Q.How do I know a Bitcoin dealing is legit?
Thank you, JP. Bitcoin (crypto currencies and assets) as an investment is not suitable for retail investors without some technical guidance and advisory.
Unlike in the stock market where you can invest based on little or no specific information, this market requires deep understanding of how cryptography works to appreciate how value is created, preserved and or lost.
The fundamental rule in investing is that you should never put your money in any asset that you do not understand how it makes or losses money.
To answer your question on how to determine a legitimate transaction or investment in Bitcoin, I shall first provide background information on three areas of crypto currencies and assets, which is essential for illuminating legitimacy of transitions.
These include the definition and background of cryptography and a bitcoin, and the enabling platforms such as decentralised Applications (dApps). I will also draw some parallels with the operations of the current stock market, as we know them.
Crypto currencies have been made possible by blockchain technology, which is still evolving. Crypto currencies are a form of digital currencies that utilise cryptography protocols to record ownership and prevent counterfeiting.
Put simply, it is the conversion of human readable information into a form that cannot be read (encryption), and back (decryption), but can be read by individuals with technical skills to read it.
This has made possible the creation of a ledger on which transactions are recorded, which can be shared publicly everywhere in the world simultaneously. In our formal way of doing things, a ledger is a book in which things are regularly recorded, especially business activities and money received.
For example, when you buy land in Kenya today, the title details are recorded in a central register at local Ministry of Lands office. Using cryptography (technology), this kind of register has been decentralised to be available globally, and the content entered cannot be changed.
Block chain is a decentralised public ledger that contains transactional information which has enabled crypto currency and assets to be bought and sold from any computer node worldwide by anyone with the skills to do so.
It has removed the need for commercial and investment banks, as well as other middlemen that exist in the current investment markets, as we know it.
Further, it is also a do-it-yourself market, which requires the participant to undertake research on the asset on his or her own. Stockbrokers and investment banks currently play the role of providing information on assets in our regular capital markets.
While in a regular capital markets environment someone else does the arduous work of identifying the opportunity presented by an asset to a client and tracks the market factors that keep that asset relevant in your portfolio, this is not the case in crypto investment.
Bitcoin, like all the other instruments in the Crypto market, are not assets being sold like shares, rather, projects which offer promises to investors as they transform several aspects of the market.
Bitcoin, for example, has acquired the same strength of money “as store of value” in a much broader scale and is currently expensive.
Financially, an understanding of Decentralised Applications (dApps) which facilitate the transactions directly between entities in this market is critical, without which you will be treading on dangerous ground.
They are without a doubt crypto and what make crypto work. Anything else you engage with outside those projects listed (read as coins) and can be identified at www.coinghecko.com is not authentic. Besides, you still must research the potential of each project listed on your own.
Patrick Wameyo is a financial literacy coach at Financial Academy and Technologies, and an entrepreneurship coach at The Entrepreneurship Center EA. [email protected] .
