Central Banks: Investing In Crypto's Future

Investing in cryptocurrency is a risky business, but it has produced top returns for investors over time. Cryptocurrencies are decentralised, digital currencies that operate on a distributed ledger called a blockchain. This means that anyone with an internet connection can use cryptocurrency to store, send, and receive money online.

Central banks are now exploring the world of digital currencies, with some even implementing them. A central bank digital currency (CBDC) is a form of digital currency issued by a country's central bank. It is similar to cryptocurrencies, except that its value is fixed by the central bank and is equivalent to the country's fiat currency.

Many countries are researching and developing CBDCs, including the US, the UK, Sweden, China, and Nigeria. A CBDC's main purpose is to provide businesses and consumers with privacy, transferability, convenience, accessibility, and financial security.

Crypto banks: Crypto banking apps and their features

Crypto-friendly banking services are becoming increasingly popular, with some traditional banks also offering crypto-related services. Crypto banking apps provide a range of features that allow users to manage their cryptocurrencies alongside their traditional fiat currencies. Here are some of the key features offered by crypto banking apps:

Crypto Wallets and Trading

Crypto banking apps often provide users with crypto wallets, enabling them to buy, sell, and hold various cryptocurrencies. Some apps, like Revolut, offer support for multiple cryptocurrencies, including popular ones like Bitcoin and Ethereum. They may also provide bundled collections of tokens in sectors like DeFi and blockchain. Additionally, some apps allow users to set up cryptocurrency vaults to save and accumulate digital assets over time.

Payment Cards

Some crypto banking apps, such as Wirex, offer payment cards in partnership with companies like Mastercard. These cards allow users to spend their cryptocurrencies like traditional money, making purchases and withdrawals conveniently.

Crypto-backed Loans and Staking

Certain crypto banking platforms, like Juno, offer crypto-backed loans and staking services. Staking allows users to earn rewards by holding cryptocurrencies, while crypto-backed loans provide users with access to liquidity without having to sell their digital assets.

Integration with Traditional Banks

Some crypto banking apps, such as Monzo, seamlessly integrate with traditional bank accounts. This integration enables users to monitor their cryptocurrency holdings alongside their regular banking transactions within a single app. It also simplifies fund deposits and management.

Security and Compliance

Crypto banking apps prioritize security and regulatory compliance. For example, Ally Bank is an FDIC-insured US bank, offering peace of mind to its customers. Additionally, crypto banking apps may provide advanced security features like two-factor authentication and SOC-2 certification to protect user funds.

User Experience and Accessibility

Crypto banking apps strive to provide a user-friendly experience, making it easy for both new and experienced users to navigate the platform. They often have intuitive interfaces and mobile apps, ensuring that users can manage their crypto on the go.

Additional Services

Besides the core crypto-related features, some crypto banking apps offer a range of additional services. For instance, BankProv offers crypto businesses accounts and asset management services. Other apps may provide investment advice, crypto-backed loans, and tokenization services.

Crypto investment options: Direct purchase, mining stocks, blockchain stocks, etc

There are several options for investing in cryptocurrency, each with its own unique advantages and considerations. Here are some of the most common approaches:

Direct Purchase of Cryptocurrency

Directly purchasing cryptocurrencies like Bitcoin or Ethereum is one of the most straightforward ways to invest. This method provides you with full ownership and control over your chosen digital currency. You can buy these cryptocurrencies through exchanges or platforms that facilitate crypto trading. It is important to remember that the crypto market is highly volatile, and the value of your investment can fluctuate significantly.

Crypto Mining Stocks

Investing in crypto mining stocks means you are investing in companies that are directly involved in the process of validating cryptocurrency transactions and maintaining the blockchain. These companies often have large-scale mining operations and can offer exposure to the performance of specific cryptocurrencies. Examples of top crypto mining stocks include Riot Platforms Inc. (RIOT), Marathon Digital Holdings Inc. (MARA), and Bitfarms Ltd. (BITF).

Blockchain Stocks

Blockchain technology is the foundation of cryptocurrencies, and investing in blockchain stocks means you are investing in companies that utilise this technology. Many organisations beyond the crypto space are adopting blockchain to improve their operations and enhance security. You can invest in companies that are developing blockchain technology or those that are integrating it into their existing businesses, such as Walmart, PayPal, and Visa.

Crypto Options Trading

Crypto options trading involves purchasing contracts that give you the right to buy or sell cryptocurrencies at a predetermined price on a future date. This approach allows for more complex strategies, such as leveraging, hedging, and speculating on price movements. Crypto options can be traded on specialised platforms like Bybit, Deribit, and OKX. It is important to understand the risks and potential losses associated with options trading.

Exchange-Traded Funds (ETFs)

ETFs provide a way to invest in a basket of assets, including cryptocurrencies and blockchain-related companies. By purchasing shares of an ETF, you gain exposure to a diversified portfolio of investments within the crypto and blockchain space. Examples of blockchain-focused ETFs include Amplify Transformational Data Sharing ETF (BLOK) and Reality Shares Nasdaq NextGen Economy ETF (BLCN).

Each of these investment options offers a different level of involvement in the crypto market, catering to diverse risk appetites and investment goals. It is essential to conduct thorough research, understand the risks, and consult with financial advisors before making any investment decisions.

Crypto wallets: How to set up and use them

Crypto wallets are a necessity if you want to buy, sell, trade, or transfer cryptocurrencies or digital collectibles like NFTs. They are also useful for sending and receiving digital money to and from other people’s accounts, crypto exchanges, or digital marketplaces.

There are around 150 different wallets to choose from, and they can be intimidating to set up for newcomers. The first step is deciding what you plan to do with your cryptocurrency. If you are interested in the NFT market, choose a wallet that can connect to NFT marketplaces such as OpenSea, SuperRare, and Solanart. If you are more interested in storing or sending and receiving cryptocurrency, Coinbase, Trust Wallet, Atomic, and Exodus are good options.

Once you have chosen a crypto wallet, you will need to install it and set up an account. This usually involves setting up a password and generating a "seed phrase", which is a string of words that can be used to recover your wallet if you forget your password. It is critical that you keep your seed phrase safe, as losing it could result in losing access to your wallet and the cryptocurrency within.

After setting up your wallet, you will need to add funds to it. You can transfer cryptocurrency from a stock trading account or crypto exchange, or buy or swap one cryptocurrency for another directly in the wallet (for a fee).

• Select a reliable wallet provider with unique features and security protocols that suit your needs. Examples include Exodus, Electrum, and Trust Wallet.
• Download the wallet app to your phone or computer, ensuring you get it from the official app store or the wallet provider's website.
• Create an account by filling in basic information, such as your name, email address, and a strong password. Some wallet apps may also require identity verification.
• Transfer your assets into the wallet. You can deposit funds from a bank account, exchange cryptocurrencies, or receive them from another wallet.

A hardware wallet is a physical device, usually a USB stick, that stores the private keys to your crypto offline. They are more secure than software wallets but are also more complex and costly. Examples include Trezor and Ledger Nano X. Here is a general step-by-step guide to setting up a hardware wallet:

• Select the hardware you want to use, considering factors such as reputation, customer reviews, and security features.
• Purchase the hardware and install the required software. The software installation process will vary depending on the hardware wallet.
• Transfer your cryptocurrency to the wallet by linking it to a brokerage account or exchange.

It is important to note that the cryptocurrency trading ecosystem is still relatively new and susceptible to hacks, so it is crucial to store your cryptocurrency as securely as possible, preferably offline.

Risks of investing in crypto: Volatility, privacy, and criminal activity

Investing in cryptocurrencies carries several risks, including volatility, privacy concerns, and the potential for criminal activity.

Volatility

The value of cryptocurrencies is highly volatile and subject to rapid and significant price fluctuations. This volatility is driven by the unpredictable nature of price movements, which are often influenced by geopolitical factors. The high volatility of cryptocurrencies can lead to substantial benefits or losses for investors and traders. The newness of cryptocurrencies as an asset class further contributes to their volatile nature.

Privacy

The pseudo-anonymous nature of cryptocurrency transactions has historically made them attractive for criminal activity. Criminals can easily invest or trade in cryptocurrencies using exchanges with relaxed due diligence and know-your-customer requirements, allowing them to enter the financial system and use illegal funds for money laundering, terrorist financing, and fraud. However, advancements in blockchain analysis and law enforcement efforts have made it easier to trace cryptocurrency transactions and combat illicit activities.

Criminal Activity

Cryptocurrencies have been associated with various financial crimes, including ransomware attacks, scams, Ponzi schemes, credit card schemes, thefts, and hacks of exchanges. The use of mixers and tumblers, which are services that obfuscate cryptocurrency transactions, further enhances the risk of criminal activity. Additionally, the dark web markets, which rely heavily on cryptocurrencies, provide a platform for illegal activities.

To mitigate these risks, investors must exercise caution and implement strategic risk mitigation practices. The development of robust compliance programs by companies is essential to counter financial crimes and ensure regulatory compliance. As the cryptocurrency market continues to evolve, enhancing risk management strategies, regulatory frameworks, and crime detection tools is crucial for creating a safer and more transparent digital economy.

Crypto staking: How to earn passive income with proof of stake cryptos

Staking is the process of committing your cryptocurrency holdings to support a blockchain network and confirm transactions. It is a way to earn passive income on your crypto holdings. The blockchain puts your crypto to work, generating incentives (passive income) while it is staked.

Technically, staking is how certain blockchain networks verify transactions. As blockchain networks are decentralised, there are no middlemen. This means that a publicly accessible record is needed across the network to ensure complete transparency and validity across all transactions. Transactions are collated into "blocks" and submitted for inclusion into this record, which is immutable.

Users who own these blocks get a transaction fee as payment in the form of cryptocurrency. Staking is a safeguard against errors and fraud that may happen during this process. Every time a user proposes a new block or votes to accept a proposed block, they place some of their cryptocurrency at stake. This process incentivises adhering to the rules. The more crypto a user puts at stake, the higher the chances of earning transaction fee rewards.

However, if a user's proposed block is found to have fraudulent or inaccurate data, they can lose what they put up as a stake. This process is called "slashing".

How to start staking

Firstly, you need to choose a proof-of-stake crypto. Then, find out the minimum amount of crypto needed for staking. Next, create a crypto wallet. Finally, offer your coins for a staking pool.

Risks of staking

As with any investment, there are risks involved in staking. Considering the volatility of cryptos, the coin you put up for staking might fall in value. If you are a day trader, you might miss the opportunity to bet on lucrative trades as you cannot use the coins for several weeks or months.

Best cryptos for staking

Not all cryptocurrencies can be used for staking. Generally, if a cryptocurrency is linked to a blockchain that uses proof-of-stake as its incentive mechanism, it might be eligible for staking.

Some of the best cryptos for staking include:

• Ethereum: average rate of return of 5-17% annually
• Cardano (ADA): yields of up to 24%
• EOS: rewards averaging 3.2%
• Cosmos (ATOM): yields an average of 7% per year
• Tezos (XTZ): average yield of 6%
• Polkadot (DOT): average yield of 12% yearly

Frequently asked questions