkadot are paid with the cryptocurrency DOT.
Moreover, thousands of decentralised applications (dApps) sit on top of these blockchains catering for a variety of use cases.
The decentralised peer-to-peer nature of these apps form the basis for Web3, where power is returned from centralised entities back to the users. This is in contrast to Web2, where power on the internet is centralised around large companies (think Facebook, Amazon, Google, Microsoft) who control the rules of the game and can censor you at a whim.
People are typically lured into crypto for financial reasons. When Lambo?!
Yet those who stay long enough become believers in something bigger.
Investors turn into advocates after learning about what bitcoin stands for and why it’s needed.
And these advocates become techies after learning about the disruptive potential of blockchain technology, DeFi and smart contracts.
Users enter the crypto market through Centralised Finance (CeFi) platforms. These include:
- Centralised Exchanges (CEX), like Binance, Coinbase and FTX
- Fintech platforms, like Crypto.com, BlockFi, Celsius and Nexo
- Brokerages, like Robinhood and eToro.
CeFi platforms have two main drawbacks.
Firstly, your crypto are held in custodial wallets, which means your crypto is managed by some centralised company. You don’t own the private keys to your wallet, and if the company goes bankrupt or gets hacked, you might lose your crypto.
The solution is to move your crypto to a non-custodial wallet. These include hardware wallets which look like USB thumb drives and aren’t connected to the internet, and Web3 wallets, which can be used to interact with decentralised applications.
Different blockchains tend to have different Web3 wallets. For instance, MetaMask is the most popular Web3 wallet for chains that run the Ethereum Virtual Machine (EVM). This includes Ethereum, Avalanche, BNB Chain (formerly Binance Smart Chain) and Polygon. Cardano, Solana and Terra, which aren’t EVM-compatible, have their own native wallets, the most popular of which are Yoroi, Phantom and Terra Station, respectively.
The second drawback of CeFi platforms is many smaller projects can’t be found there. To buy these smaller cap cryptocurrencies, users need to venture into the world of Decentralised Finance (DeFi), and find them on Decentralised Exchanges (DEX) and interact with them with Web3 wallets.
Unlike Binance, Coinbase or FTX, on a DEX there’s no central order book (COB) ran by the exchange matching buyers and sellers.
Instead, DEX users (ordinary folks like you and I) become liquidity providers and contribute their own cryptocurrency into a liquidity pool, which other traders use to swap tokens. This automated market maker (AMM) system allows crypto users to directly swap crypto with each other without the need of a middleman — all thanks to smart contracts.
Generally, each blockchain tends to have its own flagship DEX. The most well-known are Uniswap (for Ethereum) and PancakeSwap (for BNB Chain).
DEX users pay two fees each transaction:
- a gas fee, for example ETH on Uniswap and Binance Coin (BNB) on PancakeSwap, paid to network validators and stakers. More on staking later.
- a spread fee, which goes straight to the liquidity providers — ensuring profits stay in the pocket of users instead of going to a rich corporate.
Everyone enters the crypto space through CeFi, often an exchange like Binance, an all-in-one fintech platform like the Crypto.com App, or a hybrid brokerage like Robinhood where you can buy both stocks and crypto.
But you don’t own the keys to your crypto on CeFi platforms. This is where Web3 wallets come in, allowing you to exercise self-custody over your crypto assets,…