Investing In Cryptocurrency For Dummies – By now, everyone has heard of Bitcoin. It introduced the world to blockchain technology, or distributed ledger, and is the center of the world as a crypto asset. But Bitcoin is hardly alone. In fact, a complete suite of crypto assets has been developed to support a wide range of use cases and applications focused on verticals such as identity management, data storage, gaming, banking, lending, social networking and streaming. .

Since Bitcoin launched the industry, every other crypto-asset has been called an Alt-coin. Alt-coins can be classified in several different ways.

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Protocol tokens, also known as level 1 or base layer tokens, are the core of the blockchain and are required for a particular platform to function. For example, Bitcoin is a protocol token because it matters not only what users send and receive on the network, but also how miners (payment processors) compensate for their computer’s power supply.

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Another protocol token, Ethereum is the most prominent and popular altcoin. It has the second largest market capitalization after Bitcoin ($1.04 trillion) at $513 billion. It was created in 2015 by Vitalik Buterin, who sought to build a blockchain platform to run and run any kind of program or software program. Bitcoin is relatively rigid in its structure, which is by design, as the increased functionality provided by the blockchain can also create additional security vulnerabilities.

Ethereum works similarly to Bitcoin, where miners spend a lot of energy on computers to add transactions to the network.

That said, there are many other well-known blockchains that have their own protocol tokens, some of the biggest being Solana, Algorund, Cardano, Binance Smart Chain, Avalanche, EOS, and Polkadot.

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While the main layer of the blockchain is the operating system, decentralized applications (dapps) are the applications that run on top of them. Many of these programs have their own tokens (called dop tokens) that are freely traded on several exchanges. Dapp tokens first became popular during initial coin offerings (ICOs) in 2017 and 2018, when many founders raised millions – sometimes billions – of dollars through token sales for product development. It is worth noting that most of these ICO projects failed and their asset values ​​went to zero, which is a reflection of the innovation, delirium and excitement of the space.

Today, however, there are dozens of dap tokens with market capitalizations of millions or even billions of dollars, underpinning applications with real tools and real business operations, monetized through decentralized finance (DeFi) tokens. Some of the most prominent ones include Compound, AAVE, Uniswap, SushiSwap, Curve, PancakeSwap, and Maker.

DeFi is an umbrella term used to get traditional financial applications (such as banking or lending) copied onto the blockchain through dapps and smart contracts, which are pieces of code that can be executed when certain conditions are met. run automatically. Think of smart contracts as statements built on the blockchain. For example, you can place an order to buy Bitcoin on a decentralized exchange when the price reaches a certain level. Today, more than $270 billion is locked up in blockchain applications and DeFi tokens.

Finally, it is important to highlight recent developments in cryptocurrencies and non-fungible tokens (NFTs). Core money or cryptocurrency should be valued equally by every investor for every asset. They should be interchangeable. NFTs are the exact opposite. While they work like any other protocol or dapp token on top of the blockchain, they have unique features or sets of features. If Bitcoin was the first iteration of scarce digital value, NFTs are the natural successors.

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For many investors, exposure to spot market prices is risky and/or attractive enough for their first foray into cryptocurrencies. However, as the industry matures, we are starting to see ways for investors to earn passive income in their holdings. This strategy helps you gain leverage or hedge against price risk.

Staking is the act of sending some crypto assets as collateral to participate in blockchain operations. As compensation for locking in assets, users receive rewards such as regular interest payments. Staking is useful for blockchains that perform operations

It is a computationally intensive and expensive method used by Bitcoin, Litecoin, Bitcoin Cash and many other major blockchain tools.

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Although POW itself has proven to be very safe and effective in most cases, there are growing concerns about energy consumption and the associated carbon footprint. Additionally, POW blockchains have scalability and throughput issues (Bitcoin can only process a few transactions per second), while POS platforms can process hundreds of thousands of transactions per second.

Additionally, while Ethereum remains a PoW blockchain, its underlying asset, Ether, can be shared. This is because Ethereum is currently undergoing a multi-year transition from a POW to a POS consensus mechanism, thereby supporting greater demands on its computing resources.

POS consensus mechanisms are not the same and each blockchain network may use a different method to calculate rewards, taking into account several factors including:

Apart from buying DeFi tokens, it is possible to earn them through a process called yield farming.

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Crop farming can be considered DeFi 2.0. First, when you provide liquidity in a decentralized exchange or lending protocol, you only receive a fee or some interest. However, last summer Compound started a new trend that rewards users with admin tokens, in this case COMP as an incentive program.

In line with the decentralized ethos of the space, governance tokens are mechanisms that delegate control of the platform to the respective founders of each protocol and transfer it to users. In turn, token holders can use their ownership stake for additional rewards or vote on governance decisions that differ between protocols.

In fact, with the creation of government tokens and highly profitable farming opportunities, a group of DeFi portfolio managers was created to help move users’ funds between opportunities to maximize rewards and minimize transaction fees. Think Betterment or Wealthfront for cryptocurrencies. Prominent among these is yearn.finance, whose government token YFI is worth $28,000.

When Coinbase (COIN) went public in April with the largest direct listing in US history, many investors mistakenly thought it was the first opportunity to gain exposure to crypto through brokerage accounts. However, several public securities have been exposed to the crypto space for some time. I can’t list them all here, but there are two main categories to keep in mind.

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An ETP can be thought of as a wrapper around an asset or group of assets, such as Bitcoin and cryptocurrencies, that are traded on an exchange like a security. The most common form of exchange-traded product is an exchange-traded fund (ETF), such as State Street’s SPDR S&P 500 Trust ETF. Common exchanges where crypto ETPs can be found include OTC Markets, Nasdaq Nordic, CME Group (for crypto futures and options), Deutsche Börse’s Xetra, SIX Swiss Exchange, and OTCQX through the Canadian Stock Exchange. These foreign currency exchange-traded funds can be accessed through a number of discount brokers, including Fidelity, Charles Schwab or TD Ameritrade (although exact offerings vary by provider).

The largest ETP provider is Grayscale, whose Bitcoin Trust (GBTC) is the industry’s largest mutual fund by AUM (assets under management) available to investors – $36.6 billion as of this writing. While GBTC traded at a net price-to-asset value for most of its existence, the onslaught of competition saw its stock sink into double-digit discounts for most of 2022. Grayscale offers similarly structured products that track other assets. For example Ether, Litecoin, Ethereum Classic, Solana and some different indices.

But the ETP cryptocurrency market is beyond the gray scale. For example, Swiss exchange SIX has a strong list of 40 token ETPs, with WisdomTree Bitcoin (BTCW.SW) and 21Shares Ethereum ETP (AETH.SW) having the most trading volume. Canada’s Toronto Stock Exchange launched North America’s first crypto ETF in the first quarter of 2021: the Bitcoin Target ETF (BTC, $1.4 billion AUM) — which got off to a strong start, raising nearly $1 billion in its first month – Evolutionary Bitcoin. ETF (EBIT, AUM USD 198 million) and CI Galaxy Bitcoin ETF (BTCX, NAV USD 484.5 million).

Additionally, October saw the launch of the first US Bitcoin ETF. However, they do not reflect the spot price of Bitcoin, but futures contracts traded on platforms such as the Chicago Mercantile Exchange. First Proshare Bitcoin ETF (BITO, $1.25 billion AUM) However, other offerings include the Valkyrie Bitcoin Strategy ETF (BTF, $98 million AUM) and the VanEck Bitcoin Strategy ETF (XBTF, $14.6 billion AUM).

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