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Crypto Investing–A New Investor’s Guide

by John Doe
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Everyone has heard of Bitcoin by now. It was the first to bring blockchain to the world, and as a crypto asset, it is the center of the universe. However, bitcoin is far from alone.

In reality, a whole universe of crypto assets has been built to enable a wide range of use cases and applications in industries including identity management, data storage, gaming, finance, lending, social media, and streaming.
Almost every other crypto asset is referred to as an alt-coin because Bitcoin pioneered the market. Alt-coins can be classified in a variety of ways.

PROTOCOL TOKENS

Protocol tokens, also known as base layer tokens, are native to a blockchain and are required for a platform’s functionality. Bitcoin, for example, is a protocol token since it provides both the means by which users transmit and receive data across the network and the means by which miners are rewarded for donating their computing power.



Ethereum, another protocol token, is by far the most well-known and widely used alt-coin. It has a market valuation of $513 billion, which is second only to bitcoin ($1.04 trillion).

Vitalik Buterin founded it in 2015 with the goal of creating a blockchain platform that could run and operate any sort of software program or application. Because greater functionality supplied by a blockchain can potentially generate extra security flaws, Bitcoin’s constitution is very inflexible, which is by design.

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Ethereum works the same way as Bitcoin does, with miners using a lot of computer power to add transactions to the network.
However, several other well-known blockchains have their own protocol tokens, with Solana, Algorand, Cardano, Binance Smart Chain, Avalanche, EOS, and Polkadot among the most popular.



If the operating system is the foundation of a blockchain, then decentralized applications (apps) are the programs that operate on top of it. Many of these apps have their own tokens (known as app tokens), which may be freely exchanged on a variety of platforms. Dapp tokens gained popularity in 2017 and 2018 during the ICO boom when numerous creators raised millions,

if not billions, of dollars through token sales to support product development. It’s worth mentioning that the great majority of these ICOs flopped and their assets were worthless, which was a result of the novelty, exaggeration, and excitement of the space.

Nonetheless, dozens of app tokens exist now, with market capitalizations in the hundreds of millions, or even billions of dollars, and they back real-world applications and profitable commercial activities.

Compound, AAVE, Uniswap, SushiSwap, Curve, PancakeSwap, and Maker are among the most popular.

Traditional financial applications (such as banking or lending) that are reproduced on a blockchain using apps and smart contracts (automated executable bits of code that activate when specific criteria are fulfilled) are referred to as Defi.

Consider smart contracts to be built-in if/then statements for blockchains.

For example, you may put a purchase request on a decentralized exchange if the price of bitcoin reaches a specified level. More than $270 billion has been invested in blockchain apps and Defi coins as of today.

 

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Finally, non-fungible tokens (NFTs), the most recent development in crypto, should be highlighted. Every asset must be valued equally by all investors in order for money, or cryptocurrency, to exist.
Passive Income And Staking

For many investors, exposure to spot market pricing has been both dangerous and profitable in their early ventures into crypto. As the business evolves, however, we are beginning to see methods for investors to receive passive income from their investments.

This method can be used to supplement gains or to protect against price risk.
Staking and yield farming are the top two tactics. I’ll go over each one separately.

Staking

Staking is the act of depositing crypto assets as collateral in order to participate in a blockchain’s functioning. Users get monthly benefits in the form of interest payments as a reward for locking up their possessions.

Staking is beneficial for blockchains that employ a proof-of-stake (POS) consensus process. Proof-of-work (POW), the computationally difficult and expensive process used by bitcoin, litecoin, bitcoin cash, and many more subplots of the original blockchain, is a distinct technique.



Despite the fact that POW has been shown to be very secure and successful in the majority of circumstances, there are rising worries regarding its energy consumption and carbon footprint.

Furthermore, POW blockchains suffer from scalability and throughput concerns (Bitcoin can only process a few transactions per second, whereas POS systems can handle hundreds of thousands).
Solana, Algorand, Cardano, Polkadot, and Tezos are among the most well-known stake-able systems.

Additionally, while Ethereum is still a POW blockchain, its native asset, ether, maybe staked.

This is because Ethereum is transitioning from a POW to a POS consensus mechanism over the course of many years in order to meet the huge demand for its computing resources. Farming for Yield

In addition to purchasing them, it is also possible to gain Defi tokens through a method known as “yield farming.”

Yield farming has been dubbed Defi 2.0. Previously, if you provided liquidity to a decentralized exchange or lending protocol, you would receive a fee or interest. Last summer, however, Compound ushered in a new trend by rewarding users with governance tokens, in this instance, COMP, as an incentive scheme.

In fact, there were so many governance tokens and yield farming options that a team of Defi portfolio managers was formed to help users move their cash between opportunities to optimize returns and minimize transaction fees.

For crypto, think Betterment or Wealthfront. Yearn. finance, whose governance token YFI is worth $28,000, is one of the most well-known of these.
Products that are traded on an exchange

An ETP is a packaging layer around an asset, such as bitcoin and cryptocurrencies, that trades like security on an exchange.

The most prevalent type of exchange-traded product is exchange-traded funds (ETFs), such as State Street’s SPDR S&P 500 Trust ETF. OTCQX by OTC Markets, Nasdaq Nordic, CME Group (for crypto futures and options),

Deutsche Börse’s Xetra, Swiss SIX Exchange, and Canada’s Toronto Stock Exchange are all common exchanges where crypto ETPs may be found. Most discount brokers have access to funds traded in these overseas markets.



Finally, here are some crucial questions to consider as you prepare to buy cryptocurrency:
1. Why do I want to invest in cryptocurrency?
2. How long do I intend to keep my cryptocurrency?
3. What sorts of crypto assets am I interested in purchasing?

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