Cryptocurrencies: A basic guide

Cryptocurrency users are growing, and it is only getting bigger. Trading in cryptocurrencies is very commonplace nowadays, and it is estimated that there are 300 million people worldwide using digital currencies to make money.

What are Cryptocurrencies ?

A cryptocurrency is a digital currency that you can use as an alternative form of payment with the security of encrypted algorithms. Cryptocurrencies are becoming increasingly popular among online users, and they can work both as a currency and virtual accounting system. If you are willing to use this digital token, create a cryptocurrency wallet which is a cloud-based service.

Blockchain technology, a distributed public ledger, is responsible for the records of all transactions of cryptocurrency holders. To generate coins in cryptocurrency, you need to go through ‘mining’ where complex mathematical problems are resolved using computers. Then, the fastest computer solves the puzzle and wins a freshly minted digital coin. 

However, you can earn a coin by buying it from brokers. For example, you can save it for future spending using your cryptographic wallets. 

 

What are the different types of Cryptocurrencies?

Cryptocurrencies are broadly divided into two distinct categories based on their usage of blockchain technology: Coins & Tokens.

Each type of coin uses its independent blockchain infrastructure. For example, Bitcoin has its distinctive blockchain, whereas Ethereum blockchain operates Ether. Moreover, the term ‘Altcoins’ refers to any type of cryptocurrency other than Bitcoin. Some popular altcoins are: Ethereum, Tether, Dogecoin, etc.

Tokens are operated on the blockchain technology of other currencies like Tether uses Ethereum blockchain to get operated. These are the particular representations of a specific utility in a blockchain. For example, with crypto tokens, you can represent your stake in a company and utilize it for economic purposes.

Non-fungible tokens, or NFTs, are another type of digital asset with unique identification codes. They can represent artwork, tweets, music and more. Each NFT are unique yet extensible, which gives you the leverage to combine one with another and build a new NFT. Popular examples include William Shatner’s Personal Memorabilia, Jack Dorsey’s first-ever tweet, digital art by Beeple, etc. 

 

Popular cryptocurrencies

Here are a few popular types of cryptocurrencies that you may take into consideration :

 

  • Bitcoin (BTC)

One of the earliest and most trusted types of crypto, bitcoin, originated in 2008. Backed by blockchain technology, bitcoin made the largest market cap, $896 billion, this year. In addition, the transactions through bitcoin are verified, and data are safeguarded. 

 

  • Ether (ETH)

Ether runs on the Ethereum blockchain, but unlike Bitcoin, it is uncapped. This means you can create an unlimited number of coins. In addition, it enables a user to run smart contracts and decentralized apps without any downtime and data theft.  

 

  • Tether (USDT)

One of the most owned stablecoins, Tether, has reduced the chances of volatility in pricing. It is linked to an external asset and backed by the same numbers of US dollars. Unlike Bitcoin, Tether is less troubled by price fluctuations. So, Tether users can be worry-free while transacting. 

 

  • XRP

XRP is suitable for finance industries and works as a bridge between two different currencies. This is why many people prefer to call it ‘cryptocurrency for banks.’ Many online users prefer it for its faster & cheaper transfer. 

 

  • Cardano (ADA)

ADA is also known as a ‘Third generation cryptocurrency’ and provides a better experience for its users. For the seamless experience, it divides blockchain into two layers and ensures high speed for transactions. 

 

Benefits of Cryptocurrencies

Among the various benefits of investing in cryptocurrency, here are the top 7 to consider:

  • Remarkable security system
  • Easy transaction
  • Low investment
  • Incredible industry growth
  • Cross-border payments
  • Freedom on transaction
  • Portfolio diversification
 
 

Disadvantages of Cryptocurrencies

The use of supercomputers is needed when mining cryptocurrency, which increases the carbon footprint. As a result, Crypto has negatively impacted the environment and added more pollution. Price volatility is another concern for the users. Therefore, before using cryptocurrency, ensure you have gathered adequate knowledge. 

 

Unlike Government-backed centralized money, decentralized cryptocurrency puts the complete responsibility on the buyers and sellers and removes any intermediaries. Therefore, financial experts advise intending individuals to conduct research and market analysis. Furthermore, it is always better to consult with a cryptocurrency virtuoso to figure out the right type compatible with your requirements. 

Anish Wig
Managing Director                 
info@toledocapital.ch                                                                                                                      
+ 41 (0)58 680 62 80

References

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McGovern, T. (2022, 03 22). EARTHWEB. Retrieved from CRYPTOCURRENCY STATISTICS 2022: HOW MANY PEOPLE USE CRYPTO?: https://earthweb.com/cryptocurrency-statistics/

N26. (2022, 02 14). Retrieved from 10 popular types of cryptocurrency and how they work: https://n26.com/en-eu/blog/types-of-cryptocurrency

OSWEGO . (n.d.). Retrieved from STATE UNIVERSITY OF NEW YORK : https://www.oswego.edu/cts/basics-about-cryptocurrency