WITH the current pandemic causing a significant amount of job losses, many people have sought ways to augment their income. When I was searching for an investment or sideline that could potentially earn and which could be done at the safety of one’s home, I came across cryptocurrencies and play-to-earn crypto games.
So what is cryptocurrency? It is defined as a digital or virtual currency that is secured by cryptography. Many of these cryptocurrencies are decentralized networks based on blockchain technology. A blockchain is a distributed ledger enforced and monitored by networks of computers.
What does this all mean to the average folk?
Basically, it is a form of currency that you can invest in. While you may not be able to use the virtual currency to purchase real-life goods and services, you can still sell/convert said currency back into real/fiat currency. If you buy cryptocurrencies at a certain price and much later on you sell them at a much higher market value, then you have already made a gain. You can also stake or lock up your cryptocurrency savings for a fixed or variable amount of time so that your crypto can grow more.
Aside from buying cryptocurrency directly, how else can you earn crypto? You can also try play-to-earn crypto games. These are games wherein you need to invest in characters or NFTs (non-fungible tokens). These NFTs then, are very much like characters in a video game; except that you own them (they have their unique ID numbers). With these characters, you can potentially earn in-game tokens either by farming, taking on adventure quests, or doing player-versus-player (actual gameplay and mechanics vary per game). You can also earn money by selling your accumulated NFTs in the online marketplace. Once you are able to earn enough in-game tokens, these can be converted into cryptocurrency, which you can then convert to fiat currency or legal tender (example is the US dollar).
With the high earnings potential of the relatively new technology called cryptocurrency, there are also significant risks which one needs to be aware of, before jumping into the bandwagon. These are:
1. Price volatility. The prices of cryptocurrencies and NFTS you own vary wildly and can change very quickly in a matter of seconds and weeks. Likewise, the amount, value and quantity of in-game tokens you can claim and convert to cryptocurrency can change.
2. Capital risk. If you bought cryptocurrencies at a high price and decided to sell way below the price you bought, you would have lost a substantial amount of your capital.
3. Trading risk. Almost every transaction in cryptocurrency requires a “gas fee” in order to facilitate the processing of transactions. Trading too often will eat away at your investment.
4. Security risk. Digital currencies are often stored in a digital wallet, which only you have access to using a randomly-generated 12-to-16-word seed phrase. Not even the developer or admin has any access to your wallet. If ever you lose your seed phrase or you accidentally gave it to someone else, then your funds may be stolen; there is nothing you can do about it.
5. Human error risk. Whenever you make transfers of digital currencies, it is prudent that you double-check the address of the wallet you are sending to. Once you approve of a transaction, it becomes both permanent and irreversible. No bank or agency can reverse or undo said transaction. There is no central agency in control of cryptocurrencies.
6. Fraud risk. There are chances that your account may be hacked and you may end up losing your hard-earned crypto. To minimize the chances of that, you should always make use of KYC (know your customer) and 2FA (two-factor authentication). In any account that you open, make sure you complete your identity information such as sending a valid ID (passport) and registering contact details like e-mail and mobile number. Once you are successfully registered, you can then turn-on 2-factor authentication. Hence, before a transaction gets processed, one will need to input both the code sent to your mobile number and to your e-mail address.
To end, you should always do your own research before jumping into any investment. Use only the money that you can risk losing and will not be needing in the near-term. Don’t jump in just because of “FOMO” (fear of missing out).
“Also it is not good for a person to be without knowledge; and he who hurries his footsteps errs.” [Proverbs 19:2]
Raymond Quisumbing is a registered financial planner of RFP Philippines. Please watch out for my upcoming e-book, which tackles starting your own food business. To learn more about personal-financial planning, attend the 93rd RFP program in January 2022. To inquire, e-mail info@rfp.ph or text at 0917-6248110.