Cryptocurrency Exchanges Explained [ADB s1e10]

On this week’s episode of Ask Doctor Bitcoin, we talk about exchanges—where you go when you want to exchange one currency for another kind of currency. We’ll specifically cover centralized and decentralized exchanges.

What’s That

A cryptocurrency exchange is a place for you to take your money and turn it into other kinds of money. In a cryptocurrency transaction, one person initiates the transaction (which makes a record on the ledger), and the other person accepts the transaction (also making a record on the ledger).

In a centralized exchange, instead of the transaction going from initiator to blockchain to receiver, the initiator sends the transaction to a centralized platform to exchange the currency. For example, the initiator may send bitcoin (via the blockchain) to the centralized platform, which then converts the currency to Ether and records it on the Ethereum blockchain—which the initiator then reads. This process is the antithesis of blockchain technology, because with a centralized platform, you now have a central point of failure and are vulnerable to hackers.

In a decentralized exchange, you are making the transaction by yourself, using smart contracts to broker the process. For example, the initiator sends his bitcoin to a smart contract owned by a decentralized exchange and transfers it to Ether. If the transaction is not completed, the money is sent back to the initiator safely and securely.

How to

Mark shows users how to make a transaction using ShapeShift. In the example, he transfers Dash to Ether using the decentralized platform. Remember to fill in your sender address, so in the event that the transaction does not complete, your money will be returned. Choose the amount you want to exchange, type in the receiving address, and scan the QR code. The example transaction was completed in less than a minute. Changelly works similarly but has a diverse set of currencies it accesses. Both exchanges are decentralized, accessible through website or apps, and are equally secure and recommended for making cryptocurrency exchanges.

For more information on cryptocurrency and for all of your questions, join us each week on Ask Doctor Bitcoin.

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How to spot scamcoins [ADB s1e9]

The technology behind cryptocurrency and blockchain offers so many world-changing possibilities, and there are many ways companies can use the technology for good. Frustratingly, some persist in using the technology to perpetuate scams. Today, we cover two of those scams and give viewers a few tips on how to spot scam companies and scam coins in the future.

Project Profile

Highlighted this week are two companies making the news for all the wrong reasons: Bitconnect and USI Tech have both collapsed after allegations of fraudulent activity.

Both companies fit the definition of a Ponzi scheme: i.e. “a fraudulent investment operation where the operator generates returns for older investors through revenue paid by new investors, rather than from legitimate business activities or profit of financial trading.”

Bitconnect and USI Tech both promised insane returns and unrealistic gains via automated trading and cryptocurrency mining. These promises, with no regard to the actual market price of cryptocurrencies, should have been an immediate red flag.

In addition, Bitconnect and USI Tech took custody of people’s currency, defeating the entire purpose of cryptocurrency and blockchain technology, which entails a trustless system.

It is unfortunate that many people were introduced to cryptocurrency by way of scams, so it is important to learn how to spot fraudulent schemes as well as how to recognize valid projects. Unfortunately, events like these are what usually precede government regulations, which can in turn block real, valid uses of the technology.

How to:

When you try to find new projects or coins to support, Mark recommends asking yourself the following questions to see if any red flags pop up.

  1. What do the influencers say?
  2. What is the company trying to do? (And are they holding your money hostage to do it?)
  3. Google them.
  4. Research on GitHub (for a more technical look at their history).
  5. Who’s on their team?

For more news about cryptocurrency, profiles on (legit) companies, and all your Bitcoin questions, join us each week for Ask Doctor Bitcoin.

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Blockchain for Supply Chain & Crypto Portfolio Management [ADB s1e6]

We’re back from the holidays and ready to pour our knowledge onto the internet. This week, Doctor Bitcoin shares his tricks on how to develop a crypto-first mindset.

Mark suggests thinking of your cryptocurrencies like a bank account instead of stock or other kinds of Wall Street investments. By thinking of cryptocurrency as actual money, your perception might switch to dollar-cost averaging. This new mindset allows you to take advantage of the changing markets and to do what investment advisors recommend: maintain a savings account with compound interest.

What’s that?

We’ve talked before about blockchain technology and smart contracts. Wherever there’s a vector of trust there is also an opportunity for fraud. Companies that deal with third parties have to worry about the middleman running away with the cash and leaving them with nothing.

Smart Contract supply chains could fix the dishonest middleman issue and are scalable for companies of any size. Last year, Walmart announced a collaborative effort with IBM and their counterparts to improve food supply safety with the use of blockchain. And Walmart is just one of many companies looking to implement smart contracts.

How To:

You’ve got your wallet all set up, now it’s time to pick your currency.

Creating a diverse crypto portfolio can be a head-scratcher. There seems to be some new cryptocurrency being made every day. Bitcoin and Ether wobble up and down every time news outlets make doomsday prophecies. Don’t worry! You’re watching Ask Doctor Bitcoin and we’ve got a few tips to share.

There are ways to find out what tokens are promising investments and which ones you should stay away from. The first step is keeping an eye on Coinmarketcap’s top 10. These are relatively safe and won’t have widely varying drops. Do your research. Mark tells you a little bit about a few of the top 10 coins, but it’s still best to do your own research. Fortunately, Coinmarketcap has links to every coin so you can learn about each one individually.

That’s it for this episode! Check back on our Facebook or Youtube channel for weekly sessions with the crypto doctor.

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Bitcoin Veteran FAQ! [ADB s1e5]

On this week’s episode, Doctor Bitcoin reviews some of the most commonly asked questions about cryptocurrency and encourages potential buyers to reframe those questions in ways that are more meaningful.

Are we in a bubble?

Instead, what you’re thinking (and what you should be asking) is “Bitcoin’s price rose very quickly. Is this a problem? Is this normal?” CME Group’s Chairman Emeritus Leo Melamed said that Bitcoin is the “first new asset class in over 100 years.” The FTC doesn’t even have a proper classification for cryptocurrency yet, so any speculation of a “bubble” is just that: speculation. However, Bitcoin may follow the same curve as other user adoption platforms, such as Airbnb and Uber, and therefore the success of the currency would be based on its usage.

When’s the best time to buy?

What you’re really asking is “When is the best time to put money into this volatile market and mitigate my risk?” 2009 was undoubtedly the best time to buy. But the second-best time is now. Given a long enough timeline, the value tends to increase. Converting your dollars into cryptocurrency, over the long term, is a tried-and-true method for investing without the volatility of day trading.

When’s the best time to sell?

Doctor Bitcoin doesn’t frame this question in these terms at all. If you are in a cryptocurrency-first lifestyle, you aren’t thinking of cryptocurrency as a buy/sell system but rather as a superior way to use and spend money. Instead of thinking about how much the currency is worth, it may be beneficial to think about your purchasing power.

Have you heard of (new ICO or Coin)?

The answer is “Probably not,” but that’s not the important part. What you’re really wanting to know is how to research and evaluate the validity of new ICOs and coins for yourself. We suggest evaluating the team, the product market fit, the competition, and the economics of the offering to see if these match your specific goals.

Should I buy (new ICO or Coin)?

Instead of asking us, look at your research, goals, and the amount you have to invest before coming to your conclusion.

The key is to educate yourself and learn everything you can about cryptocurrency and the projects that interest you, so you will be better prepared to avoid potential pitfalls and take advantage of future opportunities.

Subscribe to our YouTube channel to keep up with the latest news and learn more about the crypto world.

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Proof of Work vs. Proof of Stake [ADB s1e4]

Doctor Bitcoin unpacks proof-of-work and proof-of-stake when securing a blockchain, as well as the importance of understanding the difference between the two methods.

What’s that?

Proof-of-work is the primary method of securing a blockchain. When mining, the node makes a request for the encrypted nugget of data and then attempts to decrypt it by guessing the password. When it does guess the password, the node reaps the award—the block—for decrypting. As more people begin to decrypt the algorithms, the encryptions become increasingly difficult, requiring more processing power to solve. Essentially, the award is the mined block, which proves that you did the work (provided processing power) to crack the encryption.

Proof-of-stake requires you to stake an amount of the tokens you are trying to secure. In this process, you would buy a certain number of tokens, lock them up in a wallet, and each one is a chance to reap the award—the block as it is secured. Instead of using your processing power for a chance to secure the block, you are purchasing tokens for that chance.

Both methods have their positives and negatives. Proof-of-stake is more ecological and efficient but can be more economically unfriendly to the user. Proof-of-work is more energy-expensive and less ecological but also more egalitarian.

Subscribe to our YouTube channel to keep up with the latest news and learn more about the crypto world.

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