Journey To Retirement Part 22 -- CryptoCurrency

After blogging 4 parts on Blockchain Investment (Part I, II, III, IV) it's unbelievable that I'll have no investment interest in it.  So, now am including this into the ongoing restructured and rebuild Investment Portfolio (refer here).  In fact, June 2021 was the starting point in which I got into cryptocurrency.

Cryptocurrency investment shall be group under the "Blockchain" section of the Investment Portfolio.  Though the name said cryptocurrency, it is in fact a basket of crypto coins and tokens.  There are reasons which I will not put in the exact name of these coins and tokens and instead group all as a single entity.  As of this point of writing, the total number of coins and tokens inside this entity stands at 18.  The main reasons for not revealing the name of these 18 coins and tokens are :-

1. Crypto coins and tokens investment is relatively higher risk than stocks investing.  In stock, there is an underlying company or companies (ETF is a basket of companies) associate with it.  The risks could be examined from the company's financial aspect (P&L statement, Cashflow statement, financial ratios, etc) and business aspect.  Though these are not foolproof ways to gauge the risks, it is afterall still a line of defence for investors.  In cryptocurrency, the underlying backing it is the blockchain project.  There isn't any financial aspect one can examine it like stock.  The only way to determine whether it is worth investing is what and how the blockchain project can achieve that eventually translate to financial gain for an investor.  Evaluating the prospect of the blockchain project afraid is subjective and to avoid others just blindly follow without fully understand the risk,  not revealing the coins or tokens is the best way out.

2. The barrier to enter and exit cryptocurrency is almost as good as non existence meaning tomorrow I could just add some more coins or tokens, sell some coins or tokens or even swap one coin or token to another when I have valid reason to do so.  Documenting the name of these coins and tokens will require very frequent updating, not at all constructive and productive from all aspects.

In investing means long time frame for me.  I have that patience to hold stocks for more than a decade so why should it different in cryptocurrency ?  There is also another reason why I'm not afraid to hold it long term -- capital.  However, this is unlike stocks whereby one could get dividend as part of the investment return, cryptocurrency investment is pure capital gain type.  Thus,  I'll classify cryptocurrency as "Strategic Investment'.

In cryptocurrency, I could divest at any time if deem fit.  I could swap coin A for coin B instantly if after evaluating the latter having a better prospect in its blockchain project.  Today I could divest away the whole cryptocurrency entity, tomorrow I could start a new one.  I could hold for even decades if no valid reasons to part way with it.   This is what's meant by "Strategic Investment".

The crypto coins and tokens I have so far did not need to put a single cent of capital into it.  These are acquired by mining, reward and staking.  This will be so even going forward.  As such, the cost of investment is always $0.  In mining, one needs the equipments but the cost of the equipments has been taken care of from day to day separately so it makes no sense to include that as cost of investment.

With $0 cost of investment, how to evaluate the performance in the Investment Portfolio ?  At any price, the return is always infinity (NaN) since denominator (cost of investment) is 0.  As such, the absolute amount at market price (for unrealized) or realized gain will be recorded as a relative to the cost of investment for the "Income" section in the Investment Portfolio.  This will also provide me a comparative study between the performance of cryptocurrency and stocks (capital gain + dividend return) for a specific time duration. 

Blockchain Investment -- Part IV

 Continued from Blockchain Investment -- Part III

The last session was on acquiring more of crypto coins or tokens via staking and the last installment of this Blockchain Investment is on acquiring crypto coins or tokens via mining.

4. Mining

In mining, hardware is very much needed.  Before getting into more about crypto mining, one need to remember that mining is an essential and critical component in a blockchain network.  Mining serves 2 purposes for the blockchain network.  The first is to discover new coins/tokens and bring them into circulation.  The second is to verify, confirm and consensus every transactions in the blockchain network so as to maintain the blockchain ledger.  The underlying of mining is to solve a computation puzzle of the blockchain.  To reward and incentive miners, winner for solving the puzzle will be rewarded with portion of the coins/tokens.  It is through these rewards and incentives that people are mining for the coins.  

Hardware requirement is just one half of the mining process.  It also requires software.  Different coins will have different cryptographic algorithms and the purpose of the software is to cater for each of these algorithms.  The followings are some of the algorithms for the popular coins :-

Bitcoin  --  SHA-256

Bitcoin Cash  --  SHA-256

Ethereum  --  Dagger-Hashimoto  

Ethereum Classic  --  Dagger Hashimoto

Litecoin  --  Scrypt

Dogecoin  --  Scrypt

Dash  --  X11

Monero  --  CryptoNight, RandomX

Ravencoin  -- Kawpow

Vertcoin  --  Lyra2REv2

While not all crypto coins can use hardware to mine like those belongs to the Proof of Stake category (Solana, Algorand, Cardano, etc), the hardware (in combination with the software) can't mine all the mineable coins too.  This is because some of the algorithm is specifically developed for ASIC or GPU or CPU.  Example is Monero which can only be mined using CPU (to certain extend GPU) but not ASIC.  Bitcoin can only be mined with ASIC but not GPU or CPU and Ethereum which can only be mined with a GPU.

In hardware mining, the term hashrate is often came across and it is also a measures of the performance of the hardware in mining.  Hashrate is a measure of the computational power per second used when mining.  Obviously, the higher the hashrate, the better it is.  H/s, MH/s and Sol/s are some of common hashrate being used.  The type of hardware being used shall cap the hashrate and in turn the quantity of crypto coins one can mine in a specific period of time.  Normally, 24 hours is the defacto duration used to determine how many coins one can achieve with that specific hashrate.

1. ASIC Mining

ASIC mining is expensive due to the cost and not any retail miners could afford.  Without putting in a 5-figure amount of capital, it is impossible to get that ASIC equipment.  Even if it is 2nd hand, doubt can get it cheap too.  Another minus point of ASIC mining is the type of coins to be mined and the power consumption.  More and more algorithms are being developed and re-developed to be ASIC resistance meaning the type of coins to be mined shall be restricted going forward.  The power consumption of ASIC is not cheap either as relative to using GPU and CPU for mining.  Hence, the session shall only focus on GPU and CPU mining which are more suitable for retail or household miners.

2. GPU Mining

GPU mining as the name suggests require a graphic card.  Not just any graphic card but with certain minimum requirement.  Take the example of Ethereum mining, one need a GPU with at least 6GB of video memory (VRAM) on it due to the DAG size requirement.  Using the same algorithm as Ethereum, Ethereum Classic on the other hand just need a minimum of 3GB of VRAM (as of now as that requirement could be raise going forward).  So if one has a 4GB VRAM GPU, except for Ethereum, most others coins (less those specifically for ASIC and CPU) can be mined.  Unfortunately, the cost of GPU has like double or even triple over the years due to people using it for crypto mining.  More than 5 years ago a new GPU won't cost over S$1,000 but presently, a latest GPU cost as much as or even more than a new 13" MacBook.

While not providing any recommendation or suggestion what GPU one should get (only 2 manufacturers, Nvidia and AMD), Nvidia GTX 1660 shall be used as an example to illustrate the performance of mining.  The reasons for using that as an example is because it is a good entry GPU which can mined all GPU mineable coins including Ethereum as it comes with 6GB VRAM.  More importantly, its probably the only card in which one could find and purchase now the market that could mine Ethereum that cost sub S$1,000.  This GTX card is regarded as "green card" due to its lower power consumption compared to other GPUs with the similar performance.  Note also Nvidia GTX 1660 comes with 2 other versions, Nvidia GTX 1660 Ti and Nvidia GTX 1660 Super.  All 3 are equipped with 6GB VRAM but the underlying architecture is slight different, which in turn affect the hashrate.  Without overclocking, the stock hashrate for the 1660, 1660 Ti and 1660 Super are 20-21 MH/s, 23-24 MH/s and 27-28 MH/s respectively with reference to Ethereum mining (ETHASH).  With overclocking, the performance for the 3 become 23-24 MH/s, 27-28 MH/s and 30-31 MH/s respectively.  Power consumption is also different for the 3 with approximately 73W, 104W and 90W respectively for stock hashrate.  However, with tweaking, the power consumption can be reduced to as low as around 60W for the 1660 and 63W for the 1660 Super without suffer degradation of the hashrate.  That the reason why they are termed as "green card".

Now for the performance, how much one can earn per day (24 hours time frame).  With mining on ETHASH, one can earn at least USD 1 per day.  A worse case mining pool hashrate for ethash is about USD 5 cents/MH/s/day.  Thus, with a stock hashrate of 21 MH/s for Nvidia GTX 1660, one can get USD 105 cents per day.  This earning will varying depending on pool hashrate as on a good day, the pool hashrate something can rise to more than USD 10 cents/MH/s/day but on average most of the time it will range between USD 5 to 7 cents/MH/s/day.  Hence, on average, one can earn at least USD 30 per month.  However, one has to remember the GPU consumes power, the electricity cost for a month with 61W on 24 hours mining for 30 days.

Above is a little app that I've developed to calculate the power consumption.  With present electricity tariff of 24.11 cents/kWh, that works out to be S$11.33 (inclusive of GST).  However, for those who have switched to other open market electricity power provider and locked in a lower fixed tariff, one could only spend S$8.64 (inclusive of GST) as shown in the above.  Note, the above is just for the power consumption of the GPU, the power consumption for other parts of the computer yet to factor in.  Even if factoring in all those, the overall cost might just be additional 10% to 20% on top of that as a typical idle CPU consumes roughly 5W only.  With at least USD 30 per month earned, it is more than enough to cover the cost of the total electricity bill of the mining machine and still register a profit.  That's the reason why so many are getting into mining Ethereum presently.

3. CPU Mining

CPU mining is easier to enter compare to GPU and ASIC due to the lower cost.  After all, all computers have to have a CPU.  Well all computers need a GPU too but not all GPU can use to mine, those Integrated GPU comes with the CPU can't be used for mining and even if it can, the hashrate will be poor to justify using it.  Lower barrier to start mining crypto coins but then so far it has yet to see profitable in mining after factoring in electricity cost.  Take the case of Monero which can only be mined using CPU (can use GPU functioning like CPU but hashrate will not be as good as pure CPU), on the average it can earn like USD 3 to 4 cents/kH/s/day.  A CPU nowadays practically has at least 4 threads as entry level and one thread is roughly about 1 kH/s, older CPU should be lower.  Hence, with about 3 threads (one can't use up all 4 threads as the whole computer will run out of threads to do other things and get hang) one can get about 3 kH/s and that only give like between USD 9 to 12 cents after 24 hours of mining.  A whole month of 30 days could only produce between USD 2.70 to 3.60, not even enough to pay for all the electricity bill.  A CPU working at almost max capacity can draw as much as 85W.  Even with a higher end CPU with 12 threads (11 for mining), the best one can get per month is roughly between USD 9.90 to 13.20, either just breakeven or the profit is just so thin that basically wasting time only.  Not to mention one might run the risk of toasting the CPU due to the constant high temperature the CPU is being put into.  Note, mining with GPU also means working the GPU under higher temperature throughout but that could be lower down with proper fans around in.  Nowadays, notebook and laptop usage is very common and popular, though it can be used to do mining with the CPU and even if it is profitable, please don't do it as notebook and laptop lack the ventilation a desktop PC has and toasting the CPU is a higher probability than a desktop PC.

4. HDD Farming

This is probably the newest mining (farming) method and also the one that cost the least and most environmental friendly (drawing less electricity power).  ASIC, GPU and CPU mining are called Proof of Work algorithm, HDD mining is known as Proof of Space (or Capacity or Storage).  Though it is all the same to solve a puzzle to verify, confirm and consensus a transaction and discover of new coins, the underlying mechanism is different.  ASIC, GPU and CPU use computational power to solve the puzzle, the higher the hashrate, the faster it can solve the puzzle.  Proof of Space on the other hand depends on how much storage is being used to determine how fast it can solve the puzzle.  It doesn't involve any computational power, it just requires how many plots one has inside the HDD.  One of the crypto coins that adopts this algorithm is Chia.  The Chia blockchain will come out its own random number and the one that comes nearest to it from the plots in the HDD will win the puzzle solving and get rewarded.  Hence, the more plots one has, the higher probability it will come close to the random number and winning the competition.  A k32 plot roughly takes up 109 GB of storage space or to be exact 101.4 GiB.  As such, a 1TB HDD can contain 9 plots while a 16TB HDD can have a maximum of 146 plots.  It might sound easy to get into Chia farming but the difficult part of Chia farming is plotting those plots.  It consumes times to plot a k32 plot and to certain extend also costly.  HDD nowadays can be divided into the traditional mechanical HDD (usually found in those 3.5" and older 2.5"), SSD (those 2.5" hdd) and NVMe SSD (those require PCIe connection).  For Chia farming, that is storage of the plots use for farming, the traditional 3.5" mechanical HDD is all one need.  These are cheaper to have, last longer than SSD and able to have bigger capacity that SSD.  However, for plotting, it is different story.  The traditional mechanical HDD has a lower write speed (typically between 200 to 300 MB/s) compared to SSD (typically 500 to 550 MB/s) and NVMe SSD (typically 3000 MB/s).  The much lower write speed taking it as long as 20 to 24 hours just to create one Chia k32 plot.  On the other hand, SSD takes about 9 to 12 hours while NVMe SSD can do it in under 5 hours.  As the process of creating a plot involves a lot of writing operations into the HDD, a total of 1.8TiB has to be written into the HDD and that put the SSD in danger of damage as HDDs lifespan is specified by the number of write operations.  In a nutshell, the mechanical HDD is more write resilience in creating plot before wear off but it also the slowest to complete one plot.  The NVMe SSD is the fastest to complete one plot but also the fastest to get wear off due to those intense amount of write operations.  In addition, price of SSD in particular NVMe SSD is much much expensive than the traditional mechanical HDD.

There is minimum requirement in term of HDD capacity that one use to create plot.  A k32 plot needs a temporary storage space of 239 GiB or about 256 GB despite the final plot size is only 101.4 GiB.  On a safe side one needs at least 320GB capacity of HDD as temporary storage during plot creating.  If one has a larger capacity HDD use as temporary storage during plot creating, plots can be done in parallel to save time.  For the cost efficient method, one can get two 320 GB mechanical HDD, configure them as RAID0 and use it for parallel plotting or staggered plotting.  A 2nd hand 320 GB mechanical HDD costs between S$15 to S$25, very much lower cost than a SSD or a NVMe SSD.  A brand new 256GB SSD costs between S$40+ to S$50+ and that price can easily buy 2 2nd hand 320 GB mechanical HDD for plotting, 1 plot at a time for the SSD and 2 plots at the same time for the mechanical HDD. 

Other computer resources like CPU threads and RAM capacity also affect the plotting time but those only in need during certain phases of the plotting.  A plot need to go through 4 phases and these resources usually needed in the first and second phase.  Thus, it is only good to have a powerful PC but not necessary in plot creating.

So how profitable is Chia farming ?  As of now, Chia farming can roughly earn between USD 2 to 3 cents/TB/day and in good times, that might move up to USD 4 cents.  Thus, a 1 TB HDD can only get at somewhere between USD 60 to 90 cents per month while a 16 TB HDD can get between USD 9.60 to 14.40  per month.  While the power consumption is not as high as GPU or even CPU mining, that amount of money afraid still insufficient to cover the overall electricity cost if one doesn't have large enough capacity.  Moreover, so far no Crypto Exchange can trade Chia meaning one can't cash out farmed Chia.  However, one can still farm Chia and exchange to other form of cryptocurrency.  If non profitable, why still do Chia farming ?  The cost of Chia farming relative to GPU and CPU mining is lower and easier for entry.  Farming Chia is hold for the future and not going for day in day out profit.

Apart from having a low cost than GPU and CPU mining, Chia farming also can be expandable easily.  One just need to add more HDDs to hold more plots to get higher reward.  GPU mining can be expandable with extra PCIe slots but cost of the GPU is not cheap.  For CPU mining, unfortunately, one motherboard can only house one CPU.

Nothing is perfect in this world, crypto mining will also have its pros and cons.  The following details the plus and minus of it.

Pros of Hardware Mining

1. The cost of owning crypto coins through mining is rather fixation at the cost of the hardware plus the monthly electricity cost as the quantity of holding increase over the times.  Meaning the downside is pretty much protected as compared to direct purchase which is tied to the price of the coins.

2. While non-mineable coins like those Proof of Stake type can't be mined directly but they can be "mined" indirectly.  Some of the mining pools are able to say mine Ethereum but choose to payout in other crypto coins.  This provides a good channel to acquire these coins without digging into the pocket to do direct purchase.

3. Price of crypto coins is very volatile, like for the past 24 hours (at this time of writing), most of the cryptocurrencies have fallen by at least 20%.  Direct mining in certain aspect is not directly affected by it as the quantity of mined coins is fixed by the amount of reward which is independent on the price of the coins.

4. In a bull run crypto market, mining can give surprise upside.  Take the case of Solana (indirectly mined), price was around USD 30+ in Aug 2021 and one can easily "mined" 1 SOL within a month.  Price almost hit USD 260 in Nov 2021 meaning should one cash out it will be 8x gain within 3 to 4 months period.

5. Mining can provide a constant source to staking which in the previous session mentioned as one of the method to increase the holding over long period of time.

Cons of Hardware Mining

1. Cost of hardware be it ASIC, GPU or CPU can easily range from 4-figures to 5-figures and couple with monthly electricity cost could take several months to few years to breakeven

2. One needs to constantly search for profitable mineable coins and where to mine them

3. In need of hardware and software knowledge to configure for mining to achieve optimal performance

4. Accumulation of crypto coins will be slow as compared to direct purchase.  Take the case of a Nvidia GTX 1660 GPU, it can achieve somewhere between USD 30 to 40 per month meaning one can only get a quantity of the coins which is equivalent to that dollar value

5. Indirect mining can be affected by the underlying price of the coins.  Take the case of Solana, in the month of Aug 2021, one can easily indirectly mined 1 SOL within 30 days but given present price, with the same piece of hardware, one could need at least 100 days just to get 1 SOL.

Final Thought on Hardware Mining

Hardware mining might be tempting but it is not as easy as just purchase the equipment, press a button, let it autopilot and reap in the reward at the end of the day.  There is no free lunch in this world, one need the know-how and research to mine.  What to mine, where to mine, how to configure the hardware and which software to use to get optimal result.  Another aspect is how to strategize such that one can mine for long term holding and at the same time get some daily or monthly profit to recover the cost of the equipment plus the monthly electricity bills.

Hardware mining needs patience, determination, perseverance and responsibility.  Accumulation through mining shall be slow which require the patience, the determination and perseverance.  This is especially so when doing indirectly mined as the quantity will be affected by the underlying price of the crypto coins.  People might say hardware mining is not environmental friendly as it consume quite fair amount of electricity.  By the way, the amount of electricity consumed even if mines 24/7 still less than turning on an air-con 24/7.  To be responsible for the electricity usage, the PC machine that is used for mining can at the same time use for other purposes like word processing, internet surfing, programming, watching movie or playing game (for those with an iGPU in the CPU).  Meaning one is doing something productive at the same time while mining for crypto coins.

Should anyone wish to get into hardware mining, combination of mining plus staking or combination of mining for profit plus holding for long term should be the only valid reason to get into.  Any mined coins should be directed to non-custodian or cold wallet and not those custodian wallet by the exchange.  The main reason is in non-custodian and cold wallet, you hold the private key and that is the most important assets to ensure one's coins is not lost in the blockchain network.  

For those who wish to engage in mining with the objective of combination of mining plus staking, one of the better mining pool is unmineable as it offers quite a wide range of coins and tokens with very reasonable payout threshold.  One can also use own referral code to lower the pool fee from 1% to 0.75% and that amount is return to the miner in term of mined coins quantity.  Mine from there and send it to non-custodian wallet for staking.  The only downside is it only offers 4 mining algorithm -- ethash, etchash, kawpow and randomX at the moment

For those who wish to engage in mining with the objective of combination of mining for profit plus holding for long term can use Prohashing mining pool.  The biggest advantage or feature for this pool is the ability to payout multiple coins at the same time (as long as the minimum threshold is met).  The payout is done every 24 hours so miner won't scare they will lose their mined coins.  In order to activate multiple coins payout, one just need to proportionate how many of mined rewards go into each coins.  Example one can put 50% on Coin A and 50% on Coin B with one of the coin being used for daily profit and the other for long term holding.  One can even have 4 coins with each allocate 25% for more diversification.  Some of the coins have a minimum threshold of just USD 1 and these coins are best chosen as profit payout by directing it to the custodian wallet of the exchange to cash out.  Another advantage is this mining pool has teamed up with Coinbase such that those coins/tokens available in Coinbase do not require any minimum threshold and will get payout to Coinbase every 24 hours.  Anyone wish to sign up with Prohashing could use this referral code.  In addition, as of now, Prohashing is probably the only mining pool able to farm Chia and payout in other coins/tokens. As such, Chia farming in Prohashing (able to farm Chia and payout in other coins/tokens of choice) probably the better choice for those who wanted to enter crypto mining and at the same time wary of the high cost that needed to fork out.

Blockchain Investment -- Part III

Continued from Blockchain Investment -- Part II

In the last session in Acquiring Cryptocurrency, two methods were mentioned -- Direct and Reward.   This session shall cover on the 3rd method -- Staking.

3. Staking

On an analogue to share in stock market, one might view staking similar to scrip dividend as a mean of increasing one's holding while holding onto the assets.  However, the underlying is not exactly the same.  

Cryptocurrency staking occurs due to the Proof of Stake (PoS) algorithm in verifying every transaction of the coins or token.  PoS coins or tokens can't be mined with hardware like ASICs, GPUs, CPUs and harddisks (these are the Proof of Work, POW algorithm) making verification of the transaction can't be done by just anybody with the hardware.  One need to hold a stake in the asset to participate in the verification process.  The amount of reward gained upon successful verification depends on the quantity of the stake being used.  The more one's holding, the more the reward will be awarded.  Thus, this is where staking comes into picture.  The validator, the one holding the asset participating in the verification process increases the quantity via the delegators.  In return, the delegators are rewarded the coins or tokens based on the agreed yield from the validator.  Hence, when one stakes the coins or tokens, it is playing the role of the delegator.  The yield is denoted by Annual Percentage Yield (APY).  

Due to this staking mechanism, there are many validators out there for one to stake the assets.  The APY in general roughly the same from one validator to another.  As such, this gives the delegators a rich of choice to where to stake their coins or tokens.  Most of the non-custodian wallet providers have a set of coins or tokens that accept staking and this set is different from one to another.  Some of the exchanges with  a custodian wallet do support staking and again the set of coins or tokens is different from one to another.  As such, investors would have to conduct research how and where to stake for that particular coin or token.  One thing that can't be done is hold the asset in wallet A and stake it to the validator via wallet B.

So far, the concept of staking and what to expect from staking have been straight forward but one must read the rules and conditions carefully before hitting the button to stake the assets.  Each of the coin or token would have different rules and conditions to either stake or claim the reward.  The followings are some of the common rules and conditions :-

1. A network fee shall be paid to stake the assets

2. Stake reward is generated every successfully verified block, the reward updating could be daily or few days or even a week.  Most of the time is daily updated

3. Some assets need a minimum quantity to stake, this could be due to the underlying price of the asset belongs to the penny status or for other reasons.

4. There is no lock-in period to claim stake reward but most of the time one need to pay a network fee to claim the reward.  As such, either one has that extra quantity in holding to offset that network fee or the reward generated is greater than the network fee.  Failing on those conditions, reward can't be claimed and can't even unstaked too.

5. Most of the time the staked quantity would be locked in resulting in one can't withdraw it to an exchange or other wallets.

6. To unstake, it would take several days to up till 3 weeks before the assets is return to the wallet as available balance.

However, there are some exceptions which the above rules and conditions don't apply for some of the coins and tokens.  The followings are some of the exception (within my capacity of knowledge so far and apply to Atomic Wallet)

1. Solana (SOL)

Upon first stake, one only starts to earn reward after 2 epochs (about 4 days) and thereafter will receive reward automatically for every epoch, which is about 2 days (sometime 3 days).  There isn't any need to manually claim the reward which could incur some network fee.

2. Komodo (KMD)

One need a minimum of 10 KMD to start the staking.  The procedure to start the staking is to send to own self that at least 10 KMD.  Hold at least 10 KMD (to cater for network fee) in Atomic Wallet, send to the Receive Address in the Atomic Wallet (sending to own self) and the staking will automatically start.  Thereafter about 1.5 hours, first reward should be awarded.  The reward generates daily and to continue the reward one just need to perform one transaction per month (either receiving KMD once a month or just click the claim reward once a month).  Upon claiming the reward, the updated quantity will again go into staking automatically.  The quantity being staked isn't being locked in so one could actually move it anytime.  Staking KMD can earn around 5% APY but this coin isn't popular as not many exchanges or wallets support it.

3. Algorand (ALGO)

This probably the easiest coins to get it stake and the APY isn't bad either, about 7%.  All one need to do is to deposit at least 1 ALGO into the wallet, hold it and the reward will be automatically deposit to the wallet with every new block being added to the blockchain.  This is like almost daily.  Not a single network fee is being incurred throughout the staking process.  However, 0.01 ALGO would be locked in for node maintenance (same as SOL) forever.  Thus, at the end of the day should one decide to withdraw and send it to exchange to cash out, 0.01 ALGO can't be moved.  Not sure if stake through exchange wallet is there such condition but this rule is official from ALGO blockchain (same as SOL).  As there isn't staking involves, there isn't any lock in of the asset either meaning one could move the asset anytime

4. Atomic Wallet Token (AWC)

As the name suggested, this only apply to Atomic Wallet and this token belongs to the Binance Chain (BEP2).  There is another AWC which belongs to the ERC20 network and that can't be staked.  To qualify for staking reward one needs a minimum of 10 in the wallet.  The reward will be awarded automatically every week.  No network fee incur for staking or claiming reward.  No lock in of asset when receiving reward too so one can move it anytime but as long as the quantity falls below the minimum threshold, no longer qualify for reward.  The astonishing part is the reward as it is being tier to how many one hold in the wallet.  For 10 - 999 AWC one earns 17% APY, for 1,000 - 9,999 AWC one earns 20% APY and over 10,000 AWC it is 23% APY.  That probably is the highest APY among all the cryptocurrency.  However, to get this token is not as easy as ABC.  Either one purchase through the Atomic Wallet or use a Binance Chain related wallet (eg Trust Wallet) to exchange for it and send it to Atomic Wallet.  Take the case of using Trust Wallet, one needs to have coins in the BEP2 network (BNB in BEP2) in order to exchange to AWC (BEP2).

As mentioned, different wallets or exchanges will have their own respective set of coins or tokens that can be staked.  Rules and conditions would also be different.  Best is for investors to do a thorough research before jumping in staking the assets.  Below are some of the staking information from selective exchanges and wallets :-

Coinbase

Gemini

Kraken

Binance

Atomic Wallet

Exodus Wallet

Trust Wallet

Pros on Staking

Staking is quite a transparent process in which the APY, rules and conditions are all clearly defined.  One can even use the Staking Calculator to estimate the earning for that specific stake quantity and time frame before making the decision.  The plus part of staking apart from increasing one's holding is price appreciation of the asset over the duration of staking.  Take the case of Solana, price in July 2021 was between USD24 to around USD40.  Should one stake just 1 SOL then with a 7% APY, 4 months later, one would have received about 0.02 SOL as reward.  Price for SOL now is around USD250 and that 0.02 SOL from the reward at present price worth around USD5.  From an initial capital of not more than USD40 purchase in July, the stake reward actually translates to an additional capital gain of at least 12.5% on top of existing capital gain from the initial capital.

Cons on Staking

Nothing is perfect in this world, though staking can bring one lot of benefits but it does possess risks.  One of the risk is unable to cash out the asset in time while the underlying price is falling.  Cryptocurrency's price is very volatile, a drop of 10% is practically a norm instead of a horror show.  The minus part of staking is it takes times (up till 3 weeks for the case of SOL) to fully unstake and have the asset return to the wallet for one to move it, cash out or exchange.  Imagine that 3 weeks time frame, how much capital gain or loss one might be affected when action cannot be taken immediately on the assets.  

In a nutshell, staking does come with benefits and risks, best for investors to do a thorough research before making the decision.

Next installment shall cover on Mining as a form to acquire the coins or tokens.

Blockchain Investment -- Part II

Continued from Blockchain Investment -- Part I

Now after research on which blockchain protocol and coins or tokens to be invested in, the next step is to acquire the coins or tokens.  There are several ways of doing that and before that there are one or two things need to be done -- opening an account with a crypto exchange and/or getting a crypto wallet.  Would put these 2 things as one, that is obtaining a Crypto Wallet as most of the crypto wallet allows one to purchase the coins or tokens using credit card payment.

Crypto Wallet

One need a crypto wallet to manage his/her crypto assets.  It is similar to a bank but technically not exactly the same.  In the real world, one can put money into more than 1 bank and in cryptocurrency domain, there is no limit as to how many crypto wallet one can own.  The different between bank and crypto wallet is bank actually hold custody of the money and in return pay you the interest.  In cryptocurrency domain, the virtual coins or tokens are not held custody by the crypto wallet provider.  Instead it is stored in the blockchains hosted by the nodes all over the world (that what is called decentralized).  There are basically 2 categories of crypto wallet, custodian and non-custodian.

1. Custodian Wallet

Custodian wallet normally refers to those found in crypto exchange provider.  It is a MUST HAVE for anyone.  Must have not because it is the best crypto wallet in term of features and security but one must use the crypto exchange to link between real world and virtual world.  One needs the crypto exchange to buy the cryptocurrency (mostly as there are other forms of getting the coins or tokens), and sell the cryptocurrency then cash out as fiat currency to be used in the real world.  However, one need to search for the appropriate crypto exchange provider as the numebr of coins or tokens it supports is limited.  Take the case of Coinbase, it lists over 5000 of assets for education purpose but in actual only supports 100 assets.  Those main native coins like BTC, ETH, LTC, BCH, ADA, SOL, etc are of no issue as almost every wallets support that (less those official wallet for the specific coins or specific blockchain protocol like ERC20).  On ther other hand, coins like ZIL, KMD, XMR, RVN, etc are not found in most crypto exchange wallet.  Another aspect is for the convenience, one might want to choose a crypto exchange wallet (provider) that allows deposit and withdrawal of SGD easily.  

In the event that the coins or tokens intended to invest in is not found in any of the crypto exchange wallet, one might have to go through an indirect way to own it.  Purchase the popular coins (BTC, ETH, LTC, etc), send it out from the crypto exchange wallet to a non-custodian wallet (that supports the coins/tokens that intends to be invested in) then perform swapping at the non-custodian wallet.  Example, if one sees the potential of XMR, one could purchase ETH in the crypto exchange and then send this ETH to the non-custodian wallet.  Most of the non-custodian wallet should have the exchange feature to swap the ETH to XMR.  Note that in doing so, several network fees would have to be incurred.  Sending out ETH from crypto exchange (some might grant free transaction) will take off a little faction of the ETH.  In the non-custodian wallet, the exchange from ETH to XMR will also incur some network fee and further take a little faction off the ETH.

2. Non-Custodian Wallet

The main different between a custodian and non-custodian wallet is ownership and it is the user's full responsibility to secure the wallet.  Non-custodian wallet cannot perform a Sell transaction as it is not an exchange.  However, some is able to provide services like Buy transaction with payment from credit card (please note there will be additional charge incur on credit card).  It also provides exchange services among the cryptocurrency (something Custodian wallet is able to do also).  Like custodian wallet, it also has a limit of the number of cryptocurrency it can support.  As a whole, non-custodian wallet should be relatively more secure than a custodian wallet.  Among the non-custodian wallet, its further sub-divided into several types :-

2.1 Desktop App based wallet (Exodus, Atomic, Coinomi, MyCryptoWallet, etc)

2.2 Web based wallet (Metamask, MyEtherWallet, etc)

2.4 Mobile App wallet (refer to solely only available on mobile app type)

2.5 Hardware wallet (also known as cold storage, eg Ledger, Trezor, SafePal, etc)

Of all those above, the most secure is none other than hardware wallet.  While first start up in cryptocurrency investing, non-custodian wallet might not be necessary but as the assets increase and applying the diversification factor, non-custodian wallet will increasingly becoming a neccessity.  Moreover, there is no limit to how many non-custodian wallet one can own.  Sometime situation forces one to have multiple non-custodian wallets.  Take the example if one has coin X and coin Y but none of the wallets available is able to support both so the only way is to have multiple wallets.

When deals with cryptocurrency wallet (both custodian and non-custodian), there is a thing one needs to know, Public Key and Private Key.  These 2 keys are just a long strong of alphanumeric.  If we view crypto wallet as a bank, public key shall be the bank account number.  Receiving and sending transaction will require the public key acting as an address.  In fact with the public key, one can search all the transactions associated to it in the blockchain explorer.  This is why blockchain technology is transparent.  

Private key is somewhat like the security pin to access your bank account but technically it is not exactly that.  Private key and Public key come in pair for each of the coin or token in the wallet.  Non-custodian wallet users can access the private key of that particular coin or token but not custodian wallet users.  This is to how custodian wallet protect its users.  With the private key, anyone could access the assets from another wallet and perform transactions on it.  This is the reason why private key must be at all time kept it a secret.  For non-custodian wallet, the last line of defense to protect the assets is the Recovery Phrases.  These recovery phrases are usually a 12 or 24 randomly generated words when one creates the non-custodian wallet.  The mechanism of this recovery phrases is they are the seed to generate the public and private key for each of the coins or tokens in the wallet.  Hence, if one forget about the password to login to the wallet, the recovery phrases can be used to restore the wallet and reset the login password.  Thus, it is strongly advise Recovery Phrases to be hand written on a piece of paper and safe keep it.  

Now, why hardware wallet is the more secure than the rest ?  Be it Desktop based App, Web based App or Mobile App type of wallet, the private key in certain way is connected to the internet.  With malware, the private key can be stolen when the user access the wallet.  Hardware wallet different in the sense that it is not connected to the internet all the time thereby reducing the risk of the private key being stolen.

The ultimate will be using hardware wallet especially after one build up quite a substantial holding of crypto assets mainly for security reason.  Then again, there isn't a limit of how many hardware wallet one can own too.

 

Acquiring Cryptocurrency

Once settled on the crypto wallet, the next step shall be how to acquire the coins or the tokens.  There are several ways and that shall be covered in this installment and the next.

1. Direct Method

The most simple and easy method is to buy the coins or tokens from the crypto exchange after funding the crypto wallet.  This is exactly the same as how one invest in shares from the stock market.  There are pros and cons in doing so.

Pros

-- Simple process, just a few mouse clicks or touches on the smartphone and the job is done

-- Should the coins or tokens after purchase rises few folds, can just easily cash out and enjoy the big fat profit

Cons

-- Unlike shares, cryptocurrency doesn't give you dividend and for long term investment, the bet is on the price surge in the long run.  Hence, the fund will be locked until it is being cash out.  Its also risk being ended up in capital loss with no dividend to offet or minize the loss.

-- Unlike shares in which they have a direct connection to the economy whereby investors can always make the "perfect" timing to purchase during crisis and most of the time will be rewarded when economy recovered.  There isn't direct link of cryptocurerncy valuation to the economy and there isn't any earning reports like share to provide forward guideline or valuation so to actually time to make the "perfect" purchase is quite difficult

-- In share, one might adopt Dollar Cost Averaging method but in cryptocurrecny, this is a very dangerous method unless one has unlimited fund.

-- A strict cut-loss level must be set

In short, adopting the same method as in how one acquire shares in stock market might not be fully workable in cryptocurrency investing.  Some mindset needs to be adjusted or changed when come to cryptocurrency investing.  For those who are very fundamental and value in stock investment, cryptocurrency investment might not be the cup of tea for you.

2. Rewards

Yes, you did not read it incorrectly that one can acquire cryptocurrency through rewards.  Its just kind of promotion gimmick by the crypto exchange providers to get more customers.  One real example is Coinhako (refer here).  In Coinhako, after opening an account with them, one just need to be really hardworking in everyday login via mobilephone (mobilephone login earn 2x reward than web based login) to get reward point.  Consecutive daily login will further earn bonus reward every 7 days.  Performing trades also can earn reward points.  One just need to accumulate 2000 reward points and can redeem for 1 unit of ADA.  Each daily login via mobilephone earn 20 reward points and every 7 consecutive day of login, the bonus is 350 point.  On average, 1 month should be enough to earn 2000 point for 1 ADA redemption.  There are also other crypto coins or tokens like MATIC, VET, DOGE and so on that can be redeemed.  This is how I have acquired several units of ADA for the past few months foc by just spending a minute a day to login.

Pros

-- A very low cost way of start investing in cryptocurrenncy

-- A very low risk way of investing in cryptocurrency

-- Bare minimum efforts needed

Cons

-- A very slow process in accumulating the cryptocurrency to a substantial quantity

-- It might not be the coins or tokens that intended to be invested in

-- Uncertain when the reward system might end or change

In case someone interested can use my referral link to open an account and start earning coins or tokens via the reward system.  Also please note that after accumulating the required reward points, one must perform a transaction (just deposit S$10 and make a purchase, S$10 can purchase at least 3 ADA at present price to add on to the claimed reward) and you are qualified to make the redemption.

Next installment shall cover on Staking and Mining as a method to acquire the coins or tokens.

Blockchain Investment -- Part I

It is inevitable that one day digital assets investment will be part of an investment portfolio alongside stocks.  Normally, people would say Cryptocurrency investment but for me, it is Blockchain investment.  Why ?

For every crypto coins or tokens, they are backed by a blockchain.  To be technically accurate, the cryptocurency protocol is built on the blockchain.  Without the blockchain, said cryptocurrency is basically worthless.  So, what exactly is a blockchain ?  To save me from doing a detail explanation, the benefit of the internet era comes good.  You can refer to Investopedia (here), Wikipedia (here) and many more writeup to fully understand what is a blockchain.  In short, we can see a blockchain as a distributed digital ledger that stores data of any kind.  There are some characteristics that one need to know as these shall be the essence to determine which blockchain is worth the investment :-

1. Decentralization

2. Transparency

3. Security

4. Scalability

As mentioned the above are the characteristics of a blockchain but how much better from one blockchain protocol to another is relative.  It is a known fact the Bitcoin blockchain has problem being scalable (ability to handle large amount of transaction data on its platform within a short span of time).  As such, Litecoin was created in 2011 as an alternative to Bitcoin to increase the scalability.  The Litecoin network is able to process a block every 2.5 minutes compared to Bitcoin of every 10 minutes.

After knowing the basic of blockchain, how this and cryptocurrency being linked up for investors to decide what to invest in ?  You can develop a fantastic blockchain protocol that promises do lot of things, give the cryptocurrency that tagged with it an unforgetful name and design but that still don't warrant it is worth the investment.  What's decide that is what type of projects could be implemented on that blockchain network or using the protocol of the blockchain.  These projects must be able to relate to the real world, that is help people in certain aspect of daily life or assist businesses to prosper, etc.

The followings are some of the writeup about how blockchains are or preceive being used in real world :-

1. 35 Blockchain Applications and Real-World Use Cases Disrupting the Status Quo

2. 58 Big Industries Blockchain Could Transform

3. 35 Amazing Real World Examples of How Blockchain Is Changing Our World

4. Blockchain Use Cases and Applications by Industry

5. Blockchain Applications: 62 Killer Ideas For You

and many more that you can easily find on the internet.  If that isn't enough, there are also books published which one could purchase and read about it.  Another source is to visit the official website of the specific blockchain and they will put up what are the projects currently using the protocol.  One of the latest event is the Cardano (ADA) smart contracts to be launched this month (to be exact 12th September 2021).  Its real world project is partnered with the Ethiopian government to track the educational progress of 5 million students on its network.  The project will give each student a tamper-proof academic record to help them to find a jobs or study abroad (refer here).  

Investing into a blockchain (cryptocurrency) is totally different from investing in a stock of a company.  In stock, one can check on the company's financial status (P&L and cashflow statement), evaluate the business model of the company (if company is selling a product, one can monitor how well received this product is) and so on.  Thorough study should be able to give one a guide of the risk and reward in investing the stock and also what kind of margin of safety one need to aim for when buying into the stock.  On the other hand, investing into a blockchain (cryptocurrency) will not have all these "luxuries" as a guideline.  Very often one has to use own judgement after studying and researching on the usefulness of the blockchain protocols.  

Investment decision should not be based on that cryptocurrency has an unforgetful name, the cuttiest design on the coin or the price level of the crypto.  High price today doesn't mean 5 years down the road it will turn into a gem.  Bitcoin Cash (BCH) hit an all time high of around US$2,400 in 2017 but till now it never return or surpass that level.  Its price still trading below 50% of that peak.  Similarly, a cheap price today doesn't mean 5 years down the road it cannot be a gem.  Ethereum (ETH) was like less than US$1 in 2016 and now it is worth at least US$3,000 per unit.

There are currently at least 20 different blockchains in the community, each headed by its native coins (BTC, ETH, LTC, ADA, DOT, BCH, BNB, USDT, ZEC, RVN, ETC, SOL, etc).  From a top down approach, one probably has to research on which one of the blockchain has the investment potential.  After zeroing in, one can either focus on the native coins (usually people will invest in the native coins) or those tokens that ride on that specific blockchain.  Sometime, those tokens could be the real gem as compared to the native coins.

There is a point worth to take notes of if one has an interested in investing in one of those ERC20 token, a protocol that ride on the Ethereum blockchain.  These tokens need ETH to swap and transfer out of a wallet.  ETH after the London Hard Fork (a set of five Ethereum improvement proposals, EIP-1559) in August 2021 has made the network fee (incur swapping and transferring ETH coins and ERC20 tokens) being sky high especially when the network is very busy.  Sometime the network fee can even cost more than the value of the holding.  As such, investing in any of the ERC20 tokens, getting some ETH has became inevitable eventhough it wasn't an initial consideration.  

Deciding which cryptocurrency to be invested in is subjective to each individual but the process of obtaining that asset is pretty much standard in the following steps  :-

1. getting a cryptocurrency wallet

2. registering for an cryptocurrency exchange to buy and sell the crypto

3. several methods of obtaining the cryptocurrency

4. what can be done to the holding

The above are actually what's this post is to be focus on.  However, detail writeup on each of those will be very lengthy.  As such, will need several installments to cover all those.  Next installment will touch on those in detail.