Understanding Crypto Part 1


#1

I plan on putting together some Information about certain Subjects that i feel is Important for newer members to know. I don’t portray myself to be an Expert however I always do a lot of Due Diligence before dipping my toes into anything and that most certainly Included Crypto.

Due to the 2017 FOMO Bullrun there was a huge amount of People who jumped into Crypto Feet First doing very little Research and just winging it, chasing the gold at the end of the Rainbow. This led to Inflated Prices Everywhere and once the Credit Card Companies put a stop to people spending their Credit on Crypto (amongst lots of other variable factors) The bear Market began and Retail Investors (You and Me) freaked out, creating our on FUD because our lack of Understanding made us look for someone to blame. In my Opinion I think a large amount of these People are now gone, having realised that the pot of Gold at the End of the Rainbow is “Earned” as opposed to being “Found”
However there seems to still be a large amount of Miss-Understanding of some of the most Basic Dynamics in Crypto that Anyone who isn’t just a “When Moon/Lambo” Investor, should really know more about.

It is Important to me to try keep the Information personal opinion FREE although this may be more difficult than it seems. Maybe it’s better to just make clear where my Opinion comes into play.

I Wrote down 5 Subjects that i want to Cover, and in what Order, however after the MKid Exchange Accusations, and a post on Reddit today, I have decided to re-arrange the order of what I want to Cover.

Some of what I Intend on covering Includes: Satoshi Values (how it works and effects Price), Bitcoin (How we are Pegged to it and will be for a long time to come, Exchanges ( what’s happening in the Background) Blockchain Rewards & Mining (Reward Reduction + effect it is likely to have), Trading Pairs + more to be Confirmed. I want to always keep the Comparisons Relevant to only ETN.

I am a Father of 3 Kids with a Wife who has limited mobility due to a Car Accident Early 2017, my 1 y/o is toddling around my feet as i Type :slight_smile: I say this in hope of a little Understanding in case i make any typos :blush:

For Today, I would like to Cover EXCHANGES. such a Complicated thing to Address as there is so much i could cover. I will Edit the post and Add more info regarding each Subject in the Event that this Thread is popular and requires additional Questions being Answered/Clarified. here goes…

The first thing you must Understand is that when you Buy or Sell Crypto Coins/Tokens is that you are Buying/Selling to a Person, and not to/from the Exchange. The Exchange is only a middleman who facilitates the trade. In this Example lets pretend that you buy £1000 worth of BTC and want to use that to buy ETN. Via your chosen entry point (eg Coinbase) you get your £1000 worth of BTC and send it to an Exchange that trades ETN (eg KuCoin) When your BTC Arrives at KuCoin and you select that you want to buy £1000 approx worth of ETN with that BTC at Current Market Rate and the trade goes through and you end up with 120,000 ETN.
What has Happened is that people (or sometimes Bots) have placed a sell order at around the price that you just bought your ETN and they Expect BTC in Exchange for it. The Exchange has just taken your BTC and the sellers ETN and switched the owners of the Coins from one to another. You did not just buy them direct from the Exchange, you bought them from a Person or more likely to be the case, “people” as the coins you just Bought were likely placed for sale at that particular price by more than 1 person.
The Exchange only makes sure that the seller got their BTC (or whatever trading pair you chose) that they wanted in Exchange for the ETN that they wanted to Sell and that you get your ETN in Exchange for your BTC.

Exchanges have Buy/Sell “Order Books”, Lets break these down Individually.
The Buy Order book usualy green is People (or bots) who have listed their “want” to buy a set amount of ETN at a set price (in Satoshis)
the Sell Orders usualy red are people who have set a specific amount of ETN for sale at a specific price (in satoshis)
The price (satoshis) in the middle of the buy/sell orders is the Current Price. Lets again break this down individually.
The Current Price in Satoshis cannot go UP until the sell orders before that price have been filled. This is why you may see people talking about “Sell Walls” this is where there is a large amount of Coins at a set amount of Satoshis. Sometimes this can be tens of Millions of Coins, which will keep the price from going up until People buy all those Coins.
Likewise, the Price in satoshis cannot go DOWN if there is a large amount of buy orders preventing it from doing so. If there is a buy order for tens of millions of ETN at for example 200 sats then untill all those Coins get sold to the person/people who set the buy order…the price will not drop below 200 sats.

Again please Remember that any Coins Bought on an Exchange has came from Someone Else!

Then there is the “Trade History” Board: This shows past trades of ETN and the timestamp of the sale, amount of ETN Traded, and Colour if it is a green (buy execution) or red (sale execution). If you see a RED sale on the board this is someone who clicked SELL and he/she/they have now gave their ETN to someone on the BUY order board. Likewise if you see a GREEN sale on the board, someone just bought some ETN from some someone who had a SELL order on the Board.
In both these scenarios notice how someone just BOUGHT ETN. Personal Opinion —> This is why it matters not if you see green or red on the board, because in either case a green or red trade means there is a new holder of ETN who is unlikely to sell their Coins for a Sum lower than what they bought them at.

There is so much more i could add to this, but lets move on for now.

Now onto Exchange Prices and why things look strange sometimes.
The more you look at an Exchange, the more likely you are to witness something that may make your eyebrows twitch. Price spiking +20% on 1 Exchange and then Drop like a stone to where it began before the spike, sometimes this all happens within minutes. You may have seen market trade volume on Coinmarketcap and doubted the validity of what volume it states.
Firstly to be clear: There are Exchanges who washtrade to fake their Volumes to make them look busier than they actually are, however this is not majorly apparent on any worrying scale with ETN. Personal Opinion
One thing you should probably bare in mind is that a lot of (larger) exchanges have a listing claus :slight_smile: that the coin must have a trade volume of 50BTC Daily to remain listed on the Exchange.
However, that aside, if you Witness an Exchange closely enough to see a huge price spike then for it to crash back down just as quick as it went up then you need to look at many factors before calling “BS/FAKE/SCAM”
In Crypto there is many ways to make money, such as hold and never sell hoping for the price to go to the Moon. Or maybe buy 100k and by selling high, and buying back in when price dips turn your 100k into 500k next year. Or use Arbitrage.
Arbitrage is where you have money/coins on different Exchanges and since most Exchanges are inefficient and have varying prices, you can take advantage of the differences in price on the Various Exchanges by selling on the highest priced exchange and re-buy the coins on the cheaper exchange. This in effect levels the price out on all the Exchanges, and please be aware that there are 10’s of thousands of people in Crypto that make ALL of their Money doing THIS and only THIS. If that is not bad enough there are more bots doing this than actual people so good luck if you ever fancy your chances on competing against them. This is a very basic description of what is happening behind the scenes, its slightly more complex with many different ways to do it but hopefully you get the point.
This is why 1 Exchange won’t ever be able to spike much higher than the rest and prices always level out to a certain extent across all the Exchanges.
-BUT WHY DID IT SPIKE IN THE FIRST PLACE???

Simple! Someone bought a pile of Coins on the said Exchange and that ate up the small amount of coins that were for sale on the “Sell Board” and because there wasn’t a huge “Sell wall” to keep the price from going up… it went up! and then the trading bots/arbitrage traders sold their ETN on the Exchange that had the spike, eating up the “Buy Orders” and Forcing the price back Down to where it began (sometimes lower)
There is no Foul Play, no Cheating, no Faking, just People, or Bots programmed by People doing what they do to make a profit. It really is that simple.

To delve a little deeper into this, it is believed that Exchanges themselves use Arbitrage bots to maximise profits. I wont name any Exchanges to keep this impersonal.
Lets say Exchange A has a large amount of ETN being sold which is currently making the price rise quite rapidly. But Exchange B is a tiny Exchange and no real Volume so since there is nobody buying anything on Exchange B the price is staying the same.
Exchange A would make some extra “fees” if it were to buy the Coins from Exchange B and sell them on their own Exchange Instantly and make a small % in fees for doing so. Personal Opinion I believe that this happens although we will never know for sure. But regardless of if the Exchanges do it or not, People and Bots Certainly do!!!

Again i have simplified this slightly, but hope it makes sense.

I hope this Information is Received for Educational purposes as it is Intended, and if of some Value to the newer people of the Community who don’t know/care what happens with Exchanges.

I will probably edit Tomorrow when i see all my typos/bad grammar.
Part 2 to Follow 1-2 Days if Well Received. PART 2 : Satoshis Vs Dollars - How they are Work + Effect Price

Find it HERE: Understanding Crypto Part 2
PART 3: Understanding Crypto Part 3
PART 4 Found HERE: Understanding Crypto Part 4


Understanding Crypto Part 2
Fight The ETN Dump Club Round 3!
#2

Thank you for taking the time to put some clarity on this I’m sure many will learn something while reading :+1:


#3

Excellent write up and I’ve certainly learnt something from it.
Looking forward to part 2. :+1:


#4

I have had posts 10% the length of this that took over an hour to word effectively and structure in a way so people could not mis-interpret my writing…how long did this take?! LOL! Well done, sir


#5

:roll_eyes: About 2-3hrs.

More to add Tomorrow but i was worried if i saved it as a draft that i would come back to a blank draft and have to start again. Glad you can find some value in the Information. That is all im hoping for :+1:


#6

"Wicked topic"Professor
@ColinSTE
Thats the highest compliment I can give in my language.
Invaluable information for every level for the budding Cryptologist in all of us.
Thankyou for many hours of valuable work!
:heart::heart:


#7

If I had been able to read this knowledge seven months ago it wouldn’t have taken me over half a year to get to where I am today. What a great introduction to crypto for newbies. Fantastic job @ColinSTE I doff my cap to you Sir. You are an asset to this community indeed.


#8

Working on Part 2. Should be finished by Tomorrow.


#9

Excellent post @ColinSTE. Definitely helped me understand more about how the exchanges work.


#10

Part 2 Just been approved by Mods.


Understanding Crypto Part 3
#11

Understanding Crypto Part 3 PART 3


#12

I’ve booked marked this for a read later on

Cheers mate


#13

Great addition keep up the great posts! :sunglasses::+1:


#14

PART 4 Found HERE: Understanding Crypto Part 4