The Basics Cryptocurrency Trading & Investing
Before You Start
A Bit of History
A cryptocurrency is a form of payment with the granddaddy being Bitcoin, which can be traded for goods and services online. Many businesses offer their currencies, also referred to as tokens, and these can be exchanged directly for goods or services the business offers. Think of them like you would play casino chips or tokens. To access the product or service, you will need to exchange real currency for the cryptocurrency.
Cryptocurrencies work using blockchain-based technology. Blockchain is a decentralized system that manages and records transactions distributed over many computers. Part of the technology’s appeal is its reliability.
According to CoinMarketCap, a market analysis company, more than 6,700 separate cryptocurrencies are exchanged publicly. And cryptocurrencies keep proliferating, raising capital through initial offers of coins, or ICOs. According to CoinMarketCap, on September 2, 2020, the total value of all cryptocurrencies was more than $370 billion, and the total value of all bitcoins, the most common digital currency, was pegged at around $210 billion.
What is the difference between cryptocurrencies, digital assets, tokens, and coins?
What is an asset
Assets are the only term with such a broad description of those three. The term “asset” is used not only when addressing digital currencies but also in the financial and banking sectors. That’s because an asset usually refers to an economically or financially valuable physical resource intended to provide future benefits to the owner(s). To generate value, properties can either be owned or managed and can be either tangible or intangible.
Traditional asset examples used to include such items as cash, real estate, and gold. However, digital currencies such as Bitcoin have also recently been listed as properties.
What is a coin
A coin is the official digital currency used by a site for cryptocurrency. For instance, the designated Ethereum platform coin is Ether (ETH), and it is XRP for the Ripple infrastructure. — single coin is built on an entirely independent blockchain.
These digital coins are cryptographically encrypted and decentralized. They operate without a regulatory authority or intermediary since each transaction is checked by a network of nodes (computers run by miners) registered in a publicly distributed ledger (blockchain). A coin can be used as an exchange medium, a store of value, and potentially as an accounting unit.
What is a token?
A token is a digital asset that resides on top of an existing blockchain or coin. Most tokens already exist on the Ethereum network at the moment. To understand tokens, we have to realize that Ethereum is not just a currency, but a network created by many nodes linked to each other. Most importantly, smart contracts can be generated via the Ethereum network.
In general, smart contracts are a collection of instructions that follow a remarkably simple procedure called IFTTT (IF THIS, THEN THAT). Another instruction is executed when such criteria are met, and this is how complex programs such as DAPPS (Distributive APPS) are generated with Ethereum. This is also how tokens are created; they are much simpler and precise smart contracts, in exchange for ETH, representing something. They can be tracked on the Ethereum blockchain since they are smart contracts.
Within the cryptocurrency industry, tokens have become especially useful because you don’t need to change an existing protocol or build a new blockchain for them.
Forms of tokens
Security tokens: These can take the form of any physical tradable asset, but Digix is probably the most popular DAPP that offers this type of tokens right now. Each DGX token is a special bullion bar sitting in approved custodial vaults; each DGX token is 1 gram of gold.
Currency tokens: We could call them “app coins” because they can buy services or goods inside a DAPP. Since the total number of tokens is constant as time goes by, and the demand for the goods or services provided by that DAPP rises, the value of the tokens rises as well.
Golem is a prime example. What Golem offers is a decentralized computing power-sharing economy, where anyone can ‘share’ their computing power or build & sell software to make money. If you don’t use all the computer power your machine can generate, you can provide the network with the excess computer power and get the Golem tokens in return. Golem tokens may be sold or used for the purchasing of computing power but unlike equity tokens.
Equity Tokens: Perhaps Ethereum’s most innovative use of smart contracts, Equity Tokens, enables new start-ups to fund themselves. A new DAPP will launch an Initial Coin Offering (ICO), thereby allowing them to sell their tokens, which can be purchased by anyone during ICO. Purchased tokens mean ownership and management of the DAPP, making you a shareholder. Much as in traditional stock-market companies, you have a say in the direction the DAPP takes – token holders can vote through the blockchain, making it transparent and stable.
So tokens are a new exciting digital asset with lots of promise, but when investing in DAPPS, you have to be overly cautious. ICOs are a fantastic way to crowd-fund projects and gain credibility and decision-making power inside an app. Still, the fact that tokens are small and look exclusive also makes them look like they have an intrinsic value.
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