Cryptocurrency is a digital payment system that does not rely on banks to verify transactions. It is a peer-to-peer system that can enable anyone, anywhere, to send and receive payments. Instead of physical money being carried and exchanged in the real world, cryptocurrency payments exist solely as digital entries in an online database describing specific transactions. When you transfer cryptocurrency funds, the transactions are recorded in a public ledger. Cryptocurrency is stored in digital wallets.
Cryptocurrency got its name because it uses encryption to verify transactions. This means that advanced coding is involved in storing and transmitting cryptocurrency data between wallets and to public ledgers. The purpose of encryption is to provide security and protection.
The first cryptocurrency was Bitcoin (BTC), which was founded in 2009 and remains the most well-known cryptocurrency in the world today. Much of the interest is in trading for profit, where people sometimes, driven by the desire for quick earnings, can lose an entire fortune virtually overnight.
What is blockchain
Blockchain is a shared, immutable digital ledger that facilitates the process of recording transactions and tracking assets in a business network. An asset can be tangible (such as a house, car, money, land…) or intangible (such as intellectual property, patents, copyrights, trademarks…). In a blockchain network, almost anything of value can be tracked and traded, reducing risk and costs for all involved.
Why blockchain is important
Blockchain technology is extremely important because every business is built on information. The faster and more accurately a given piece of information is received, the better it is for any company. Blockchain is ideal for delivering this information, as it provides immediate, shared, and fully transparent information stored in an immutable ledger that can only be accessed by authorized network members. A blockchain network can track orders, payments, accounts, production, and much more. And because members share a single view of the truth, you can see all the details of a transaction from start to finish, giving you greater confidence and new efficiencies and opportunities.
The value of cryptocurrencies and how it is determined
The value of a cryptocurrency depends on several different factors. With so many different cryptocurrencies on the market, it is difficult to determine which ones are truly valuable and practical to use.
Like many other assets, demand is one of the main factors contributing to the value of a cryptocurrency. If more people use a coin or a particular blockchain associated with a coin, the price is more likely to rise.
Well-established cryptocurrencies such as Bitcoin (BTC) and Ethereum (ETH) are used by more people and therefore have a higher perceived value. Because more people use these networks, the prices of Bitcoin and Ethereum are higher than those of other cryptocurrencies. Some experts also point to the first-mover advantage in the crypto world enjoyed by Bitcoin and Ethereum when it comes to establishing market leadership.
Supply can also affect the price of a cryptocurrency, or at least investors’ perception of its value. Many experts say that Bitcoin is more likely to retain its value because there is a limit to how many Bitcoins can exist. Only 21 million can ever exist, so scarcity is expected to contribute to its value, as opposed to a cryptocurrency that has no upper limit.
When thinking about which cryptocurrencies to invest in, it is worth looking at coins that have a strong use case and a greater likelihood of wider adoption. One of the reasons Ethereum is considered valuable (second only to Bitcoin) is that its smart contract capability enables the creation of numerous applications, including finance and gaming applications.
How to research a cryptocurrency before deciding to invest
If you have spent a lot of time in the crypto world, you have certainly heard the advice “Do your own research.” This is probably the most logical advice for people who are beginners in the crypto world, as well as for those who are already well acquainted with it. But what does it actually mean?
Cryptocurrencies are built on solid software and there are genuine and promising applications for them. In addition, people do make money by investing in cryptocurrencies, but people can also lose a great deal of money through cryptocurrency scams. Therefore, before you invest any money in any cryptocurrency, you should take some time to thoroughly research it and determine whether it is a project worth investing in.
You can start reviewing a cryptocurrency as soon as you hear about it, before you begin seriously considering an investment. Ask yourself:
- How did you find out about a particular crypto project and what did you learn about it?
- Did you find out about this crypto project from a reliable and trustworthy source?
- Have you heard that the project promises you enormous profits with exceptionally small investments?
In the crypto world, the general rule is: if it sounds too good to be true, it probably isn’t real. Also keep in mind that the crypto world is full of scammers who only want to steal your money, so be extremely careful with the information you find online.
Read the “White Paper”
In addition to the developer’s website, every cryptocurrency also has its own “white paper,” which is a more formal outline of the purpose and general characteristics of the coin. In some cases, developer websites simply copy the key points of the cryptocurrency’s white paper and use them as marketing for the cryptocurrency, while in other cases the white paper provides much more detail about the specifics behind the creation and purpose of the cryptocurrency.
Just as a poorly designed and constructed website for a project can be a major red flag regarding its legitimacy, the same applies to the “white paper.” If it is written unprofessionally, superficially, and contains suspicious information, think carefully about whether this is the right project for you.
With good crypto projects, however, you will be able to find the most in-depth information available about a particular cryptocurrency in the “white paper,” directly from the developers themselves.
Check the “Volume,” “Market Cap,” and “Trading Characteristics”
Unless you are willing to spend all your money on a purely speculative cryptocurrency, stick to well-known names that are heavily traded and have a large market capitalization. While there are literally thousands of cryptocurrencies, those with a market capitalization of several billion dollars have serious investors behind them and are most likely to survive in the long term. On websites such as Coinbase, CoinMarketCap, Binance…, you can check the market capitalization, volume, and other trading characteristics for the cryptocurrencies that interest you.
Research the Project’s Community
Once you feel you have a good understanding of the facts behind your chosen cryptocurrency investment, dig deeper and see what the community has to say about it online or through Discord/Telegram. While there are certainly many speculators, traders, and other unreliable sources of information on message boards, there is also some valuable information published online that you may not easily find in other sources.
When online investor communities organize and collectively decide to support a particular investment, incredible returns can occur, as seen in the examples of the Shiba Inu cryptocurrency or the publicly traded stocks of AMC Entertainment and GameStop. While you shouldn’t risk all your money based on things you read online, these message boards can be a valuable source of information about what the investor community is generally targeting.
Find Out the Purpose of the Crypto Project That Interests You
Most cryptocurrencies are minted as a reward for verifying blocks of data that serve some other function beyond supporting the currency itself. If you are a Bitcoin enthusiast, you may find that Bitcoin fails this test.
This does not mean that Bitcoin is a scam. Bitcoin has existed long enough and has enough demand that it is sufficient to support itself. This is probably not true for any other coin currently active in the crypto world. In other words, Bitcoin is not a scam, but any coin that promises to be the next Bitcoin probably is.
The downside of this is that it means you may miss the opportunity to enter a project as one of its first investors, because you sat and waited for the coin to prove itself and gain in value. Which is probably true, but it is certainly more likely that you will miss more such investment opportunities than encounter a scam.
However, if you truly don’t want to miss a particular project that is risky, be aware of that and only invest as much money as you are prepared to lose.
Find Out Where You Can Buy and Use Cryptocurrency
Unless you are a miner or an investor with serious expertise, you probably shouldn’t be buying cryptocurrencies outside of a proper and legitimate cryptocurrency exchange. Exchanges allow you to buy and sell cryptocurrencies, and while different exchanges require that coins have proper documentation and pass various tests to be listed, you will certainly be safer sticking to such crypto exchanges.
This approach has the same pitfalls as the first tip — it will likely take some time for a newly created cryptocurrency to be publicly listed on a legitimate and legal crypto exchange. However, we are talking about crypto exchanges that allow you to buy coins, not applications that allow you to buy “interest” in a cryptocurrency, such as those found on the PayPal app. These platforms are even more cautious than exchanges.
In some cases, the blockchain technology on which the cryptocurrency was built will make it difficult for a fraudulent coin to circulate in legitimate ways, because widespread circulation in legitimate circles could more quickly reveal what kind of cryptocurrency it really is. For example, the Squid Game crypto token, founded after Netflix’s Squid Game series, had very unusual restrictions regarding who could trade the token, where it could be traded, and under what circumstances.
Find out who makes the coin
When it comes to cryptocurrencies, decentralization is one of the greatest features. However, most legitimate cryptocurrency projects will have a publicly listed board of directors or even partner organizations that support and develop the cryptocurrency. You don’t need to know the names of all board members, but you should at least recognize the names of the companies that enable or use the blockchain technology. Even if you don’t, you should be able to research these individuals and organizations to determine whether they are real and genuinely involved in the project.
Determine whether the cryptocurrency seems sustainable
This is a combination and re-examination of some of the drawbacks. A coin worth investing in should solve a problem, and solving that problem should be the goal of the coin’s creators, not making money. For example, IOTA is one of the most technologically ambitious coins in the world and trades at a fraction of the current rates of more well-known tokens. Why? Partly because IOTA is built for long-term scale and not as a get-rich-quick scheme or even as a conventional store of value. It is designed to do work, with financial rewards being secondary.
Don’t miss!
If you are interested in learning more about cryptocurrencies, we invite you to read other articles on our website, which can be found in the Cryptocurrencies section. You can also join us at a free webinar where we will talk about how to earn with cryptocurrencies. You can register at this link: https://zannekrep.com/brezplacno20/
We are not financial advisors. All information regarding cryptocurrencies is accepted at your own risk. Do your own research as well.
