New to Crypto? Here’s What You Need to Know — 2022 Guide | by Col Jung | Apr, 2022

From BTC & ETH to Staking & Farming to Metaverse & NFTs!

Image source: Money Control

Like the early internet era, the current crypto industry is a melting pot of frenetic-paced innovation.

In this article, I’m going to give you a high-level overview of what’s going on in 2022.

  1. Who buys crypto? Investors vs political idealists vs Web3 techies.
  2. Where to buy crypto? CeFi vs DeFi.
  3. What & When to Buy? BTC or altcoins? Invest vs trade?
  4. Passive income! Staking / farming / lending.
  5. Market trends in 2022. DeFi 2.0, Web3, metaverse, NFTs, DAOs & so on.

If you’re new or need a refresher, strap in!

Crypto buyers typically fall in the following camps:

  • The get rich crowd. Who really wants to work 9–5 until they’re 65? Give me that Lambo life, baby!
  • The political idealist crowd. Think libertarians who distrust government and the small guys screwed by corporate greed and Wall Street.
  • The blockchain crowd. Think smart contracts and Web3. The future of the internet is decentralised.

Getting Rich

This is how most retail investors enter the crypto space. Who doesn’t get lured by captivating tales of rags to riches?

Bitcoin logarithmic growth curves. Source: lookintobitcoin

Bitcoin (BTC) has outperformed stocks, real estate and bonds by an order of magnitude over the past decade. Had you put aside $4 for that cup of coffee in 2010 into BTC instead, you’d be sitting on $700,000 right now.

Ethereum (ETH), the second largest cryptocurrency, has done even better.

There are over 10,000 smaller cryptocurrencies beyond BTC and ETH.

One savvy investor’s $8000 investment into Shiba Inu (SHIB) last year exploded into $5.7 billion months later. Yes, you heard right.

Bitcoin and Ethereum’s returns over the past 5 years. Image by author

Let’s Get Political

But why has bitcoin’s price exploded?

Part of the reason is political. BTC appeals to an increasing number of people around the world who are sick of censorship and centralisation and downright government tomfoolery.

In the wake of the global financial crisis, where unbridled greed by the few ultimately sowed chaos and ruin for the many, Satoshi Nakamoto released bitcoin into the world. It was a revolution in both technology and money — it was unique.

Before bitcoin came along in 2008 — humankind had never known something that was simultaneously

  1. digital
  2. scarce
  3. decentralised.

Being scarce like gold, bitcoin preserves the value of your money — unlike our ordinary fiat currencies, whose value can be inflated away at whim by central banks around the world.

Bitcoin is a decentralised network. With 10,000+ BTC nodes around the globe verifying transactions on the blockchain through mining, bitcoin is not owned by any individual or organisation. The bitcoin network is open to anyone and everyone.

Being a digital asset, this ultimately allows ordinary folks like you and I — or entire countries — to send money across the world without the need or approval of centralised intermediaries like banks.

On an individual level, bitcoin returns economic power back to the people.

On a global level, bitcoin evens the playing field by providing smaller countries leverage against the might of the US dollar.

Understanding these concepts turns a ‘get rich’ newbie into a crypto advocate.

A Decentralised Utopia?

What’s the deal with the other 10,000+ cryptocurrencies besides bitcoin — collectively known as the altcoins?

You’re now looking at the broader disruptive potential of blockchain technology, which have the power to transform the way we do business and interact with each other.

It all started a few years after bitcoin.

Ark Invest’s five innovative disruption platforms — a combined $50 trillion market

In 2014, a set of smart lads, including Vitalik Buterin, Charles Hoskinson and Gavin Wood, invented the Ethereum blockchain and introduced a revolutionary technology called smart contracts.

Smart contracts are pieces of computer code that solves a very important problem — the need for trust during some sort of transaction.

As a result, smart contracts cut out the need for centralised intermediaries (i.e. middlemen) to babysit deals and transactions.

Take for example, Kickstarter.

Individual investors give Kickstarter their money, which they provide to a project team once the funding goal is reached. Kickstarter is simply a centralised intermediary who ensures everyone abide by the rules.

On a blockchain like Ethereum, Kickstarter is replaced by a smart contract which investors pay into. Once the funding goal is met, some code executes and the project team is paid.

The key is smart contracts are immutable (cannot be changed) and distributed (lie on a blockchain). This makes tampering almost impossible — facilitating efficient transactions without the need for parties to trust each other.

This opens a world of peer-to-peer interactions without intermediaries and middlemen. A few scenarios include:

  • money exchange, loans and repayments → decentralised finance (DeFi)
  • payment on deliveries
  • processing insurance claims
  • buying and selling real estate

And so on. The possibilities are endless.

Each time a transaction is executed on the Ethereum blockchain, code is executed and a small amount of the cryptocurrency ETH is paid from the user to the node adding your transaction to the blockchain. This is called a gas fee.

In short, cryptocurrencies lubricate the activities of a blockchain.

There are many blockchains beyond Ethereum because people have different ideas on how a blockchain should be designed.

Charles Hoskinson left the Ethereum project in 2014 and created his own chain, Cardano, whose technical design is informed by academics. Gas fees on the Cardano are paid with the cryptocurrency ADA.

From blockchain layer to dApps that sit on top. Image by author

Gavin Wood left Ethereum in 2016 and created Polkadot, a blockchain focused on interoperability — connecting all the different blockchains out there together. Gas fees on Polkadot are paid with the cryptocurrency DOT.

Moreover, thousands of decentralised applications (dApps) sit on top of these blockchains catering for a variety of use cases.

The decentralised peer-to-peer nature of these apps form the basis for Web3, where power is returned from centralised entities back to the users. This is in contrast to Web2, where power on the internet is centralised around large companies (think Facebook, Amazon, Google, Microsoft) who control the rules of the game and can censor you at a whim.

In summary…

People are typically lured into crypto for financial reasons. When Lambo?!

Yet those who stay long enough become believers in something bigger.

Investors turn into advocates after learning about what bitcoin stands for and why it’s needed.

And these advocates become techies after learning about the disruptive potential of blockchain technology, DeFi and smart contracts.

CeFi

Users enter the crypto market through Centralised Finance (CeFi) platforms. These include:

  • Centralised Exchanges (CEX), like Binance, Coinbase and FTX
  • Fintech platforms, like Crypto.com, BlockFi, Celsius and Nexo
  • Brokerages, like Robinhood and eToro.
TradFi-to-Crypto ecosystem. Image by author

Web3 Wallets

CeFi platforms have two main drawbacks.

Firstly, your crypto are held in custodial wallets, which means your crypto is managed by some centralised company. You don’t own the private keys to your wallet, and if the company goes bankrupt or gets hacked, you might lose your crypto.

The solution is to move your crypto to a non-custodial wallet. These include hardware wallets which look like USB thumb drives and aren’t connected to the internet, and Web3 wallets, which can be used to interact with decentralised applications.

Different blockchains tend to have different Web3 wallets. For instance, MetaMask is the most popular Web3 wallet for chains that run the Ethereum Virtual Machine (EVM). This includes Ethereum, Avalanche, BNB Chain (formerly Binance Smart Chain) and Polygon. Cardano, Solana and Terra, which aren’t EVM-compatible, have their own native wallets, the most popular of which are Yoroi, Phantom and Terra Station, respectively.

Popular blockchains, Web3 wallets and DeFi apps. Image by author

DeFi

The second drawback of CeFi platforms is many smaller projects can’t be found there. To buy these smaller cap cryptocurrencies, users need to venture into the world of Decentralised Finance (DeFi), and find them on Decentralised Exchanges (DEX) and interact with them with Web3 wallets.

Unlike Binance, Coinbase or FTX, on a DEX there’s no central order book (COB) ran by the exchange matching buyers and sellers.

Instead, DEX users (ordinary folks like you and I) become liquidity providers and contribute their own cryptocurrency into a liquidity pool, which other traders use to swap tokens. This automated market maker (AMM) system allows crypto users to directly swap crypto with each other without the need of a middleman — all thanks to smart contracts.

Generally, each blockchain tends to have its own flagship DEX. The most well-known are Uniswap (for Ethereum) and PancakeSwap (for BNB Chain).

PancakeSwap’s Swap page

DEX users pay two fees each transaction:

  1. a gas fee, for example ETH on Uniswap and Binance Coin (BNB) on PancakeSwap, paid to network validators and stakers. More on staking later.
  2. a spread fee, which goes straight to the liquidity providers — ensuring profits stay in the pocket of users instead of going to a rich corporate.

In summary…

Everyone enters the crypto space through CeFi, often an exchange like Binance, an all-in-one fintech platform like the Crypto.com App, or a hybrid brokerage like Robinhood where you can buy both stocks and crypto.

But you don’t own the keys to your crypto on CeFi platforms. This is where Web3 wallets come in, allowing you to exercise self-custody over your crypto assets, stake it for passive income (more on that later) and interact with thousands of DeFi/Web3 applications.

Initial Coin Offerings

One more thing. How do you buy brand new cryptocurrencies?!

In traditional finance and the stock market, startup investing have historically been limited to cashed up and well-connected venture capitalists.

In 2022, anybody can get involved in crypto startups through hundreds of ‘launchpad’ platforms and services across CeFi and DeFi. Specifically, some centralised exchanges run Initial Exchange Offerings (IEO) while many DeFi ‘launchpad’ apps run Initial DEX Offerings (IDO).

These are just fancy names for an event where you can buy a cryptocurrency for a brand new project at a private sale — usually at bargain prices — before they get listed on a public exchange like Binance (i.e. a CEX) or Uniswap (i.e. a DEX).

The entry fee to participate in these Initial Coin Offering events is to stake a certain amount of tokens for the launchpad you’re using. The more you stake, the more new cryptocurrency you’re allowed to buy.

Many sensible investors will tell you the following.

  1. Most of your portfolio should be bitcoin, followed by ethereum. Have a small allocation to other altcoins if you want.
  2. Real money is made during the bear markets. Buy when prices are at market cycle lows, especially during the multi-year bear markets.

Portfolio Allocation

Bitcoin (BTC) and Ethereum (ETH) are the two major cryptocurrencies and together captures the majority of disruptive potential afforded by blockchain technology. They are also the only two cryptocurrencies that wield the confidence and support from a good number of larger institutional investors.

Bitcoin’s general narrative in 2022:

  • BTC’s scarcity makes it the ultimate store of value and hedge against inflation.
  • BTC serves as the crypto market’s currency reserve and safe haven asset.
  • BTC acts as the confidence index for the broader crypto market. When bitcoin dumps, everything dumps.

Ethereum’s general narrative in 2022:

  • Smart contracts underpin the real value of blockchain technology.
  • ETH is the de facto smart contracts leader.
  • ETH’s network effect is too large to be caught up by competitors.
  • ETH acts as the confidence index for the broader altcoin market.

After BTC and ETH, the next best investments are the ‘ethereum killers’.

These are the multitude of other smart contracts-enabled blockchains eager to eat some of ethereum’s pie. Many exploded in the wake of the network congestion issues that plagued ethereum in 2021, causing gas fees to rise to $50–100 each transaction on the ethereum network. What a joke, right?

In short, ethereum — like bitcoin — was designed to prioritise security and decentralisation at the expense of scalability.

ETH-killer chains position themselves as faster and cheaper alternatives to ethereum with better technology. However the question is which ones will survive once Ethereum completes its sharding scaling upgrade in 2023?

Here are the most prolific ETH-killer chains:

  • Cardano (ADA) — slow methodical roadmap based on academic rigour, opposite to ETH’s break things fast ethos.
  • Solana (SOL) — super super fast blockchain. Primed to disrupt high-speed systems in traditional finance.
  • Polkadot (DOT) — wants to connect all the different blockchains. Interoperability is king.
  • BNB Chain (BNB) — cheap, fast but centralised.
  • Avalanche (AVAX) — great technology and fast.
  • Terra (LUNA) — focuses on stablecoins, a niche use case that should see it continue to thrive after ETH 2.0.

A portfolio comprising BTC, ETH and the top competitors to ethereum (ADA, SOL, DOT etc.) offers a great reward to risk ratio.

In Web3, the base protocols themselves (i.e. blockchains) are more valuable than the applications built on them. This means there is no need to invest in cryptocurrencies for specific dApps, unless you want to gamble a bit more.

In contrast, the majority of value in Web2 were held by the applications themselves. Think Facebook (META), Twitter (TWTR), Google (GOOG), YouTube. The underlying protocol, TCP/IP, was not something you invested in.

Best Times to Buy Crypto

Let me get this out of the way quick.

The vast majority of traders lose money.

This was already true in equities (i.e. stock market), but extra true in crypto due to the stomach-churning volatility.

The fundamental issue is inexperienced traders tend to join rallies too late (FOMO), then sell at the slightest hint of a dump (panic sell). Both are emotional responses.

Successful trading requires — funnily enough — the exact opposite of your emotional instincts. Buy when everyone else is fearful. Sell when everyone else are feeling greedy.

If you’re eager to become a profitable trader, be prepared to be unprofitable for awhile. It’s the statistical norm.

Bitcoin’s price action alternates between strong bull runs and multi-year bear markets. Source: lookintobitcoin

Thankfully, there’s a much easier, safer and stress-free way to take advantage of crypto’s stellar growth potential — investing.

The easiest way to invest is to dollar-cost average into top cryptocurrencies like BTC and ETH. Every pay check, put a little bit aside and buy without looking at the price. Simple, easy and effective.

You can upgrade this strategy by employing strategic investing. This leverages understanding of how bitcoin market cycles work. Historically, we’ve seen bitcoin go on multi-year bear markets (best time to buy) followed by massive rallies (start selling).

If you’re keen to dive more into altcoins, it helps to understand the crypto money cycle.

Crypto Money Cycle — how capital flows in the crypto space. Image by author

Bitcoin generally spearheads any crypto rally. After a substantial impulse by BTC, altcoins are primed to rally as investors increase their risk profiles to continue chasing returns. Profits will rotate from the larger to smaller altcoins.

Eventually, the market becomes overheated and investors escape to risk-off assets — that’s bitcoin or stablecoins. The cycle begins anew.

Crypto’s a terrific place to earn a passive income. For saving and lending to staking and farming, crypto offers something for everyone.

My current sources of crypto passive income

Savings & Lending

A gentle way to introduce crypto passive income is saving it in a crypto interest account.

The four most prolific CeFi companies offering this service are:

  • Crypto.com
  • BlockFi
  • Celsius
  • Nexo

Here, you can convert fiat currencies like USD (earning a tiny 0–1% in a bank account) into a stablecoin like USDC and earn up to 10%, which is on par with historical S&P 500 returns. Crucially, saving your USD as a stablecoin on a crypto platform allows you to beat inflation.

USD returns for TradFi vs crypto fintech vs Terra’s Anchor Protocol. Image by author

In 2022, the gold standard for growing your USD in cryptoland is Terra’s Anchor Protocol. Convert your USD into UST on an exchange, send it to your Terra Station wallet (a Web3 wallet for the Terra blockchain) and grow your UST at 20% per year.

There is nothing even remotely close to this in traditional finance.

Besides stablecoins, you can save other cryptocurrencies and earn an interest in-kind. For instance, transfer your BTC and ETH to Crypto.com, BlockFi, Celsius and Nexo and earn an interest between 4–5% in BTC and ETH.

Savvy investors further leverage these platforms to borrow stablecoins against their crypto collateral after large market corrections in order to buy more crypto. This sort of borrow-buy-die strategy is a hallmark of the rich, who borrow against their assets to build their wealth and minimise taxes.

BTC returns in crypto interest accounts. Image by author

In DeFi, the most popular savings and lending dApps/platforms are:

Similar to their CeFi counterparts, you can deposit your crypto to earn a yield and borrow against it.

Crypto ‘degens’ (high-risk gamblers) utilise these platforms to chain together creative yet risky deposit-borrow loops. For instance, on Anchor, you can swap borrowed UST to ‘bLUNA’, which you deposit again as collateral to increase your LUNA exposure. Repeat this loop several times to amass a large amount of LUNA from a small collateral.

The trade-off is a potential liquidation cascade that wipes your account should the price of LUNA swing against you!

Staking

Like crypto interest accounts above, staking is another way to earn a regular interest on your crypto. How does it work?

Proof-of-stake (PoS) cryptocurrencies, such as Cardano, Solana and Avalanche, each have 1000+ validator nodes who work 24/7 to validate new transactions and create new blocks on the blockchain.

Individual holders of ADA, SOL and AVAX — like you and I — can delegate our crypto into these validators to help secure the network. Our committed crypto represents our ‘stake’ on the network. When our chosen validator creates a block, they’re rewarded with new crypto which is then distributed to their delegates.

In essence, this amounts to a regular yield. Staking 1000 ADA on a Web3 wallet (Yoroi) will earn you about 50 ADA in staking rewards each year. You’ll earn even more staking on Binance, at the expense of losing self-custody over your crypto. Full details here. See here for SOL and here for AVAX.

ADA returns — Web3 wallet vs exchanges vs interest accounts. Image by author

This brings me to an important point.

You can only stake cryptocurrencies for blockchains. Like ADA, SOL and AVAX.

However in 2022, the term ‘staking’ has become a bit of a catch-all term for earning an interest on your crypto.

For instance, saving UST on Anchor is referred to as ‘staking UST’ by both users and developers, yet this mechanism plays no part in securing any blockchain. Generally, committing your cryptocurrencies into some sort of a DeFi pool to earn a yield is now called staking.

However, it’s still bad form to refer to saving your crypto in a CeFi platform staking. For instance, earning a regular interest on your BTC, ETH or USDC on Crypto.com, BlockFi, Celsius or Nexo is not staking.

Ultimately, there’s no need to get too wrapped up over terminology — both saving and staking are simply different ways to earn a yield.

In the former, your crypto is lent out to others or invested, with you being paid a cut in the form of an interest. In the latter, your crypto helps secure the activities of a blockchain and you’re remunerated in a form that amounts to a regular interest.

Farming

Next up is liquidity mining and farming, which are passive income sources deriving from providing liquidity to DEXs.

For instance on PancakeSwap, I can grab $1000 worth of BNB and $1000 of CAKE and add $2000 worth of the pair BNB-CAKE into the PancakeSwap DEX’s liquidity pool.

PancakeSwap’s Add Liquidity page

This earns me a source of passive income — fees from users who are swapping BNB for CAKE or vice versa. This is known as liquidity mining.

Meanwhile, I’m given a BNB-CAKE LP token to represent my liquidity in the pool. I can then earn a second source of passive income by staking this LP token in one of PancakeSwap’s farms.

Some of PancakeSwap’s Farms

I want to stress that providing liquidity and farming are inherently more risky than simple staking. The biggest risk is impermanent loss, which occurs when there’s a deviation in the relative values between the two cryptos in my liquidity pair.

For instance, say I add some BNB-CAKE into the pool, go hide under a rock and come back 12 months later to discover that CAKE has gone up 10x while BNB has only doubled. If I cash out my tokens, this becomes a permanent loss whereby I’d be left with a combined value of BNB and CAKE less than had I just held BNB and CAKE separately. Whoops!

Generally speaking, farming is an activity that needs to be babysat. Savvy farmers will jump from one protocol to another, chasing fast and quick yields and getting out before land gets bare.

A number of important trends have emerged over the past 12 months.

DeFi 2.0

In the second half of 2021, a set of so-called DeFi 2.0 protocols had arrived with the aim of improving upon the original liquidity pool formula.

This included OlympusDAO, which turned this formula upside down and came up with a new system based on game theory. This resulted in a host of benefits and behavioural improvements, including the protocol 1. owning its own liquidity (what?!), 2. not having to pay out huge returns to incentivise users to provide liquidity, 3. being able to guarantee liquidity and reduce the risk of sudden sell-offs.

Another example is Abracadabra, which improved upon how capital and deposits are used. In DeFi 1.0, lending platforms — like Aave and Compound — required loans to be over-collateralised since there was no middleman to verify that those taking out loans could pay them back.

Web3

A quick primer on the evolution of the internet.

Web 1.0 was the foundation. It was open, decentralised and people could build on it without the need for centralised third parties.

Web 2.0 was a revolution of the front-end of the internet, enabling big tech companies to consolidate enormous amounts of power and wealth through social media platforms. This came at the cost for their innovators — the creators and users.

Today, the best entrepreneurs have learnt not to rely (and therefore not to build) on platforms owned by these big centralised tech companies. Instead, they’re flocking to crypto by the droves to build out the third generation of the internet: Web 3.0.

Powered by blockchain technology, Web3 — a revolution in the backend — takes the internet back to its decentralised roots, i.e. a web of open protocols and apps owned by their builders and users.

Metaverse, NFTs & GameFi

Mention metaverse and everything thinks of Facebook and Mark Zuckerberg.

In reality, the metaverse is a global technology movement that has been happening for years.

The metaverse is not a fad.

In 10–20 years time, imagine joining virtual work meetings with a suite of tools that’ll allow you to be more productive than in real-world meetings.

Imagine owning digital paintings as unique non-fungible tokens (NFTs) that you can project onto your real wall.

Imagine using your digital avatar — represented as an NFT on the blockchain — to try out new clothes online before buying.

Imagine playing blockchain games (GameFi) and earning NFT assets that you can sell in an open marketplace.

In short, the metaverse will transform the way humans and computers interact. Digital assets — both fungible (fungible cryptocurrencies like ETH) and non-fungible (NFTs) — come to the fore. A massive amount of engineering will be required to realise the metaverse dream. Blockchain games (GameFi) shall play an integral part in this journey as its technology is relatively scoped out.

DAOs

Smart contracts remove the need for centralised intermediaries in a transaction between people.

In a similar vein, Decentralised Autonomous Organisations (DAO) is an organising principle that allow people to come together and make decisions in a fair and democratic way without the need for a central authority like a CEO.

Won’t there by chaos without a leader?

Well to keep everyone honest, the traditional corporate governance structure is replaced by smart contracts and everyone’s interactions are recorded on the blockchain.

Turns out running a company this way was a revolution in governance that solved a variety of problems, increasingly outside of crypto!

We’ve seen people organise into DAOs to buy an NBA basketball team, restore ocean health, increase the wealth of women and even try to buy a copy of the US Constitution.

Interoperability

The internet would be pretty useless if engineers didn’t come up with a protocol to facilitate computers to talk to each other across the web. Enter the TCP/IP protocol.

Twenty years later, we’re again seeing the rapid growth of a small but bourgeoning new technology — blockchain — as a set of disparate networks.

Bitcoin, Ethereum, Cardano, Solana, Terra. They don’t really talk to each other well. This is a major problem.

Enter Polkadot, Cosmos and Avalanche, different projects working on the ambitious effort to help different blockchains speak the same language and move assets between them seamlessly. Such ‘blockchain of blockchains’ will become increasingly important as the space becomes more mature.

I hope you found this article useful.

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