Cryptocurrencies: fake or real business?

Now knowing the basic principles, we can define what digital money is:

A cryptocurrency (digital cash/currency/money) – an anonymous means of payment for goods and services based on cryptographic algorithms, which does not have a cash equivalent. The issue of monetary units (issue) is not under the control of banking or government structures. Cryptocurrency banknotes can be exchanged for real (Fiat) money at the exchange rate agreed by the participants of the transaction.

Where does cryptocurrency come from?

After reading the previous paragraph, a natural question arises — if there is no global emission centre, then where do the new coins come from? Answer: using mining, resulting in new unique hash codes (blocks) to confirm payments. For each new code, a reward is paid in the corresponding digital coin, which can then be changed to real money and, thus, makes a profit.

If you decide to create new coins you should know that all types of cryptocurrencies are divided into two groups

• The maximum number of coins in the system is limited (thus restraining inflation), but they are generated (mined) gradually, and the search for the next block requires more and more computing power. This is how Bitcoin and its clones, such as LiteCoin, and Ethereum, work.

• All coins are issued in advance, entered on the blockchain and are under the control of several developers or a non-profit organization. To receive a reward, the user must install a transaction confirmation node (node) and the more operations, the greater the profit. This is how Ripple, Peercoin and many other currencies of recent years work.

It is unrealistic to compete with the "factories" of mining to get a new Bitcoin to the average user. It is better to allocate a separate computer under the "node" and get even a smaller, but stable income, trading on cryptocurrency live trading.

How to get and spend?

You can top up your wallet balance through online e-money exchangers or specialized services, where you can even get a Visa/Mastercard plastic card for cash withdrawals at ATMs and non-cash payments. Major currencies are supported by all major freelance exchanges, which can be beneficial for tax planning.

How to spend digital money? There are enough offers on the Internet from access to gaming services and electronic services to the delivery of real goods. True, in the latter case, it is necessary to specify the recipient's data, which reduces the level of confidentiality, but it is possible for a certain part of users.

How to make money?

If you do not engage in mining then the easiest option to buy digital coins, wait for growth and sell at the peak of the price. Many investors did so in December 2017 when the Chicago Mercantile Exchange included Bitcoin futures in its listing.

During the period of the highest excitement, the price reached $20 thousand for one future BTC? Then there was a sharp collapse, the price never came back, remaining at the level of 9.5-10 thousand dollars. Of course, this is a lot, but at the very "bottom" the quote fell to 4.5-5 thousand dollars and millions of investors received huge losses.

For professional traders and financiers, such market behavior was understandable. When an asset is not connected with the real sector of the economy and only the price forms the price, human “optimism” and cryptocurrency trading signals a fall or increase of the rate by 20-30% per month seems quite logical. But, they earn on the movement of prices, and they succeeded twice: both when the price grew, and when it quickly fell. Moreover, the movement of almost all cryptocurrencies is perfectly worked out by proven models of technical analysis.

Among the other ways to generate income are two more:

Is it legal?

This issue should be considered as follows: the legality of the issue (mining), ownership and turnover (means of payment) of cryptocurrencies.

Let's start with mining. In almost all countries, receiving and storing digital coins does not have negative legal consequences for their owners. Non-commercial transfers of funds between wallets and their conversion into Fiat money are also allowed (clarification is required for a specific country, but the overall situation is positive).

With the means of payment, the situation is more complicated. So the EU, Japan, Hong Kong allow the use of cryptocurrencies in commercial circulation, unlike the United States, where they are equated with securities and a special license is required for their purchase/sale. In 2020, this became an insurmountable obstacle to the release of the Gram currency (TRON) from the Telegram messenger. The developers did not manage to reach a legal consensus with the US Securities Commission (SEC) and the project had to be curtailed. Similar problems with regulators on both sides of the Atlantic got Facebook with its currency Libra, which had to be abandoned.

If we leave aside the slogans of supporters of anonymous payments about the "conspiracy of the world financial system against a bright future" it should be recognized that anonymity for the point of view of the state is the main obstacle to the recognition of digital currencies. First, the example of the SilkRoad prohibited goods store makes it difficult to verify the legality of the funds and calculate the owner of such sites, and secondly, if both sides of the transaction are unknown, how to protect the rights of the buyer of goods and services from fraud. Therefore, significant progress in this direction is likely to be expected shortly.

And what is the result?

We have considered how crypto money works, and once again we ask, it is possible to earn money on them. Yes, it is real, if you do not consider this asset as a means of storing funds by the type of bank deposit. Income is only possible in trading — trade on increased volatility, engage in arbitration if the funds allow it and can make a profit more than on Forex and the stock market.

Exchange arbitration. Unlike the centralized stock and even currency market, which despite the absence of a single settlement centre maintains the balance of quotations cryptocurrency trading platforms, are completely independent. This means that the difference in rates of the same Bitcoin may be sufficient to generate income only from sales/selling operations i.e. practically "passive". The only requirement: a large deposit, constant monitoring of rates and a quick reaction to cryptocurrency signals.

Investing in cryptocurrency funds and ICO projects (Initial coin offering). Both options provide that the investor in exchange for investments receives digital “tokens” that are analogous to shares or stock shares. Then they accrue interest, or they are traded on the stock exchange. As the statistics of the last 2-3 years have shown, the vast majority of such projects were banal financial pyramids. So only the most desperate possessing extra funds can invest in them.