Cryptocurrency exchanges are fighting tooth and nail to push for the mainstream adoption of cryptocurrency. Between Superbowl ads, stadium names as well as other marketing techniques, many cryptocurrency exchanges have become household names. With this rising adoption of cryptocurrency, it is likely that you know somebody who says they own cryptocurrency. However, when it comes down to the blockchain the concept of ownership is not as simple as one might believe.
As opposed to traditional currency, owning cryptocurrency – such as Bitcoin – is far more complicated. Rather than owning a Bitcoin in the traditional sense, blockchain gives addresses permission via the blockchain to spend some amount of cryptocurrency.
So the question remains: who actually controls cryptocurrencies?
As the name suggests, small fishes are the small players in this multi-billion-dollar cryptocurrency market. Who is a small fish? To put it quite simply, a small fish is any crypto investor who does not have a colossal impact on the cryptocurrency market as an individual organisation. This could range from a simple student putting $500 into Bitcoin to millionaires who place a million into cryptocurrency.
As an individual entity, a small fish holds a slight influence in the cryptocurrency market. However, when all the small fishes get together, it would make or break a crypto together with the market itself.
Whales are people or groups of people who are able to shake up the cryptocurrency market. It encompasses renowned people in the world of finance, including CEOs or – alternatively – a group of investors who are able to invest and trade hundreds of millions of dollars into the promising cryptocurrency market. Their belief alone could swing the crypto market for notable individuals for instance CEOs who have a massive effect on the best cryptocurrency to invest in.
Institutions (Creators, Banks And Companies)
First up there are the Creators. The name ‘Creators’ is quite straightforward. They are ultimately the creators of cryptocurrency. At the moment, there are over 1 400 different cryptocurrencies, with a number having tens to hundreds of staff right down to a small company of just a couple of developers. The reason for this is because anyone is able to create their own crypto with relative ease. Designers release many trash cryptos as a consequence, even when there is a lack of funding as well as development. If we put it in terms of fiat currencies, creators are like the country which provides printed notes.
Government regulations have been one of the major factors influencing the cryptocurrency market. Unlike stock exchanges, where prices can be relatively stable owing to some rules, the cryptocurrency market is still in its early development.
Most of the investors in the cryptocurrency market work based on speculation as opposed to facts. Thus, any bad news – particularly regarding future government regulations – would cause a significant price drop. The very sudden flood of investors had governments suddenly implementing temporary rules in order to protect their citizens.
Many, many governments have yet to put any form of protection in place for investors. At present, governments (such as China, South Korea, the United States and Singapore) are scrambling in order to implement various measures to protect their citizens.
Seed Phrases Unlock Crypto
The “owner” of a cryptocurrency is anyone who controls the address. And, in order to control an address, you need to know the seed phrase – a 12-word password which is unique for each address. Most of crypto investors do not really know about the seed phrase for their addresses.
When you purchase cryptocurrency from exchanges – for instance those such as Coinbase or Kraken – they hold onto all the cryptocurrency for you. The exchanges do not tell you the seed phrase for the address that stores your cryptocurrency. However, rather they manage the storage of the cryptocurrency on their end.
How To Profit Substantially From The Current Cryptocurrency Market
As mentioned previously, the current cryptocurrency market is still in its early development. Volatility of the price is predictable. As Sun Tzu stated ‘If you know your enemy and know yourself, you do not need to fear the result of a hundred battles’. What one is able to do during such a volatile market is to have an understanding of some of the market forces in play and then react rationally in each situation. There is frequently a major shift in price when news about cryptocurrencies come out.
For instance, when Ripple overtook Ethereum to become the second largest cryptocurrency market cap, the price rose to $3 from its usual $1. However, after a couple of weeks, the price stabilised to around $1.5. On the other hand, when news of impending crypto regulations began to surface at sites like Palmerbet Australia and other leading publications, the entire cryptocurrency market went into overdrive. The selling rush sent the price of most of the cryptocurrencies downwards. However, the market begins to stabilise after a week or so.
Exchanges Can Exercise Control
The control exchanges have over cryptocurrency has a lot of real-world consequences.
The major consequence is that exchanges could prevent users from getting access to their cryptocurrency. Governments across the world exploit this difficulty as a mechanism to implement financial regulations on cryptocurrency. For instance, the US government was able to freeze funds when the hackers involved in the Colonel Pipeline ransomware attack moved their money into an exchange.
Likewise, users need to rely on the exchange’s security in order to keep their funds safe. There have been many, many cases of hackers infiltrating exchanges as well as the theft of private keys. This means that investors who had cryptocurrency at these exchanges lost everything in spite of the investors taking all available security measures.
Private Wallets Are More Anonymous
In order to avoid utilising an exchange, users can use a private wallet. These are wallets which are entirely in the control of the user. Private wallets can be software wallets, which are actively online and connected to the blockchain network. Alternatively, they can be hardware wallets. It is possible to unplug these devices and then stored offline. There are also decentralised exchanges that have no central entity managing them. In a decentralised exchange, users have more control over their cryptocurrencies.
Remember that whoever knows the seed phrase to an address will control the cryptocurrency. As cryptocurrencies continue to grow, this is a very important concept to understand.