Cryptocurrency doesn’t have to seem so perplexing, assuming you know it’s a digital currency secured by cryptography. There are four most important reasons why investors buy and trade cryptocurrencies, and these are:
- Cryptocurrencies have a long-term store of value.
- Digital coins diversify investors’ portfolios beyond the typical stocks and bonds.
- Crypto can have a high return on investment.
- Crypto is decentralised and offers a lot of transaction freedom.
To rip these benefits, traders keep up to date with cryptocurrency fluctuations and trends every day and think of ways to improve their strategy and profits. Keep reading to find out what the most popular cryptocurrencies are and how they work, if you want to gain a better understanding of some simple, yet paramount basics of cryptocurrency.
Bitcoin is a virtual cryptocurrency designed to be a form of payment outside the control of any entity or group, thus removing third-party involvement. It rewards blockchain miners – a miner receives 6.25 BTC after they add a block to the blockchain.
Satoshi Nakamoto is an anonymous individual or group of developers who introduced Bitcoin in 2009. It has become the most widely-known cryptocurrency worldwide and inspired other developers to give birth to other digital coins. As it gained popularity, more miners joined this network, trying to solve the hash. You can use your personal computer to mine if it has modern hardware, but know that this complex process is not an easy job.
Bitcoin can be used as an investment tool to generate profits. It resembles gold in many respects: it’s limited in supply, is considered a good store of value and has a functional use. There are, though, differences between Bitcoin and gold – BTC can’t be stored in the traditional sense, a feature that facilitates its transfer from one party to another.
Bitcoin is open to use globally, is free and requires no permission from anyone. It is censorship resistant because it uses a proof-of-work algorithm, making it impossible for anyone to block or censor your transactions. Other benefits to crypto are:
- It’s decentralised
- It’s immune to seizure
- It’s censorship resistant
- It’s a push system
- It provides anonymity.
Ethereum comes second in crypto popularity after Bitcoin, and it’s the blockchain that has as native cryptocurrency the Ether or ETH. It was founded in 2015 by Vitalik Buterin due to the need for a more complex blockchain that can run thousands of financial apps and games.
Transactions are recorded on this decentralised, distributed public ledger. Some advantages investors gain from Ethereum are:
- Reduced transaction fees
- High-security protocols
- Automated smart contract
Ethereum is the most popular altcoin for some reasons. If you’d like to know how to buy ETH for eventual future investments, know that there are some basic steps to follow. You create an account, choose your favourite virtual coin storage place and start purchasing and trading Ether.
You can then use ETH as an investment, a virtual currency in financial transactions, or a store of value. You can even use Ether to pay for some flight packages, hotel bookings and train tickets.
Some other advantages of trading Ether are:
- Large, existing network. This network has been tested through billions of value trading hands throughout years of operation.
- Constant innovation. Many Ethereum developers constantly look for new ways to develop new applications and improve this network.
- Avoided intermediaries. This blockchain allows users to leave behind third-party intermediaries, like banks and lawyers.
- Wide range of functions. Ethereum is used not only as a virtual currency but can also process other financial transactions and execute smart contracts.
Ethereum is growing by leaps and bounds since there’s surging popularity in dApps, in areas such as arts and collectables (NFTs), finance (DeFi apps), gaming and technology.
Binance Coin (BNB) is among the most popular utility tokens. It’s the cryptocurrency issued by the largest cryptocurrency platform worldwide, the Binance exchange. Investors use BNB to pay trading and transaction fees on this application worldwide, but BNB can be transacted on other crypto platforms, too.
On the Binance platform, BNB can result from converting dust, which means any number of tokens or coins that are so small they’re ignored gain some use.
Binance Coin was first created to be a utility token for discounted trading fees, but its uses have expanded to various applications, such as:
- Entertainment – card packs, virtual gifts, lotteries
- Financial services
- Online services
- Travel arrangements
- Transaction fees on the Binance Chain
- Means of trade for other types of cryptocurrencies, like Ethereum or Bitcoin.
Tether coins are pegged to the U.S. dollar, offer price stability and have grown in popularity over the past years. This decentralised virtual coin pursues a steady valuation and helps investors hold funds within the cryptosystem while avoiding the volatility typical of cryptocurrencies.
Investors can transact Tether (USDT) across various blockchains without the complexity typically associated with digital coins.
Tether’s competitors include USD Coin, Dai and Pax Dollar. Still, some USDT traders choose this digital coin mainly because it provides reliable and steady liquidity and enables them to get in and out of other crypto trades without facing unforeseen losses from volatile price changes.
USDT is more likely to keep its value stable as it is tied to fiat currencies like the U.S. Dollar and sometimes the euro, Chinese yuan and gold. This feature of Tether promotes using stable coins as another medium of exchange besides money.
A USD coin is a tokenized U.S. dollar or a digital currency fully backed by the U.S. dollar or dollar-denominated assets. Its value is designed to remain stable, as stable coins are usually backed by reserve assets like euros and dollars to allow price stability. The general and normal fluctuations in other cryptocurrency contrast the price stability of USDC.
Despite its name, USDC is not backed or issued by the U.S. government, but is an open-source project, and anyone can contribute to its code. It’s managed by a Centre, a financial technology company named Circle and COIN, a consortium co-founded by Coinbase exchange.
Despite the USD coin’s advantages, it’s not immune to U.S. dollar price inflation and delivers no price appreciation.
After grasping these simple basics about the most popular digital coins nowadays, you shouldn’t find cryptocurrency so difficult the next time you hear about it on the news.