Philippine Daily Inquirer Digital Edition

DECRYPTING CRYPTOCURRENCY

By Jaime Zulueta and Glerren Bangalan @InquirerBiz —CONTRIBUTED

In recent years, many financial institutions have gotten more aggressive in introducing tech-savvy solutions to our banking needs: e-wallets, mobile banking apps, online portals. On the side of investments and portfolio management, options for assets have diversified to include digital tokens— cryptocurrency, in particular.

What is crypto?

Cryptocurrency, or crypto for short, is not a novel concept at this point. Derived from the words “cryptography” and “currency,” it is a secure form of money—a medium of exchange by way of networks based on blockchain technology—introduced as far back as 2009.

Depending on whom you are talking to, it can be like digital cash. You can use it to pay for a family dinner, book a room at a fancy hotel, or do big financial moves such as settling a loan. Since it is in digital form, cryptocurrency can also be sent to anywhere in the world in a matter of minutes, making transactions easier and more instantaneous.

Despite similar use cases to e-wallets and banking applications, crypto has more layers to it than you realize.

In traditional finance (TradFi), money and other assets are controlled by organizations. They store your assets for you and should you wish to spend them or transfer them to someone else, you need to ask for permission. When you keep money in the bank, you will need to follow certain steps or protocols to take it out: if you withdraw directly from the counter, you will need to queue to submit your bank details or show your passbook; if you do it via ATM, you will need your ATM card. In the latter case, it’s also sometimes dependent on whether the machine has cash inside; if it doesn’t, then you won’t get your money.

Cryptocurrency, on the other hand, is decentralized. Instead of a private organization, it is run by software and computers. Your device connects directly with other people’s computers, making you your own bank. Also, thanks to blockchain technology, all crypto transactions are notably public, unlike in TradFi where records are private. Anyone can track any wallet’s movement— cashouts, transfers, contract interactions and everything.

Another notable aspect to using cryptocurrency is the relative anonymity. To do transactions within the ecosystem, you do not need to validate your identity with a set of IDs or a personal signature. There are financial applications and websites that ask for an email or mobile number to create an account, but that’s it.

What is bitcoin?

At present, there are over 10,000 cryptocurrencies available but the biggest and most popular one will always be bitcoin. Interestingly, no one knows the real identity of the creator of bitcoin, only that it was implemented in 2008 and developed by a person or group of persons by the name of Satoshi Nakamoto. Over more than a decade, the top cryptocurrency has gone from less than $1 per bitcoin to $20,000 with a market capitalization of $400 billion. This is bigger than most companies in the Philippine Stock Exchange. Many cryptocurrencies today are based on the code and foundations of bitcoin, hence, the collective term “altcoins.” They share some fundamental properties.

Permissionless

Centralized payment organizations such as banks and e-wallets can freeze your transactions and prevent you from accessing your account. With crypto, no one can stop you from accessing it. As long as you remember your seed phrase–essentially your password or master key, you can always gain access to your account.

Anonymous and transparent

As explained earlier, you do not need to submit IDs or personal information to open a crypto account. Nobody has to know your name, age or gender. However, this doesn’t mean that you can engage in unlawful activity. Transactions in cryptocurrency are made public and there are organizations and tools, which are devoted to analyzing the flow of transactions in the crypto space. This deters criminals as cryptocurrency illegally obtained from others can be easily tracked.

Affordable and fast payment method

Crypto technology has removed the middleman. Instead of having organizations facilitate transactions, computers directly communicate with one another. This technology has allowed cheap and fast transactions. You can now send millions of pesos worth of cryptocurrency to anyone around the world for as low as P0.10. It takes minutes and in some cases, seconds. The birth of cryptocurrency has presented better forms of remittances and settlements.

How to get started

Many people ask about how to start in the exciting and vast world of crypto. Like any financial investment, start first by doing your own research (DYOR). Read publications. Connect with people or online interest groups. Watch videos. Listen to podcasts.

After studying the investment you are about to make, you then have to study yourself. Assess your situation and current financial capacity. How much risk are you willing to take? How much risk can you afford to take? Again, cryptocurrency is highly volatile so it is not for the faint-hearted. There are many stories about people who have gotten burned.

Once you have decided that crypto is for you, then it’s time to take the steps toward purchasing your first coin. But before that, you have to set up a wallet where you’ll keep your portfolio in the first place. Bitcoin has a range of options. For ethereum, the most widely used is MetaMask. Most platforms offer mobile and desktop versions so you can access your crypto and do your transactions via smartphone or laptop.

Now on to the actual purchasing. Most people choose to start with bitcoin as it’s the biggest and most proven crypto to date. Another popular choice is ether, the second biggest crypto, used in the ethereum blockchain. At the moment, the recommended way to get them is through a centralized organization. Other than buying through a trusted friend, this is the most secure way to enter the industry. Locally, there are many regulated entities such as PDAX, Coins.ph, or Moneybees that will enable you to make your purchase.

Remember, despite being in the world for more than a decade, cryptocurrency is still a Wild West. It’s a highly volatile environment and in most parts of the world, unregulated. While that can be a good thing for some, it means you are not afforded the same kind of protection traditional investments such a bank deposit would provide. Having the knowledge and support will be invaluable.

Jaime Zulueta is a banker as well as a crypto and NFT (nonfungible token) analyst for Diamond Super Community, one of Southeast Asia’s largest NFT communities. Glerren Bangalan is the head of community for Diamond Super Community. She is focused on building experiences in web3, having hosted multiple artist interviews, project AMAs (ask me anything) and podcast episodes.

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2022-07-03T07:00:00.0000000Z

2022-07-03T07:00:00.0000000Z

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Philippine Daily Inquirer