Get started with blockchain finance: A beginners guide
So, you want to get into crypto, trade decentralized, or add a couple of synthetic assets to your portfolio? If this sounds like you, but you don’t know where to start, keep reading because we’re here to break blockchain finance 101 down.
What’s the difference between crypto and blockchain?
The difference between crypto and blockchain is simpler than you might think.
Blockchain is a peer-to-peer network that breaks free from regulated, controlled and monitored financial systems. It functions by collecting sets of information in groups known as blocks. Think of these blocks as underlying code that can be built upon. Crypto are the tokens working as a transactional economy on top of that code.
Still feeling lost? Let’s use an example.
You’ve probably heard of Bitcoin, right? It’s one of the most popular cryptocurrencies in the world. There are twenty-one million Bitcoins in total (yes, that’s the full, forever total of the currency) and almost nineteen million have already been mined.
Bitcoin is powered by blockchain technology, but blockchain has many uses beyond Bitcoin. Whilst Bitcoin exclusively transfers a currency between users, blockchain can be used to transfer secure personal information, property ownership rights, and government benefits. Crypto is only the tip of the iceberg when it comes to blockchain.
Crypto, DeFi, synthetic assets — where do you get started?
Getting started with blockchain trading can be tricky. Cryptocurrencies are probably the ‘easiest’ to understand and trade, but things can get pretty complicated when it comes to DeFi and synths. The main thing you’ll want to focus on is finding a FIAT exchange platform that meets your trading needs.
FIAT exchange platforms replicate markets that many first time traders will already have some familiarity with. At the moment, the biggest FIAT exchange platforms on the market are Binance, eToro, and Crypto.com. Think of these platforms as gateways into the crypto world: after depositing FIAT currency (that is, centralized currencies like USD or EUR) into the platform, you can exchange it for a cryptocurrency of your choice.
With a market cap of over 80 million dollars, DeFi offers users opportunities to accrue wealth, increased financial transparency, and the ability to carry out cross-chain transactions. A number of exchange platforms also support DeFi trading, like Coinbase and BlockFi, but it’s best to double check first.
The same rule applies when it comes to finding a platform to trade synthetic assets. By mirroring the returns of other assets, such as Bitcoin, USD, TESLA stocks, or gold, synthetic assets connect crypto markets to traditional ones. They can be minted by anyone using an open-source protocol, such as Synthetix or Mirror, and investors can then tokenize and trade them with any currency on the blockchain.
Pitfalls of blockchain finance
Alright. So, now we know that there are a tonne of benefits when it comes to trading on the blockchain, right? Unfortunately, there are still a number of weaknesses that we need to consider before we start investing. We’ve all heard of the phrase ‘high risk, high reward’ by now, but this logic doesn’t always live up to its promise when it comes to trading on the blockchain.
Although it’s easy to focus on the earning potential that can accompany trading DeFi and synthetic assets, there’s no denying that the market is volatile. Things can get really complicated really quickly, especially if you haven’t done enough research before making an investment. Blockchain is one of the hottest topics in 2022 and more people than ever want to get involved. The problem is that not everyone truly understands what they’re getting themselves into.
One of the most important things to remember is that sometimes you win big, sometimes you lose big — sometimes quickly, sometimes slowly. It’s an unspoken rule in the community to never stake more than you can afford to lose.
Privacy when you start trading
Before you kickstart your trading journey, here’s a short rundown of the most important privacy-related things to remember.
Number one: Traditional finance is very different from decentralized finance. The main thing to consider with DeFi is that there won’t be any sort of middleman ensuring your privacy. That’s right: Blockchain users are completely in charge of finding ways to protect their own financial privacy.
It all comes down to the fact that every single DeFi transaction is documented on the public blockchain ledger. For better or for worse, the system’s smart contract code is available for anyone in the world who wants to view it. This makes the process of investing pretty different from your usual experience at the bank.
Number two: Anyone with access to your digital wallet address has the ability to see the moment you trade, buy, and sell. Sharing your digital wallet address is kind of like allowing someone to have full access to the ins-and-outs of your investments. They can access your transaction history, your transaction journeys, and they can even take a look at your asset holdings overview. Make sure you’re aware of this before sharing your details online.
Number three: Despite the fact that it’s 2022, there still isn’t a simple way for blockchain traders to keep their transactions private. A few privacy protocols have been developed to ease this issue, but none of them enable you to stay within the platform and protect your privacy at the same time. If you choose any of the existing protocols in the market, be prepared for the value of your original investment to decline if you carry out a cross-chain exchange. You’ll probably be faced with some high transaction fees as well.
Sahara is a privacy protocol with low transaction fees, zero slippage and deflation control, developed to help cure the blockchain privacy headache. Sahara is currently being built for two separate chains (with three more being added and more to come) and enables users to trade both volatile and stable assets in complete privacy.
If you’re interested in learning more about Sahara and how you can keep your privacy whilst trading, check out the rest of our Medium articles or follow our Telegram at https://t.me/SaharaProtocol for daily updates!