What exactly are stablecoins? How should I fund them? Which exchanges are better, and how are fees calculated? Hi everyone, I’m here to help you learn about the cryptocurrency world. Today, I want to share ten essential things you must know about cryptocurrencies to equip you with more knowledge on your investment journey and help you avoid unnecessary pitfalls.
First, cryptocurrency exchanges. Before you can use cryptocurrencies for spending or investing, you must first purchase them, and exchanges can be simply understood as private institutions that set up platforms for buying and selling cryptocurrencies. Generally, you need to go through an identity verification process, and once approved, you can deposit fiat currency to the platform to convert it into virtual currency for trading. Exchanges can be divided into two types: those that support fiat currency and those that do not. Exchanges that support fiat currency are usually more convenient, allowing you to purchase directly with a credit card. In contrast, exchanges that do not support fiat are generally referred to as crypto-to-crypto exchanges. When it comes to choosing an exchange, you should ultimately consider regulatory factors and fees, as these will directly impact your experience in the space, along with considerations of currency selection, security, and interest. Currently, some of the more mainstream and well-known exchanges include Binance, OKX, Coinbase, Huobi, Kraken, and Bitfinex, and you can choose according to your needs. I strongly recommend Binance, as it is the leading exchange that excels in all aspects compared to other exchanges.
Second, cryptocurrency exchanges provide buy and sell exchange rates or prices, allowing users to exchange directly. It’s similar to going to a bank pawn shop or a money changer in Malaysia to exchange currency, converting fiat currency like TWD, MYR, or HKD into virtual currencies, and then you can also convert your virtual currency back into local fiat currency. Compared to exchanges, its advantage lies in simplicity and ease of operation, and there are rarely regulatory issues since they must comply with local laws to operate. The downside is that their choice of currencies may be limited, and features like earning interest are mostly absent.
Third, wallets. If you are not investing on exchanges or other platforms, I would recommend transferring your wealth to your private wallet, as this is truly decentralized. Currently, there are many applications and types of cryptocurrency wallets, and which one suits you requires further understanding. Here, I will briefly introduce the two main types of wallets: cold wallets and hot wallets. Hot wallets are online wallets generally operated through computers or mobile apps. Because they don’t require purchasing additional hardware, they are very practical and popular among novice investors. However, the chances of private keys being stolen while stored online are relatively high, leading to lower security. Common examples include hot wallets provided by trading or investment platforms or those installed on mobile devices or computers, such as Trust Wallet or MetaMask.
Next, cold wallets, also known as offline wallets. These typically exist in the form of USB devices and are usually offline, only connecting to the internet when a transaction is needed, making them difficult to hack and hence more secure. A representative example of a cold wallet is the Ledger Nano X. When purchasing a cold wallet, make sure the vendor is trustworthy; it’s best to buy directly from the official source. I would strongly advise against buying from general e-commerce platforms or used devices, as there is a significant risk of private key leakage. If you don’t have a lot of cryptocurrency, it’s not worth it, as they can be quite expensive.
Fourth, KYC authentication. Hey, didn't we agree to decentralization? Why do you still need to know my identity? KYC real-name authentication, known in English as know your customer, is simply put, for financial security, anti-fraud measures, anti-money laundering mechanisms, and combating the financing of terrorism, so the platform requires customers to provide relevant information, usually asking customers for proof of identity and permanent address. Of course, the reason platforms do this now is to meet government regulatory requirements, which you can also call a reference point. If a platform seriously implements KYC, then the risk of it running away with funds or being blocked by the government is significantly reduced.
Fifth, stablecoins. If you want to invest in cryptocurrency, you must understand stablecoins as they are the entry ticket to the cryptocurrency world. Stablecoins are cryptocurrencies pegged to fiat currencies, mainly used for value measurement, storage, and convenience in investment. Because Bitcoin’s daily fluctuations can be unsettling, having stablecoins means having a stable value, like one dollar equals one USDT. When Bitcoin drops significantly and you want to buy the dip, you can use this stablecoin to purchase Bitcoin. Then, when you feel that Bitcoin has risen high enough and you want to cash out, you can immediately convert it into USDT stablecoins to avoid liquidity issues. Currently, more mainstream stablecoins include USDT and USDC; you can think of them as the dollar in the cryptocurrency world, as they are both pegged to the dollar, keeping their value at around one dollar since issuance. USDT is the oldest stablecoin and the most circulated and valuable stablecoin in the market, issued by Tether, but it changes offices every few years, and its asset allocation is relatively opaque, thus regarded as a somewhat underground stablecoin. USDC, on the other hand, is the second-largest stablecoin, invented by exchange giants Coinbase and Circle, which operates legally in the U.S. and issues a public asset verification report from one of the top five accounting firms monthly. Compared to the relatively secretive Tether, USDC is generally seen as a more transparent and safer choice, while Dai is issued by users using ETH collateral contracts, resembling an automated vending machine operation that is relatively complex and not widely used for holding coins or investment, so I won’t elaborate on it here. In short, everyone uses USDT and USDC, and holding USDT is relatively safe.
Sixth, transfers and deposits. Let’s emphasize this, as many newcomers easily make mistakes, so please pay attention. First is the wallet address; when you create a cryptocurrency wallet, you will also receive a payment address, similar to your bank account number. If you want to receive payments and only withdraw, you can transfer the currency to this address. Conversely, if you want to transfer funds and deposit them to a specific platform, you need to transfer your funds to the recipient’s payment address. Different currencies, such as Bitcoin, Ether, etc., rely on different blockchain networks for recording. Different networks have different architectures, just like different banks have different account number lengths, and different countries have different address formats, but the meaning is the same: it’s for receiving payments. The only thing you need to be cautious about is, for example, when you are transferring USDT, you may find several different chain types to choose from, usually ERC20, TRC20, and Omni, and most people get stuck here. Simply put, they all represent different blockchain types. So which one should you choose? Generally, the more expensive one is safer, but personally, I would choose the one with the lowest fee, as I believe blockchain technology is highly transparent. However, you must remember that they are not interoperable; that is, USDT on Omni cannot be transferred to the other two chains, so when depositing or withdrawing USDT on exchanges, be sure to pay attention to these types of addresses. Mistakes can lead to the loss of funds. The conversion methods for other currencies are similar; just follow the instructions.
Seventh, exchange rates and fees. This is a key point that many newcomers tend to overlook at the start, resulting in significant losses in fees even before they have invested. This mainly happens when we deposit funds into fiat platforms or exchanges using credit cards; the interface generally only shows what the fees are, but the real devil is hidden in the exchange rate. So you can first choose several deposit methods on the platform, see how much fiat currency is displayed on the interface for deposit, and how much cryptocurrency it can be exchanged for. Then you can check the total amount you can exchange for on Google according to this standard to see if it’s worth using this method for investment. Usually, the platform’s fees range from 3% to 10%, and everyone can try to calculate it themselves. In the end, after using so much, I've found that choosing a licensed cryptocurrency exchange in your own country is the most worthwhile way to deposit, and converting funds is also more convenient. This was mentioned in the second point about cryptocurrency exchanges, and you can refer back to that section.
Eighth, white papers. Suppose a friend introduces you to a certain coin or platform; how do you confirm its reliability and understand its future potential? The white paper is your best entry point. I usually focus on four key points when reviewing a white paper: first, the project concept—what it does and its functionality. I will focus on its innovations and how it replaces or improves existing functions. Next is the team; with the current cryptocurrency landscape being somewhat saturated, anyone can create their coin, so the experience of the founding team members is crucial. They need to have strong technical skills to ensure smooth operation, and their reputation is also very important, as it can enhance the project's promotional efficiency. Next, look at the token distribution mechanism; you can check the total issuance, circulation, and the percentage held by the private placement team. For example, if the team holds more than 20% of the coins and the lock-up period is less than a year, something seems off. Typically, teams or private placement institutions can acquire tokens at a price lower than market value, giving them a relative advantage. Holding a large number of tokens can lead to price manipulation, increasing the risk of investors becoming the ‘chives’. Another straightforward approach is to treat it like a student submitting homework—check if the length is short, if it has multiple languages, and if there are many typos, etc. If they don’t take their homework seriously, it may indicate potential fraud.
Ninth, DeFi stands for decentralized finance, and simply put, it’s like the bank in the cryptocurrency realm. You can engage in various financial activities on it, such as deposits, loans, investment financing, staking, buying insurance, etc. By utilizing blockchain's smart contract technology, it achieves automation, greatly reducing costs and largely avoiding opaque transactions. Investing in DeFi is akin to investing in bank stocks; it will earn you dividends. Banks use your money for various financial activities and share some of the profits with you. It’s been quite hot lately, so the returns to users can be very high, reaching as much as 30% to 70%.
Tenth, liquidity mining. This is different from the mining we often hear about; it refers to investors providing liquidity to the platform in exchange for cryptocurrency rewards issued by the platform. This is what we just discussed regarding DeFi investments. Traditional trading used to involve matching orders, so users often couldn’t complete transactions due to different buying and selling prices. Conversely, if you lend a significant amount of funds to the platform, they can conduct transactions directly with users, enhancing the user experience. Of course, they will also share the fees collected with you as a reward, simply put, you provide your funds to users, and the platform will give you corresponding rewards. If you see staking, DeFi investments, or dual currency pairing, that’s essentially a form of liquidity mining; however, the biggest risk lies in the sudden lack of liquidity on the platform or being hacked, so liquidity mining does carry certain risks.
Alright, I’ll stop here for today’s article. Thank you all for reading, and I hope the knowledge shared in today’s article about the top ten cryptocurrencies helps you understand the world of cryptocurrencies in a simpler way, so you won’t be lost when investing. And remember, investing has risks, so tread carefully. Thank you for watching, and see you in the next article!