Lesson №3. How to earn on the blockchain. Part I

Let’s start with the first myth, which we mentioned earlier: “I’ll buy Bitcoin now and get rich.” We've all thought that way at some point, but unfortunately it doesn't work that way. Although Bitcoin is less volatile (volatility = unstable exchange rate, in this case we mean that Bitcoin is more stable than other cryptocurrency) than all other altcoins, nevertheless, it is also very far from stability. Over the past 2 years, the cost of Bitcoin has already managed to soar 2 times, reaching $68,789.63, fall three times, dropping to $16,445, and soar 2 times, reaching $41,914 at the time of writing.

Everyone can agree that “stability” is not visible. Some users were able to make good money on such surges, but others are in deep drawdown. Therefore, the myth of wealth simply in case of purchase is initially incorrectly interpreted.

To make money in any field, you need at least an understanding of its basics and operating principles. In the case of making money on cryptocurrency, we are talking about how this cryptocurrency works. Yes, there are lucky people who simply invested at the right time, but without knowledge, their investments are unlikely to exceed the income of experienced users.

We will try to talk about ways to make money in cryptocurrency, significantly shortening your trial and error path. We do not promise any guarantees of earnings and do not sell courses. The article will give you information on which direction to look if you want to use cryptocurrencies as a financial safety net.

When it comes to investing in cryptocurrencies, most will want to buy themselves a cue ball. Jayden would have done the same if he wanted to make money in the long term. But there are also a large number of pitfalls here. For example:

Bitcoin, as we said, appeared in 2009, and the first exchange trading of Bitcoin began on the now defunct BitcoinMarket.com exchange in April 2010, where the initial price was about $0.003 per Bitcoin. Bitcoin reached its peak in November 2021 and its price was $68,789. This means that over a span of 11 years, Bitcoin has made +2,295,966,570%.

Now that you are surprised by these numbers, let’s go back to our time and try to answer what will happen in the near future. Probably many of you understand that such growth cannot be endless. It is very unlikely that Bitcoin will be able to make as much interest in the coming decades. Accordingly, we come to the following thesis:

Yes, it is quite possible that by holding Bitcoin in your portfolio, you can make money. But your earnings will not be significant enough to, for example, quit your job. Bitcoin is the most expensive token, which is why you will have to invest a lot of money to see tangible profits from the growth of Bitcoin.

The following currencies, for example Ethereum (ETH), are more volatile than Bitcoin. That is, their value may fluctuate more often and more strongly than the value of BTC. This can work both in favor and against the investor.

At the moment, Coinmarketcap has information on ~8800 tokens. And now we are only talking about those tokens that were added to the Coinmarketcap resource.

As you already understood from the example with Bitcoin, many tokens that are currently in the Coinmarketcap top 50 will most likely not give you large claims.

To invest, you need to carefully analyze projects, select the most promising ones and invest in the token at your own risk. We would consider the most favorable tokens for investment to be those that have the following factors:

For example, some time ago, a token like SHIB or DOGECOIN met all these criteria, but at the moment, these tokens have already moved to the first division, and received the same problem “they won’t give much X.”

Let's go back to our Jayden again. Jayden, like many of us, still hoped to invest in altcoins. This may not be the worst option if you don't want to spend a lot of time learning new material.

Jayden bought a lot of tokens and waited for his X’s. But they were all gone... And then Jayden got really upset and started selling all his tokens, leaving himself at a big loss. It’s good that Jayden had John. John told Jayden about the magical “hold” and “hodl” of the cryptocurrency. Perhaps at that moment he saved Jayden from 100% failure.

Hold - retention of tokens in your crypto portfolio. The essence of the hold lies in the name itself and indicates that the trader follows the principle of long-term investment in order to make a profit and, most importantly, over a long distance. Have you ever heard that if you buy gold, you won’t be able to lose money if you keep it for more than 7-10 years? So, a similar situation occurs in cryptocurrency. Most tokens give a response only after a long time. Only for some tokens that have picked up the hype, this boom occurs in the first weeks or months. The rest, most of the tokens, is a story about waiting.

Hodl (“hodl” is the same holding, only as the meaning of life) is a popular slang expression that arose from a misspelling of the word “hold”. It first appeared in 2013 on the Bitcoin Talk forum, where a user under the nickname GameKyuubi wrote a message with the title “I AM HODLING.” In the message, he explained that despite the high market volatility and falling Bitcoin prices, he decided not to sell his assets. The meaning of the hodl is that even if your token has made a huge drop in price, we still don’t sell it and wait until it grows significantly in price. The only difference from hold is that hold means we wait until the token gives the desired profit, and hodle means we wait and believe in the token, no matter what, until it gives the maximum profit.

Arbitration is divided into several ways:
By platform:

• CEX arbitration
• DEX arbitration
• Arbitration through exchangers

By difficulty:

• Simple arbitrage
• Complex arbitrage

Let's start in order.

Jayden once registered on a cryptocurrency exchange. For example, this exchange was Binance. To purchase cryptocurrency, Jayden used P2P exchanges.

P2P exchange is an exchange between users, where one party gives fiat funds, and the other party gives the equivalent of cryptocurrency. In such a transaction, the cryptocurrency exchange acts as a guarantor.

Jayden noticed that on the P2P tab there are users who place orders to buy and sell tokens. All users have their own exchange rates, their own volumes, and users work only with banks that are convenient for them. Due to all these conditions, the cryptocurrency rate for two users next to each other on the list may differ. Jayden came up with a great idea, which was that he would buy a large number of BTC tokens through a P2P exchange from a user who provides the most favorable rate, and then Jayden would sell these BTC to other users, setting a higher rate for this token.

And, despite the simplicity of the scheme, it really works. Often, the most favorable rate will be from the seller who sells Bitcoin in large volumes. Plus to all this, if this seller does not use popular cards, but instead uses some incomprehensible service for payments, this is a really good chance to pick up Bitcoin at the most favorable rate for Jayden. Jayden will register an account on an incomprehensible service, and in the end will receive the same Bitcoin after the exchange.

Then, Jayden can sell the received Bitcoins in small quantities, in more accessible ways for users. For example, if Jayden bought himself Bitcoin for $10,000, then he will sell to everyone who is ready to buy BTC for at least $5. This will increase the BTC rate, from which he will receive his profit.

The pitfalls in such trading will be the following factors:

There are more complex arbitrage options. They consist in the fact that the purchase and sale of cryptocurrency does not take place in one token. For example, Zhorik sends fiat funds and receives BTC from the seller. Then Zhorik exchanges BTC for USDT, as a more popular currency for trading, and only then sells USDT through P2P trading to other users.

This complicated scheme has its advantages, which boil down to the fact that the offer for the purchase and sale of USDT tokens is much higher than BTC. Because of this, arbitration itself occurs faster than with a single token.

It may sound complicated, but in reality, this is far from the simplest task. The essence of the scheme is that the trader wants to earn tokens by passing them through several exchanges and receiving back a larger amount than he had before. Using an example with regular currency, this can be explained like this: you buy rubles, exchange them for yuan, exchange yuan for tenge, exchange tenge for tugriks, and exchange tugriks back for rubles. As a result, you gave 100 rubles, and received 101 rubles back due to exchange rate differences. This example would work ideally if fiat funds were not pegged to the dollar. Because cryptocurrency is not tied to the exchange rate, such loopholes are the purpose of DEX arbitrage.

It is important to understand that you can’t just take it and run it through any liquidity pools. You need to carefully calculate: will the exchange rate change after your exchange, and if so, by how much? How much volume will you need so that after a round of exchanges you are in the black? And most importantly, you need to calculate how much commission you will pay for each exchange and how much profit you will receive. It’s strange to make a profit, but lose it on commissions.

Almost always, DEX arbitration is closely related to programming. DEX arbitrage cannot give a big profit after one round, it is a question of a couple of cents of profit. But when bots come into play and are ready to endlessly spin the same amount, extracting $10-$20 a day, the issue is quickly closed.

The most important point in such a scheme, however, is the commissions. In large blockchains that have their own DEXs, this is very difficult to do. It’s rare that profits can justify your costs, so these arbitrageurs use little-known blockchains. Such blockchains often boast of their low commissions, which means that the arbitrageur will definitely recoup the commissions with profits.

On the Internet, we can find a huge number of aggregator sites that collect cryptocurrency exchangers in one place. On such sites, arbitrage traders see all the differences in cryptocurrency rates.

Since in this arbitration we are dealing with semi-official services, the rate may vary greatly. We won’t point a stick at anyone, but the reason why one crypto exchanger offers a more favorable rate than its competitor is that some are ready to accept dirty, laundered money, while others are not. So, you can buy cryptocurrency cheaper somewhere, but you run a high risk of being blocked on CEX if you want to convert it into fiat currency.

Arbitration through exchangers carries the highest risk of all the listed methods of earning money. If you still want to do this, be prepared that you will have funds at your address that could be used for illegal purposes - for example, financing terrorism. Such serious violations may result in criminal liability.