Crypto Investing--A New Investor's Guide

Crypto Investing–A New Investor’s Guide

Business Trends Graphs and charts 3d image By now everyone’s heard of Bitcoin. It introduced the world to blockchain or distributed ledger technology and as a crypto asset, it is the center of the universe. But bitcoin is hardly alone. In fact, an entire galaxy of crypto assets has been created to support a wide range of use cases and applications focused on verticals such as identity management, data storage, gaming, banking, lending, social media and streaming.

Because Bitcoin started the industry, virtually every other crypto asset is called an alt-coin . Alt-coins can be categorized in a few different ways.

Protocol Tokens

Protocol tokens, also referred to as Level-1 or base layer tokens, are native to a blockchain and are necessary for the operation of a given platform. Bitcoin for example, is a protocol token, not only because it is what users send and receive over the network, but because it is also how miners (payment processors) get compensated for supplying their computer power.

Another protocol token , Ethereum is by far the most prominent and popular alt-coin. It has the second-largest market capitalization of $513 billion, behind only bitcoin ($1.04 trillion). It was created in 2015 by Vitalik Buterin, who was looking to build a blockchain platform that could run and execute any type of software program or application. Bitcoin is relatively rigid in its composition, which is by design, as more functionality offered by a blockchain can also create additional security vulnerabilities.

Ethereum operates in a similar manner to bitcoin, where miners expend substantial amounts of computer power to add transactions to the network.

That said, there are many other prominent blockchains with their own protocol tokens, with some of the largest being Solana, Algorand, Cardano, Binance Smart Chain, Avalanche, EOS and Polkadot.

Application Tokens

If the base layer of a blockchain is the operating system, then decentralized applications (dapps) are the programs that run on top of them. Many of these applications have their own tokens (known as dapp tokens ) that are also freely traded on many exchanges. Dapp tokens first came to prominence in 2017 and 2018 during the initial coin offering (ICO) craze, when many founders raised millions—sometimes billions of dollars——through token sales to fund product development. It is worth noting that the vast majority of these ICO projects failed and the value of their assets went to zero, which was a reflection of the novelty, hyperbole and excitement of the space.

Nonetheless, today there are still dozens of dapp tokens in existence with market capitalizations in the hundreds of millions or even billions of dollars that underpin applications with real utility and actual business operations that make money, headlined by decentralized finance (DeFi) tokens. Some of the most prominent include Compound, AAVE, Uniswap, SushiSwap, Curve, PancakeSwap and Maker.

DeFi is an umbrella term used to capture traditional financial applications (such as banking or lending) that are replicated on a blockchain through dapps and smart contracts, which are automatically executable pieces of code that activate when certain conditions are met. Think of smart contracts as if/then statements built into blockchains. For instance, you could place an order on a decentralized exchange to buy bitcoin if the price hits a certain point. Today, there is more than $270 billion locked up into blockchain applications and DeFi tokens.

Finally, it is important to highlight the latest development in crypto, non-fungible tokens (NFTs). A core component of money, or crypto, is for every asset to be valued the same by every investor. They must be fungible. NFTs are the exact opposite of this. While they operate on top of blockchains just like any protocol or dapp token, they have a set of unique properties or characteristics that make them unique. If bitcoin is the first iteration of scarce digital value, then NFTs are the natural successors.

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Staking And Passive Income

For many investors, exposure to spot market prices has been risky and/or lucrative enough for their first forays into crypto. However, as the industry matures we are starting to see ways that investors can earn passive income on their holdings. This strategy can help top up gains or hedge against price risk.

The top two strategies are staking and yield farming. I’ll break each one down individually.


Staking is the act of posting certain crypto assets as collateral to participate in the operation of a blockchain. As compensation for […]

source Crypto Investing–A New Investor’s Guide

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