Sep
28
2021
Pros and Cons of Investing in Crypto Exchanges

Pros and Cons of Investing in Crypto Exchanges

By | Growing Wealth, invest, Investing | Comments Off on Pros and Cons of Investing in Crypto Exchanges

Crypto exchanges provide a platform for people to buy and sell cryptocurrencies with their fiat currency or to trade different cryptocurrencies for one another. These companies take a small fee with each transaction. Given the increasing popularity of crypto, exchanges with a lot of customers and high trading volume can wind up becoming very profitable businesses.

Some crypto exchanges become so profitable that they issue shares of equity in their company on a public stock exchange. This happened for the first time in 2021, when one of the oldest crypto exchanges was the first in the industry to become a publicly traded company.

Why would someone invest in crypto exchange companies? What might be some of the potential benefits and drawbacks to such an investment? We’ll answer questions like these, and more.

A Word on IPOs

First, investors should be aware of the fact that many initial public offerings (IPOs) create a lot of fanfare and buzz. But they don’t always deliver right away.

It’s not uncommon for companies to make their debut on the stock market at valuations that far exceed their true market value. It’s common for IPO stocks to see their prices tank shortly after going public.

While this doesn’t have to dissuade investors from a company they would otherwise remain bullish about, it’s an important thing to keep in mind.

Private investors like venture capital funds can get in on the action before the public, so they don’t care as much about what happens to share prices post-IPO. But for retail investors, buying a lot of shares on the day a stock goes public has quite often proven to be a mistake, at least in the near-term.

Pros of Investing in a Crypto Exchange

Some of the pros of investing in crypto exchanges include potentially taking advantage of rapid growth, owning a piece of crypto infrastructure in a regulated way, and holding a security that can be subjected to more traditional valuation methods than a cryptocurrency.

Rapid Growth

The growth seen in the crypto industry has been unparalleled. In 2015, the entire cryptocurrency market cap was about $7 billion. Today that market cap has risen to over $1 trillion, peaking at over $2 trillion in early 2021.

Bitcoin was only just invented twelve years ago in 2009. To put that into context, it took companies like Apple, Google, and Amazon an average of 20 years or more to reach a valuation in excess of $1 trillion.

If this growth continues at even a fraction of its current rate, then there is a chance that broad investments in the sector like crypto exchange stocks could see substantial returns on a 5-, 10-, or 20-year timeframe. (But as with anything having to do with investing, past performance is no guarantee of future results.)

Indirect Exposure to the Crypto Market

Investing in the stocks of crypto exchanges provides a proxy for investing in cryptocurrency itself. In other words, investors can gain indirect exposure to the crypto market, without exposing themselves to the potential volatility of crypto itself. Investors who aren’t sure about cryptocurrency as an asset class, or who would rather not learn how to own and hold cryptocurrency tokens on their own, might find these stocks appealing.

Buying shares of a crypto exchange lets investors hold a piece of the infrastructure that keeps the cryptocurrency world functioning. Most exchanges also have value beyond simply being brokerages for the buying and selling of cryptocurrencies.

• Exchange-hosted wallets allow users to send crypto off-platform.

• Some exchanges have begun providing staking services, where users who hold proof-of-stake coins can earn what amounts to a crypto dividend by holding those coins in their exchange wallet.

• Exchanges are even beginning to get into borrowing and lending services, letting users lend out their crypto to earn interest or take out a loan using their crypto as collateral.

More Traditional Valuation Methods

The shares are an investment in a real company with cash flow, earnings, a board of directors, and all the things that traditional investors are familiar with. This makes it easier for some investors to grasp than cryptocurrency itself. Crypto exchange stocks can be treated as any other equity in a portfolio. They can also be scrutinized in the same way, using valuation models like the discounted cash flow model, the dividend discount model, and others.

While it seems likely that crypto exchange stocks will have some correlation to the price action and value of Bitcoin and other cryptocurrencies, the relationship might not be 1:1. Traditional company metrics like quarterly earnings will likely also impact share prices.

Cons of Investing in Crypto Exchanges

Some of the cons of investing in crypto exchanges include the potential for speculation, regulatory concerns, a lack of historical precedent, the business models involved.

Potential for Speculation

While crypto markets are often criticized as being speculative, stock markets also have their fair share of speculators. And when crypto markets rally, it’s feasible that some investors could get overly bullish on crypto exchange stocks, creating a mania that ends in a crash. This might be the exact type of thing investors are hoping to avoid by choosing to invest in crypto exchanges rather than actual cryptocurrencies.

Then again, it’s also possible that crypto exchange stocks weather the storm of a crypto market downturn better than the crypto market itself. The phenomenon of exchanges being publicly-traded securities is too new to tell for sure yet.

Lack of Historical Precedent

2021 is the first year that any crypto exchange has been made publicly tradable on a stock exchange. No one knows exactly what will happen, how the securities will trade, what will impact their prices, and so on. Much of the outlook is conjecture at this point.

The future of blockchain technology itself, which powers cryptocurrency, is only 12 years old and also has a degree of uncertainty behind it.

Regulatory Concerns

It’s widely suspected that financial regulators will tighten the noose around cryptocurrencies at some point. What form that might take, and what the impact could be, is largely unknown. Some say that greater regulatory clarity would be a good thing, as larger investors would feel more comfortable entering the space with significant amounts of capital. Others believe over-regulation could cripple the industry and the asset class as a whole. Again, this is somewhat of an unknown.

Fee-Based Business Model

Typically, most of an exchange’s revenue comes from transaction fees. It has been noted that over time, fees like these tend to see downward pressure due to competition. In the world of stock brokerages, for example, trading fees on most platforms have fallen to zero in recent years.

While this could be a possibility, others have argued against it, saying that crypto isn’t analogous to stocks in this respect. Users are also paying for additional services like custody services, or holding crypto, which is an important factor to consider. An exchange-hosted wallet also lets users send and receive crypto transactions without having to create and manage a wallet of their own.

The Takeaway

Investing in crypto exchanges isn’t that different from investing in other companies. And as always, investors should educate themselves about what they’re buying and why. An investigation into the company’s activities, management, history and earnings reports would be warranted regardless of which company an investor chooses.

Photo credit: iStock/valiantsin suprunovich

SoFi Invest®
INVESTMENTS ARE NOT FDIC INSURED • ARE NOT BANK GUARANTEED • MAY LOSE VALUE
SoFi Invest encompasses two distinct companies, with various products and services offered to investors as described below: Individual customer accounts may be subject to the terms applicable to one or more of these platforms.
1) Automated Investing and advisory services are provided by SoFi Wealth LLC, an SEC-registered investment adviser (“SoFi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC.
2) Active Investing and brokerage services are provided by SoFi Securities LLC, Member FINRA (www.finra.org)/SIPC(www.sipc.org). Clearing and custody of all securities are provided by APEX Clearing Corporation.
For additional disclosures related to the SoFi Invest platforms described above please visit SoFi.com/legal.
Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform.

Crypto: Bitcoin and other cryptocurrencies aren’t endorsed or guaranteed by any government, are volatile, and involve a high degree of risk. Consumer protection and securities laws don’t regulate cryptocurrencies to the same degree as traditional brokerage and investment products. Research and knowledge are essential prerequisites before engaging with any cryptocurrency. US regulators, including FINRA , the SEC , and the CFPB , have issued public advisories concerning digital asset risk. Cryptocurrency purchases should not be made with funds drawn from financial products including student loans, personal loans, mortgage refinancing, savings, retirement funds or traditional investments. Limitations apply to trading certain crypto assets and may not be available to residents of all states.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

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Sep
24
2021
How Does a Bitcoin Transaction Work?

How Does a Bitcoin Transaction Work?

By | Growing Wealth, invest, Investing | Comments Off on How Does a Bitcoin Transaction Work?

It’s something that is among the basics of investing in crypto: Learning how Bitcoin transactions work. It may sound a little silly, but many traders and investors don’t really know what happens behind the scenes to get cryptocurrency into the buyer’s possession.

It’s always worth reviewing how a Bitcoin transaction works. While this may be covered in almost any guide to cryptocurrency, it’s a good thing to keep in mind before you start buying Bitcoin.

Read on to find out how Bitcoin transactions work, how long they take, and the verification processes that ensure they’re safe and secure.

Bitcoin Basics

Before getting into the nitty-gritty details of Bitcoin transactions, it’s worth revisiting the foundational cryptocurrency of Bitcoin itself.

Bitcoin is a digital currency. In essence, bitcoins are simply just small pieces of computer code. The currency has no physical manifestation — you can’t hold it in your hands, or stick it in an envelope — but can be used as a medium for transactions. That is, you can use it to buy or sell things, as long as the party on the other end of the transaction is willing to accept it.

Bitcoin is also a decentralized currency, meaning that it has no regulatory authority like a bank. Its value is dictated by the market, much like a stock. Bitcoin dates back to 2009, when it first became available to the public as the initial cryptocurrency.

Also worth noting: Bitcoin is built on something called “blockchain” technology. Read on for a quick primer on blockchain, and how blockchain works.

Blockchain

Blockchain technology is, in its most basic form, a chain of blocks containing data. The blockchain itself is decentralized — not controlled by a single entity. Instead, a blockchain network is spread across the globe, with hundreds, or even thousands of users participating in it.

Blockchain enables cryptocurrency transactions. It keeps a record of those transactions — storing the data in blocks — using a sort of distributed ledger. Imagine an Excel spreadsheet saved on thousands of different hard drives, all of which reference each other to validate the data’s accuracy.

Blockchain allows for faster, more secure (but not 100% secure) transactions. That’s why blockchain and Bitcoin are so often mentioned in the same sentence.

Crypto Exchanges

As for actually executing a Bitcoin transaction, most of the time this will take place on a cryptocurrency exchange. (Unless you’re into Bitcoin mining, which is a different story altogether.)

How do cryptocurrency exchanges work? More or less like any other financial exchange.

Crypto exchanges are where cryptocurrencies are exchanged between parties. They’re similar to a stock market, in that traders or investors can buy or sell cryptocurrencies, usually in exchange for dollars or other fiat currencies. There are different crypto exchanges, often with different rules and offerings.

Traders sign up on the exchange, create an account, fund that account, and then execute a transaction for bitcoin or any other cryptocurrency they’re looking to add to their portfolio.

Given that these exchanges are typically where Bitcoin transactions go down, let’s run through an example of what that might actually look like.

How Bitcoin Transactions Work (with Example)

Here’s an example of a Bitcoin transaction: Imagine you want to send a bitcoin to your friend, Ted.

You know where the bitcoin is now: in your wallet. And where it needs to go: Ted’s wallet. So, we have point A, and point B. Here are the steps to get there:

1. Consider your crypto storage. There are a couple of ways to store crypto: “Hot wallets” which is typically another word for “online,” and “cold wallets,” which means your crypto is being stored offline, and thus, more securely. If you want to transact, though, you’ll need to get your holdings out of any crypto cold wallets and into hot ones, so that the transaction can commence.

Recommended: Hot Wallet vs. Cold Wallet: Choosing the Right Crypto Storage

2. Enact the transaction. To do this, send a message to the network with all of the details, including

a. Which bitcoin you want to send. This is called an input, and it’s the record of the bitcoin’s address and history.

b. The amount, or value of bitcoin to be transacted.

c. Where it’s going. That’s the output, or verification address.

So, to get your bitcoin to Ted, the network references the coin’s address, verifies that you want to send one bitcoin, and then verifies Ted’s public key, or Bitcoin address.

3. Wait for verification and confirmation. Once the network verifies the transaction, and that Ted is able to receive the bitcoin based on the message you sent. A confirmation process takes place — this is what we often refer to as “mining,” as the data in blocks is verified by other users — and the transaction is enacted.

Each bitcoin has its history written into the blockchain. You can trace each transaction back to each coin’s original creation by following its record over time. That’s how we know that each individual bitcoin exists, and that it belongs to (or is in possession of) the entity that claims it.

Yes, it’s a little abstract, and not as simple as handing Ted a $20 to cover your lunch tab. The thing to remember is that there are a lot of things taking place in the background during a Bitcoin transaction.

Transaction Confirmations

It often takes a little bit of time for the network to verify or confirm Bitcoin transactions. That’s because miners need to get to work, and as such, a transaction won’t be confirmed until a new block has been added to the blockchain.

Miners are rewarded with new bitcoins for creating new blocks on the blockchain. That process involves confirming and verifying data in the blocks. So there’s an incentive for the network to constantly confirm and verify the data on the network, including transaction information.

Until the network creates a new block and verifies the transaction data, the transaction will remain unconfirmed.

Transaction Speeds

Just how long a transaction can take typically depends on a few factors, such as the value or amount of bitcoin being transacted. Much of the delay has to do with the structure of the Bitcoin network itself — a new block is created roughly every 10 minutes, on average.

There is also often a queue to get your transaction confirmed. In some cases, you may have the choice of paying higher fees to get priority treatment.

Bitcoin Transaction Fees

Because “block demand” exists in the Bitcoin network, with users that want to confirm their transactions and thus have the data written into new blocks, there can be backups. Higher demand leads to higher prices, or fees, to confirm a transaction. Essentially, traders are paying a “miner’s fee” to have a transaction processed and confirmed on the blockchain, and the busier the network, the higher the tolls.

For example, fees skyrocketed during late April of 2021 as the crypto bull rush hit its heights. Average fees were around $60. But during calmer times on the network, the costs are typically much more reasonable, at less than $5.

It really comes down to supply and demand. The more demand on the network at a given time, the higher the transaction costs.

The Takeaway

A Bitcoin transaction relies heavily on the blockchain network, but at its heart it’s as simple as transferring one or more bitcoins from your account to someone else’s. Variables like transaction speed and transaction fees can vary based on demand.

Photo credit: iStock/Olemedia

SoFi Invest®
INVESTMENTS ARE NOT FDIC INSURED • ARE NOT BANK GUARANTEED • MAY LOSE VALUE
SoFi Invest encompasses two distinct companies, with various products and services offered to investors as described below: Individual customer accounts may be subject to the terms applicable to one or more of these platforms.
1) Automated Investing and advisory services are provided by SoFi Wealth LLC, an SEC-registered investment adviser (“SoFi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC.
2) Active Investing and brokerage services are provided by SoFi Securities LLC, Member FINRA (www.finra.org)/SIPC(www.sipc.org). Clearing and custody of all securities are provided by APEX Clearing Corporation.
For additional disclosures related to the SoFi Invest platforms described above please visit SoFi.com/legal.
Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform.

Crypto: Bitcoin and other cryptocurrencies aren’t endorsed or guaranteed by any government, are volatile, and involve a high degree of risk. Consumer protection and securities laws don’t regulate cryptocurrencies to the same degree as traditional brokerage and investment products. Research and knowledge are essential prerequisites before engaging with any cryptocurrency. US regulators, including FINRA , the SEC , and the CFPB , have issued public advisories concerning digital asset risk. Cryptocurrency purchases should not be made with funds drawn from financial products including student loans, personal loans, mortgage refinancing, savings, retirement funds or traditional investments. Limitations apply to trading certain crypto assets and may not be available to residents of all states.

External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

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Sep
24
2021
Ethereum (ETH) Fork: History & Definition

Ethereum Fork Guide

By | Growing Wealth, invest, Investing | Comments Off on Ethereum Fork Guide

Ethereum isn’t just the second most valuable cryptocurrency, it’s also perhaps the most active cryptocurrency ecosystem. While Bitcoin and its associated blockchain support a highly volatile but highly valuable currency that is obtaining more and more mainstream adoption, Ethereum underlies a wide range of applications, services, and ambitious plans that include financial systems based on smart contracts, virtual real estate, other coins and tokens, and more.

At less than 10 years old, Ethereum is in a constant state of flux. The cryptocurrency has gone through several “hard” forks, and may be having another one soon. Knowing what a hard fork is and how past ones have affected the Ethereum ecosystem is important before investing in Ethereum or working in the Ethereum space.

Recommended: What Is Ethereum and How Does It Work?

What Is a Crypto Fork?

The first thing to understand about cryptocurrencies is that they are code. Computer code defines the protocols that blockchains run on. Code governs how crypto works at the deepest level. And these are open source projects, meaning that, generally, anyone can copy the code, distribute the code, or make suggestions for how to improve it.

That also means anyone can make a different version of it.

And that’s what a hard fork is. Blockchains are records of transactions and databases of who has “blocks” on the network. This database is maintained not by a central computer or user like in a bank, but by all the users who support it. A hard fork happens when this entire database is copied and the underlying code is altered such that it operates going forward in a different way.

After a hard fork, there are two different blockchains, two different networks, and two different cryptocurrencies. Typically holders of the original crypto get tokens in the new one and then they operate totally separately going forward.

Hard forks differ from soft forks. Think of a soft fork more like an upgrade — everyone accepts it, the status of the network and blockchain remains the same, and it operates going forward in much the same way as it did previously.

Recommended: Bitcoin Soft Fork vs Hard Fork: Key Differences

What Are Ethereum Hard Forks?

Ethereum hard forks are the result of developers wanting a version of Ethereum that either operates more effectively or has features that the original Ethereum doesn’t have. In the debate of Ethereum vs Bitcoin, Ethereum’s ability to function more as a platform for different applications and services beyond just a currency or store of value also means there’s a lot of development activity around it. And that means many hard forks that create a new version of the network — with older versions often abandoned.

How Do Ethereum Hard Forks Work?

Ethereum hard forks happen when the Ethereum community (the miners) reaches consensus on a proposal to change the Ethereum blockchain. Consider, for example, the most controversial and noteworthy hard fork, the so-called DAO fork which created the split between Ethereum and Ethereum Classic. That fork went through after 97% of Ethereum users voted in favor of it.

History of Ethereum Hard Forks

Ethereum has had several hard forks. While it’s important to understand the technology and concept behind Ethereum forks, knowing more about these hard forks and why they happened is essential to getting a grasp on the wider crypto currency landscape.

Ethereum Classic Fork

The Decentralized Autonomous Organization (DAO) fork was one of the most ambitious projects in the history of cryptocurrency, let alone in the then-short history of Ethereum.

The DAO was a roughly $160 million fund (in Ether) for cryptocurrency projects that was launched in 2016. It was governed by a set of smart contracts, code that’s executable on a blockchain that supposedly removes the need for trusted third parties to enforce a deal. But this structure contained a vulnerability: if there was a security hole in the code that could be exploited by a hacker, the hacker could drain away tens of millions of dollars and there would be nothing The DAO could do about it.

And that’s exactly what happened — more than $50 million was stolen. This was not only a huge loss for the investors, but also a potentially fatal blow to Ethereum itself, which had just launched publicly the year before.

In response, Ethereum developers executed a controversial hard fork of the Ethereum blockchain to roll back the transactions caused by the hack — essentially resetting the blockchain to its pre-hack state. While the vast majority of Ethereum users supported this hard fork, it left behind a second blockchain, now called Ethereum Classic.

Recommended: How Safe is Blockchain?

Ether Zero Fork

The Ether Zero (ETZ) fork was a hard fork executed in 2019 with the promise of faster and cheaper transactions. Although millions of ETZ, the new cryptocurrency, were given to holders of ETH, the project appears to have largely floundered. By June 2021 the ETZ coin was the 1890th ranked coin on CoinMarketCap and individual tokens were worth less than one one thousandth of a cent.

Metropolis Fork

Metropolis was part of a large-scale fork planned by Ethereum developers for general maintenance, rather than a rival or rebel project. It was so substantial that it was executed in several named steps, including Byzantium and Constantinople. The first parts of it went live in 2017, and overall changes included technical but substantial shifts in how smart contracts written on the Ethereum blockchain operated.

Serenity Fork

Serenity is a long planned and major overhaul of the network that’s also known as “Ethereum 2.0”.

The first part, Beacon, went live late last year. This updated blockchain is intended to process transactions faster.

Further Serenity updates are scheduled for 2021 and 2022. The goals of the updates include a reduction in the energy used for Ethereum mining, through use of “proof of stake” as opposed to “proof of work” technology.

The latter, which famously underlies Bitcoin, relies on computers to essentially solve math problems in order to maintain the network and generate new Bitcoin. This constant computer power expends huge amounts of energy — a drain on individual resources as well as environmental ones.

Proof of stake technology, on the other hand, allows users to validate the network by “staking” their own ETH tokens, i.e. putting enough ETH into a pool from which random users are selected to carry out the tasks previously done by miners.

The Takeaway

In less than 10 years, Ethereum has experienced a number of notable hard forks — some controversial, some not, but all aimed at improving the cryptocurrency and its functionality.

The decisions around Ethereum hard forks are often highly technical and are largely guided by a small group of developers. But Ether holders are invited to vote on community decisions and participate directly in the maintenance of the network through staking.

Photo credit: iStock/matdesign24

SoFi Invest®
INVESTMENTS ARE NOT FDIC INSURED • ARE NOT BANK GUARANTEED • MAY LOSE VALUE
SoFi Invest encompasses two distinct companies, with various products and services offered to investors as described below: Individual customer accounts may be subject to the terms applicable to one or more of these platforms.
1) Automated Investing and advisory services are provided by SoFi Wealth LLC, an SEC-registered investment adviser (“SoFi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC.
2) Active Investing and brokerage services are provided by SoFi Securities LLC, Member FINRA (www.finra.org)/SIPC(www.sipc.org). Clearing and custody of all securities are provided by APEX Clearing Corporation.
For additional disclosures related to the SoFi Invest platforms described above please visit SoFi.com/legal.
Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform.

Crypto: Bitcoin and other cryptocurrencies aren’t endorsed or guaranteed by any government, are volatile, and involve a high degree of risk. Consumer protection and securities laws don’t regulate cryptocurrencies to the same degree as traditional brokerage and investment products. Research and knowledge are essential prerequisites before engaging with any cryptocurrency. US regulators, including FINRA , the SEC , and the CFPB , have issued public advisories concerning digital asset risk. Cryptocurrency purchases should not be made with funds drawn from financial products including student loans, personal loans, mortgage refinancing, savings, retirement funds or traditional investments. Limitations apply to trading certain crypto assets and may not be available to residents of all states.

External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

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Sep
24
2021
What Is a Bitcoin Whale? How They Affect Bitcoin's Price

What Is a Bitcoin Whale? How They Affect Bitcoin’s Price

By | Growing Wealth, invest, Investing | Comments Off on What Is a Bitcoin Whale? How They Affect Bitcoin’s Price

You’ve probably heard of the “wolf” of Wall Street, but may not necessarily be familiar with Bitcoin whales. While neither of these monikers actually have anything to do with the animal kingdom, they both describe dominant creatures in the financial digital assets and cryptocurrency realm.

So, just what is a Bitcoin whale, or a crypto whale? It’s another one of those crypto terms that are worth knowing. In this article, we’ll run through a few examples of Bitcoin whales, and discuss how these whales can and have created ripple effects through the crypto markets on occasion.

What is a Bitcoin Whale?

Simply put, a Bitcoin whale is an investor that has a massive amount of Bitcoin holdings. If the average Bitcoin investor holds a single bitcoin in their portfolio, for example, a Bitcoin whale may hold 500 or 1,000 bitcoins.

“Whales” in the investing sphere are not solely relegated to the Bitcoin market. Whether it comes to investing in stocks or investing in cryptocurrency, the term “whale” refers to the same thing: An investor with a disproportionate amount of holdings compared to others.

Bitcoin whales buy cryptocurrency like you might buy toilet paper. And they’ll likely continue to, considering how much Bitcoin is left to be mined — a supply that will be exhausted by 2140.

Whales come in different sizes, so some Bitcoin whales are bigger than others. That said, it’s hard to get a clear gauge on the number and size of whales, because a single person or entity can have multiple addresses. As of July 2021, there are only a few whales that hold between 100,000 and 1,000,000 bitcoins, and around 80 that hold between 10,000 and 100,000 bitcoins.

How Do Bitcoin Whales Impact the Price of Bitcoin?

Now that you know what a Bitcoin or crypto whale is, it’s important to understand how these whales can affect the price of Bitcoin. Especially if you’re interested in investing in Bitcoin, or currently have Bitcoin in your portfolio.

Because they hold an outsized position in the market, whales make waves when they make moves. For example, if a whale decides to sell a large amount of bitcoins in one day, that will create a ripple effect in the market, and likely drive prices down as other investors follow suit. A whale could, potentially, shift market trends in whichever direction they’d like. (Yes, this can border on market manipulation.)

For example, let’s say a whale with a balance of 100,000 bitcoins wants to buy more. They could sell 50,000 of them — an amount that could catch the attention of other investors, who would start selling their holdings, which in all likelihood would lead to a drop in Bitcoin prices. The whale could then buy back their 50,000 Bitcoins (and perhaps more) at a lower price — profiting and padding their holdings at a discount.

In other words, they could create a dip, and then buy the dip.

This hypothetical situation highlights the type of leverage a whale could have on a market. They could suppress or pump up prices (which is something seen in other assets, like stocks, too), leaving smaller investors scrambling to keep up.

Because whales have potentially market-moving capabilities, other investors tend to watch them closely. “Whale watching,” as it may be called, keeps tabs on whale activity to get a sense of where the markets are heading. There are a number of social media accounts and websites that any interested whale watchers can follow. Not surprisingly, one need only search “crypto whale watch” or “Bitcoin whale watch” to find them.

Who Are Some of the Biggest Crypto Whales?

There are plenty of fish in the sea, and plenty of whales in the Bitcoin market. But we don’t know who many, if not most of them, are. You may remember that nobody even knows who the creator of Bitcoin is, other than it’s a person (or persons) that goes by the name of Satoshi Nakamoto.

So, just like the deep blue sea is full of mysteries, so is the cryptocurrency market. But there are a few whales that we know about, and that many investors choose to keep an eye on. Here are some of them:

The Winklevoss Twins

If you remember the movie “The Social Network,” you might remember the Winklevoss twins, who were portrayed in the movie by Armie Hammer. The two had a role to play in the early days of Facebook, but these days, the real-life investors are in the Bitcoin game.

Tyler and Cameron Winklevoss have amassed billions of dollars in Bitcoin, with their first acquisitions dating back roughly a decade. Since then, they’ve been involved in several cryptocurrency ventures and exchanges, as investors and founders. In 2015, the two launched Gemini, a crypto exchange that allows users to trade Bitcoin and other cryptocurrencies.

The twins are incredibly bullish on Bitcoin and have even said that they think it will outperform stocks and other assets over the next decade.

Tim Draper

Tim Draper, another Bitcoin whale, is a venture capitalist who’s invested in a variety of companies from Skype to Tesla, and Robinhood to Ancestry.com. When it comes to Bitcoin, Draper made a splash in 2014 when he bought tens of thousands of bitcoins that were seized by the federal government.

Those holdings immediately gained him whale status in the Bitcoin market, and Draper has continued to amass additional bitcoins (along with other altcoins). He has said that he thinks Bitcoin’s value will rise into the hundreds of thousands of dollars.

Recommended: Should We Expect a Bitcoin Bull Run in 2021?

Michael Saylor

Michael Saylor is the CEO of MicroStrategy, a business intelligence company with a Bitcoin focus. Saylor’s become one of Bitcoin’s biggest proponents in recent years, and has seen his company’s holdings climb into the billions of dollars.

Saylor has made Bitcoin investing a primary function of MicroStrategy, which has even issued additional debt in order to raise funds to buy more cryptocurrency. As such, Saylor and his company have become Bitcoin whales in their own right.

The Takeaway

Much like whales found in nature and in other areas of investing, a Bitcoin whale is an investor with a large amount of holdings — enough that they have the potential to move the market. Not surprisingly, the who and how many of Bitcoin whales is someone unknown, with a few exceptions.

Photo credit: iStock/hemul75

SoFi Invest®
INVESTMENTS ARE NOT FDIC INSURED • ARE NOT BANK GUARANTEED • MAY LOSE VALUE
SoFi Invest encompasses two distinct companies, with various products and services offered to investors as described below: Individual customer accounts may be subject to the terms applicable to one or more of these platforms.
1) Automated Investing and advisory services are provided by SoFi Wealth LLC, an SEC-registered investment adviser (“SoFi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC.
2) Active Investing and brokerage services are provided by SoFi Securities LLC, Member FINRA (www.finra.org)/SIPC(www.sipc.org). Clearing and custody of all securities are provided by APEX Clearing Corporation.
For additional disclosures related to the SoFi Invest platforms described above please visit SoFi.com/legal.
Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform.

Crypto: Bitcoin and other cryptocurrencies aren’t endorsed or guaranteed by any government, are volatile, and involve a high degree of risk. Consumer protection and securities laws don’t regulate cryptocurrencies to the same degree as traditional brokerage and investment products. Research and knowledge are essential prerequisites before engaging with any cryptocurrency. US regulators, including FINRA , the SEC , and the CFPB , have issued public advisories concerning digital asset risk. Cryptocurrency purchases should not be made with funds drawn from financial products including student loans, personal loans, mortgage refinancing, savings, retirement funds or traditional investments. Limitations apply to trading certain crypto assets and may not be available to residents of all states.

External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

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Jun
25
2021
Bitcoin Mining Software: How to Choose the Right One

Bitcoin Mining Software: How to Choose the Right One

By | Growing Wealth, invest, Investing | Comments Off on Bitcoin Mining Software: How to Choose the Right One

To mine Bitcoin, a number of things are required. Miners need:

•  Mining hardware: Application Specific Integrated Circuits (ASICs) or Graphic Processing Units (GPUs)

•  Bitcoin mining software

•  A bitcoin mining pool

•  Electricity: Bitcoin mining typically consumes a large amount of energy

•  A place to set up a mining rig

•  In some cases, a way to cool down ASICs/GPUs (the machines tend to generate a lot of heat)

Of all these needed elements, crypto mining software is one of the most vital. Mining rigs can’t mine without the proper software. This program will tell the machines which currency to mine, what pool to participate in, and how fast to run the fans.

Selecting the best software to mine Bitcoin may be confusing to newcomers, but it doesn’t have to be complicated. Perhaps even better, it also doesn’t have to be expensive. While mining Bitcoin can be costly in terms of hardware and electricity, the software to mine Bitcoin usually isn’t. Most Bitcoin mining software is free and open-source, so anyone can download it and see what went into creating it.

Factors to Consider When Choosing Bitcoin Mining Software

Before settling on a specific mining software program, it’s worth considering some key variables.

1. What operating system will you be running the software in?

Make sure the OS is compatible with the software whether it’s Windows, Linux, or Mac OSX. In addition, some software only works with ASIC miners, while others might only work with GPU miners.

2. Are the software and hardware Bitcoin-compatible?

Bitcoin requires ASICs that can run the SHA-256 algorithm. Some altcoins, like Dogecoin and Litecoin, run on the Scrypt algorithm, and need special ASICs designed for that specific purpose.

3. Which wallet and exchange will you be using?

First, you need your own Bitcoin wallet to deposit mined coins into. A desktop hot wallet like Amory, Breadwallet, or Electrum may be a good option since it allows users to hold their own private keys. From there, you will need to move the coins to a crypto exchange to trade the mined coins for fiat currency or a stablecoin. Users who want to hold all of their profits in Bitcoin can skip this last step and instead put their coins into a more secure long-term storage method like cold storage.

Once the above factors have been taken care of, users can move forward with finding the best Bitcoin mining software for their needs.

Top Bitcoin Mining Software in 2021

Here are a few of the top crypto mining software programs on the market in 2021. Depending on a user’s experience with crypto specifically and with tech in general, some software might be more appealing than others.

CGMiner

CGMiner has been one of the most popular mining programs for many years. For those who already know a thing or two about how Bitcoin mining works, this might be their preferred program.

Pros:

•  This software comes with features like fan speed control, the ability to access the program remotely, and use with multiple miners.

•  It can even be used for CPU mining (although this is not feasible for most coins today, as mentioned earlier).

•  The software works with most operating systems.

Cons:

•  The user interface is very basic: grey text on a black background.

•  The program is run using a command line, meaning users type in commands to tell it what to do. This may not be appealing to new users.

EasyMiner

EasyMiner provides a graphic user interface (GUI) for the CGMiner software. While CGMiner shows little more than lines of text, EasyMiner provides graphs displaying mining activity along with other visual features.

Pros:

•  It’s good for new users who prefer a user-friendly GUI.

Cons:

•  It’s not compatible with Mac OS X.

BitMinter

This software is also more user-friendly than some of its competitors. BitMinter supports all major operating systems, is easy to use, and automatically points to its own mining pool (also called BitMinter).

Pros:

•  It’s easy to set up, including its own mining pool.

•  It’s compatible with Windows, Mac OS X, and Linux operating systems.

Cons:

•  It has to be used with the BitMinter mining pool, which charges a 1% fee.

MultiMiner

This software simplifies a lot of the set up involved with Bitcoin software and comes with a GUI. Things are displayed and explained in a simple-to-understand way for beginners. Users are even instructed on how to link their miners to the mining pool of their choice. This software is designed for Windows, although additional software add-ons can be used to make things work on other operating systems.

Pros:

•  It’s good for beginners.

Cons:

•  It needs additional software to be able to run on Mac OS X or Linux.

Bitcoin Mining Software: Commonly Asked Questions

Wondering what to know before investing in crypto through the mining process? These are some of the most frequently asked questions when it comes to crypto mining software.

Can I Mine Bitcoin On My PC?

No, you can’t mine Bitcoin using your PC’s CPU or GPU power. There was a time when that was possible, but today, mining Bitcoin requires more powerful machines known as ASICs. You can, however, use a PC to run the mining software that controls your ASICs and points them toward a specific mining pool.

Can I Mine Bitcoin With My Phone?

Smartphones do not have the processing power necessary to mine Bitcoin. There have been reports of some types of sophisticated mining malware that harvest processing power from many smartphones and combine it to mine an altcoin with lower difficulty. But other than that, phones simply cannot mine crypto.

Recommended: What Is Pi Cryptocurrency? – A unique take on smartphone crypto mining.

Can You Mine Bitcoin for Free?

No. This is like asking if you can mine gold for free. There will always be costs associated with Bitcoin mining, including the hardware and electricity required to do so. This is one reason people believe Bitcoin has value—it can’t be created out of thin air.

How much does it cost to mine 1 Bitcoin?

This varies depending on the rate miners pay for electricity, the power of their machines, and the current mining difficulty (which adjusts upward or downward every two weeks or so).

How Do I Start Mining Bitcoins?

The best place to start is by doing research to determine whether or not mining Bitcoin is right for you. An individual who decides to try their hand at Bitcoin mining would then have to go about securing the necessary hardware, software, and electricity before finally selecting a mining pool to point their rig towards.

What is the Best Way to Mine Bitcoin?

From an energy perspective, the best way to mine Bitcoin might be using some kind of renewable energy source like solar, wind, hydro, or geothermal. There’s a growing trend in the industry toward these types of energy sources because they both increase miner revenues and reduce the carbon footprint of Bitcoin.

The Takeaway

Overall, Bitcoin mining requires a lot of research, knowledge, effort, and investment. Bitcoin mining software is a crucial piece of the prep, since miners can’t run their machines without the right software. Choosing the right software depends on both an array of technical factors for the mining machines, the chosen coin to mine, and the operating system of the computer running the software in question, as well as factors regarding the user experience itself. Once the technical details have been determined, users can make a decision based on what they think might work best for them.

Photo credit: iStock/Eva-Katalin

Crypto: Bitcoin and other cryptocurrencies aren’t endorsed or guaranteed by any government, are volatile, and involve a high degree of risk. Consumer protection and securities laws don’t regulate cryptocurrencies to the same degree as traditional brokerage and investment products. Research and knowledge are essential prerequisites before engaging with any cryptocurrency. US regulators, including FINRA , the SEC , and the CFPB , have issued public advisories concerning digital asset risk. Cryptocurrency purchases should not be made with funds drawn from financial products including student loans, personal loans, mortgage refinancing, savings, retirement funds or traditional investments. Limitations apply to trading certain crypto assets and may not be available to residents of all states.

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Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform.

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

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