In any Lido Nation blog that mentions the financial side of blockchain, we may offer the disclaimer “Not financial advice!” We want to be clear that our insights into how this new financial system works are not intended to guide your personal decisions about how you use it.
And yet - the questions that roll in from new users belie the fact that lots of people are drawn to crypto because they believe or hope that they might find a financial windfall. Let’s meet in the middle today with some educational answers to newcomers’ pressing financial questions about crypto. But as always - not financial advice!
But why no financial advice?
Glad you asked.
First, there is a question of legal liability. Many jurisdictions have regulations about offering financial advice, and I would not be considered qualified under those laws to offer it. But even if that was not the case, I would not want to, because it’s simply not what I am here to do. Every person’s financial situation is unique, and what worked for me might not work for you. General advice could lead to consequences I can’t foresee. Also, Lido Nation cares about our reputation as a TRUSTED educational resource.
Every exciting new technology always has a financial side, but rarely is it so distracting as in crypto!
We are not here for the hype, we are here to inform your blockchain journey. We encourage you to always do your own research, and perhaps consider Lido Nation as a trusted source of information. With all that in mind, let’s consider a few of these burning newcomer questions.
What determines the rising and falling values of ada?
We published a whole article about this here but I’ll summarize a few points here.
Fundamentally, price changes are driven by supply and demand. If more people are trying to acquire a coin than are selling it, the price will go up. If more people are selling it, then there is more available, and the price will go down. Same as everything else really. So what drives the chaotic buying and selling swings in crypto?
- Political currents: If the dollar is really strong, there may be less investors looking around for alternatives like crypto. I mention the dollar because its global gravitational pull tends to drag the global financial world along with it, but the same can be said to a lesser degree for other local national currencies. If there is political or financial turmoil, crypto prices might be bolstered when people think an alternative like bitcoin or ada might be safer. If global markets and your local currency are doing well, you are less likely to be looking for alternatives.
- Tides that lift and lower all boats: Prices of all the top cryptos tend to move together. I mentioned the dollar having a strong gravitational pull in the fiat world. In crypto, that mother planet would be Bitcoin. As the grandmother of all other chains, Bitcoin is massively influential to the whole market. When it goes up or down a bit, you’ll generally see similar movement reflected down the line of other top cryptos, including ada.
- Disruptions in the weather patterns: I just realized there was an emerging seafaring and planetary theme in my explanations above and thought I better keep it going. In addition to the big geologic shifts in geopolitics and macro financial markets, localized traumas and dramas can cause a disturbance on the weather map. One wild influencer on YouTube could cause a price to rise or fall, depending on what they say. If there is a newsworthy event on any chain, including scams, hacks, and collapses, that can have an obvious effect on peoples’ buy/sell decisions. Good news can cause price changes too.
So here’s hoping that one level-headed blogger on Lido Nation might have a calming effect! 😉
When you sell ada to get local currency, who exactly buys it? Is it the bank that is linked to your coinbase account?
If you are selling your ADA using Coinbase or another exchange, you are not selling it to your bank. Instead, you are selling it to another trader on the exchange. Most exchanges operate as marketplaces, where they match buyers and sellers and provide liquidity through automated market-making systems. When you place a sell order for ADA, the exchange finds a buyer—which could be another retail trader, an institutional investor, or a liquidity provider. (Liquidity refers to how easily an asset can be bought or sold in a market without significantly affecting its price. If you want to buy my dollars, and the dollars are conveniently in my pocket, those dollars are quite liquid – for the right offer, they will flow easily into your hands! However, if you want my dollars and they are locked up at the bank, and the closest ATM is two train stops away, my money is much less liquid. You will have to offer me a better trade to make the trip worthwhile) Your local bank is not involved in the trade at all. Once the sale is completed, Coinbase converts the proceeds into your local currency and sends them to your bank.
How did you say you can convert your ada so the value doesn’t change?
All this talk about volatility – this must make it hard to manage business and personal finances in crypto, right? Yes, it absolutely does. For that reason, stablecoins are a really important tool to know about. A stablecoin is a cryptocurrency that is pegged to a stable asset – often the U.S. dollar. So, while ada’s price fluctuates daily, the price of coins like, USDM (a stable coin native to Cardano), or USDT and USDC stay close to $1.
If you need some stability in your crypto life but are not wanting to cash it all out to fiat yet, you might want to use a stable coin. You can generally trade for a stable coin on an exchange.
Can you buy cryptocurrency from crypto swapping sites?
You can. This type of trading is called “Peer-to-Peer.” Before lots of exchanges came online, it was one of the only ways to get into crypto if you weren’t minting blocks yourself. Peer-to-peer trades have a time and a place – if your locality or personal situation are such that you can’t use an exchange like Coinbase, then it might be the only way you can get certain cryptos. However, all my advice about doing your homework goes double for any peer-to-peer trade, because the guardrails of a well-managed exchange service are off!
How do the Cardano betting sites work?
Generally, the same way as any other betting activity: the more you participate, the more money you may lose.
Is staking the only way one can earn a reward or there other ways one can get rewards?
We call the money you earn in exchange for staking “rewards,” which might give some new users an off-colored impression of what is happening. Blockchain isn’t a jackpot machine where you just need to find all the reward buttons. It’s a financial system. Every financial system has policies for balancing risk, reward, and participation. Different systems are different. Some work better than others. In almost all cases, unless you are a 1%-er, doing a job to earn money is the most effective way to get money, and baked-in incentives are there to simply reward you for using the system.
In my local financial system, I earn most of my money from my job. I have a savings account that earns a small amount of interest. I also have money invested in traditional stocks and other investment vehicles. These could lose money if global markets are doing badly, but generally they earn 5-10%+ passive income each year.
So what are the equivalents in blockchain? Again, the most effective way to get any significant amount of money is to do a job. Since it’s a new and different ecosystem, the way you go about getting or doing a job might be different than you are used to, but there are lots of opportunities out there! Once you have some ada, staking your money to a good stake pool is a way to earn a little passive income. This is a bit like the interest on your savings account at the bank, although the rate is generally better! If you have some extra to spare and are looking for other ways to make your money work for you, you can look into liquidity farming on a DEX. You might also be interested in trading for other coins on a DEX, if you think the project behind them is interesting or valuable, and you hope the value of the coin will go up. These activities could be compared to investing in the stock exchange – although the potential upsides and downsides are probably farther apart.
Am I supposed to claim my staking rewards and how is it done?
When you start staking your ada, you will start to see a growing “reward” balance in your wallet. Showing that amount separate from your primary balance is useful because it allows you to “see” how much rewards you are earning over time. You don’t have to do anything with your rewards balance until you need to move it somewhere. As it sits in the reward “bucket” it will automatically be counted as part of your wallet total balance, and you will start earning rewards on your rewards!
You only need to grab your rewards out of the bucket when you want to send them to another wallet, use the money to buy something, to cash out all your ada, or boost your voting power in Cardano governance. In that case, you should be able to find a button somewhere in your wallet that says “Withdraw rewards” or similar. Transferring your reward money to your main balance requires a blockchain transaction, and it will incur a small fee. That’s another reason that you should not “withdraw” your ada too often. It would make no sense to incur that transaction fee every epoch, just to move the rewards to my main balance. Instead, I just withdraw my rewards every once in a while, when I have a reason to do it.
In conclusion
We strongly believe that financial advice should be left to the professionals. Still, we acknowledge that newcomers are going to have some natural questions, and we hope to be a source of good information.
If you identify as a newcomer and you still have questions, post them below!
If you see yourself as a blockchain guru, what important information do you think newcomers should know?
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