Cryptocurrency Explained
As of August 2024, the market capitalization of the global cryptocurrency market is over $1.2 trillion, highlighting its increasing prevalence in the global financial context. In addition, the use of cryptocurrencies has become more widespread, with over 420 million crypto users worldwide, as reported by TripleA.
The employment of cryptocurrency by numerous institutions for their investment purposes and the emergence of decentralized finance create a tight connection between cryptocurrencies and the current financial systems. In this context, leading cryptocurrencies, such as Bitcoin and Ethereum, which have become trading pairs, are now considered traditional asset alternatives applicable to any hedge fund or financial organization.
What Is Cryptocurrency?
Cryptocurrency is a digital medium of exchange designed to work by using cryptography to secure transactions. Unlike other currencies controlled by central banks, cryptocurrency uses a decentralized ledger called a blockchain. According to the scheme, mining is the provision of a reward in virtual currencies for the performed computational tasks. As of 2024, there have already been more than 10, 000 cryptocurrencies, with Bitcoin having a 47% market dominance. Real-life examples include remittances in developing countries paid using crypto and secure, transparent voting systems for elections.
Real-life example: In 2023, El Salvador became the first country to officially accept Bitcoin as its currency. It is now used to pay for services and goods, pay taxes, and accept salaries.
Traditional Currency vs. Cryptocurrency
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Traditional Currency
Fiat money and traditional currencies like the US Dollar, Euro, Yen, etc. are issued and controlled by central governments. This cash is endorsed by the government and accepted for all kinds of payments.
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Cryptocurrency:
Cryptocurrency is any form of currency that is not regulated or centralized. For example, Tamilan coins, Turkish coins, etc. The value of such coins is dependent on the supply and demand in the market. For example, Bitcoin has the highest value now as it only has 21 million coins, and even now there is no supply of 19 million unique coins in 2024.
Main Differences:
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Government Body: Fiat currencies are regulated by central banks, so there is no volatility in these currencies. For the buying and selling of gold and other assets, inflation may be a factor. Then, the stock price has to be seven times the price of the country. Cryptocurrencies are operated on decentralized networks, which makes them very transparent.
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Supply: Traditional currencies can be printed by the central government in formats and numbers as needed. Cryptocurrencies only have limited sources available, such as 21 million bitcoins, which were mined in 2009, and another 2 million are to be mined by 2024. The remaining currencies are being programmed by software called a cryptocurrency wallet, which will be handed over to the speculators.
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Transaction Speed: Cryptocurrency deals will be completed only within a few minutes, including international business transactions. It may take only 10 minutes for a Bitcoin transaction, while a banker may have to wait for a few days for a regular payoff.
How does cryptocurrency work?
Inherent within cryptocurrencies is blockchain technology—a decentralized and distributed ledger that facilitates transactions via a network of computers. All transactions must be confirmed by the network participants through a process called mining, which is carried out via PoW or PoS.
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PoW (Proof-of-Work) Chain: For example, Bitcoin applies PoW, where miners solve complex mathematical problems to validate transactions and add new confidential blocks to the blockchain, thus earning bitcoins.
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PoS (Proof-of-Stake) Chain: Example is Ethereum 2.0. This is part of the process where a validator needs to hold some amount of cryptocurrency with him. That money proves his worth to continue the network, and their percentage will depend on how much they have kept. Even validators will be rewarded.
Mechanism of work:
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The user will request a wallet to make a transaction.
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When you initiate a transaction, it is propagated through the global network of computers (nodes).
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The networks are equipped with certain algorithms and some tools to verify transactions. For instance, Bitcoin leverages PoW on account of the consensus algorithm towards which it directs.
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After those valid transactions are placed in a block. This block is further appended to the blockchain in correct and consecutive chronological order.
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The paid currency is transferred to the recipient, and transactions are finalized.
#Example: Ethereum processes transactions using its PoS consensus mechanism called “Casper.” By August 2024, Ethereum can handle approximately 30 transactions per second, significantly higher than Bitcoin’s 7 transactions per second, thanks to its ongoing upgrades.
Types of Cryptocurrency
Hundreds of types of cryptocurrencies are offered on the market. Those are drawn into some specific types and characteristics. The most beneficial types of cryptocurrencies are given below:-Â
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Mother Cryptocurrency:Â
For example, Bitcoin. Bitcoin is the mother of all cryptocurrencies and is still the most prized and popular one to this day, with a market cap of over $1 trillion.
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Utility-Based Cryptocurrency:Â
For example, Ethereum or XRP: Ethereum is worth over $300 billion, and it enables decentralized applications to be built on its blockchain. XRP is mainly used in cross-border payments and has a use case to be able to handle that now.
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Transactional Cryptocurrency:Â
For example, Tron, Tether, USDC, and FDUSD: Tether has several billion different types, but the most popular one is USD Tether, and the USDC is all pegged to the US Dollar, creating price stability in transactions.
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Blockchain-Based Cryptocurrency:Â
For example, Ethereum, Solana, Polygon, ChainLink, and Cardano. All these blockchain programs include decentralized applications and smart contracts. Program, Solana can handle up to 65,000 transactions per second.
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Privacy & Security Tokens:Â
For example, Dash, Monero, ZCash, and PIVX. None of the privacy-focused cryptocurrencies can be traced; otherwise, they wouldn’t be the privacy token with the highest number of markets.Â
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Meme-Based Cryptocurrency:Â
For example, Dogecoin, Shiba Inu, PEPE, Floki Inu, BONK, etc. Dogecoin reached a market cap of over $10 billion as the first meme coin. It’s not even intended to be taken seriously, but the community embraced it, and it even got celebrities like Elon Musk talking about it.Â
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Governance Token:Â
For example, Uniswap, ICP, AAVE, ENS, and Curve DAO: Uniswap’s DeFi protocol is managed by its community holders of the UNI tokens, which is worth over $5 billion.
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Platform/Ecosystem:Â
For example, Ethereum, Polkadot, Solana, and BNB Binance Coin is the main token of the Binance network, generating a market of over $70 billion whereby the token provides discounts to its owners in the exchange’s trading fee.
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Real World Assets:Â
For example, AVAX, Link, ICP, IOTA, and Maker DAO. Mainly, these cryptocurrencies bridge decentralized smart contracts with real-world data.
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Gaming Cryptocurrency:Â
For example, IMX, Notcoin, SAND, GALA, and EGLD. The most popular gaming token is Sand.
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E-Commerce Cryptocurrency:Â
For example, ECM Coin, UQUID, Boson Protocol, and Crypton. ECM Coin facilitates e-commerce with online transaction privacy.
What is Crypto Mining?
Crypto mining is the method of creating new cryptocurrency coins or tokens and verifying transactions on a blockchain. Mining requires the puzzle-solving of some computational work that will be difficult and consume the most online compute resources.
Miners are incentivized with cryptocurrency for their work. Many miners around the world solve cryptographic puzzles using powerful computers. Miners are compensated with cryptocurrency.
Current Data:
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Bitcoin Mining: By 2024, Bitcoin miners will receive 6.25 BTC per block, and the annual energy consumption for Bitcoin mining is estimated to exceed over 120 TWh a year, close to consuming as much electrical power annually as entire countries like Argentina do now.
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Environmental Impact: There is a lot of debate over the carbon footprint from Bitcoin mining, and with good reason; that’s why some miners try to use renewable resources as much as possible instead.
What is Crypto Staking?
Staking is similar to mining but with significant differences, as the process requires users (supporters) to hold a certain amount of coins and ‘lock’ them away in order for them to support network operations such as transaction validation, etc. And so, in exchange, stakers are rewarded with further cryptocurrency.
Detailed Insights:
Reward System: The reward system of staking is different, and the amount varies depending on what kind of cryptocurrency one stakes. Ethereum 2.0, for instance, has an APY (annual percentage yield) of about 5–7% when staking.
Cardano (ADA) and Polkadot (DOT) are some other popular staking cryptocurrencies where you can get a nice ROI for contributing to securing the network.
How to Buy Cryptocurrency?
#Step 1: Choose a Platform
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Traditional Brokers: Platforms like Robinhood or eToro that have added crypto on top of their traditional assets, targeting investors who merely want to touch the asset.
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Crypto Exchange: Binance and Coinbase offer access to hundreds of cryptos, with more than $100 billion in daily trading volume executed on only one exchange (Binance).
#Step 2: Fund Your Account
How to Fund an Account Users have several options available; for example, they can fund their account by way of a bank transfer or via a credit card (even PayPal).
#Step 3: Place a Buy Order
When the cryptocurrency orders are made, investors decide to buy a currency at their desired price development.
# 4: Keep your crypto in a wallet
As always, the most important aspect of any investment and it particularly goes for crypto investments: security. We would recommend transferring your cryptocurrencies to a cold wallet i.e. Ledger Nano or decentralized web wallets namely MetaMask as they are more secure over exchange-provided e-wallets after you have completed your purchase.
Other Investment Options:
1. Crypto Mutual Funds: These funds invest in an array of cryptocurrencies to spread risk.
2. Although it does not directly own bitcoin, Grayscale Bitcoin Trust (GBTC) is the most widespread trust as a means for investors to be exposed to BTC.
3. PROSHARES BITCOIN STRATEGY ETF (BITO): Another different style to get into cryptocurrencies Crypto ETFs: Bitwise defi crypto IndexETP (Bitcoin and Ethereum together), ProShares Bitcoin Strategy Fund.
How to Store Cryptocurrency into Wallets?
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Hardware Wallet: Devices like Ledger Nano X or Trezor Model T store private keys offline, protecting them from online threats. These wallets are recommended for long-term storage of large amounts of cryptocurrency.
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Decentralized Web Wallet: MetaMask and MyEtherWallet are popular choices for storing crypto online, offering ease of use and accessibility. However, they may be more vulnerable to hacking compared to hardware wallets.
Process:
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Create or Purchase a Wallet: Hardware wallets can be purchased from official retailers, while web wallets can be set up online.
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Transfer Crypto: Move assets from the exchange to your chosen wallet by entering your wallet address and confirming the transaction.
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Secure Your Wallet: Enable two-factor authentication (2FA) and keep a secure backup of your private keys.
Is Cryptocurrency a Safe Investment?
All those who invest in cryptocurrencies know that they carry risks, the most common of which is being unstable, which creates big price movements. Indeed, Bitcoin has been known to increase or decrease in value by more than 50% in a single year, which obviously presents opportunities for making money but also makes you vulnerable. Crypto regulations, which in 2023 saw new rules by more than a dozen countries that influenced play on the market. There is also the risk of fraud, where more than $4 billion has been lost to crypto scourges in 2022. Yet the attraction of higher yields remains—Bitcoin shot up over 300% in value during 2020. Despite the risks, diversifying your portfolio, investing only what you can afford to lose, and keeping up with market trends will help minimize trade exposure.
At the same time, however, they also present unique opportunities. To put that into perspective further, over the last 10 years, Bitcoin has grown by more than 9,000% for those who bought early. Some cryptocurrencies gained over 100% even in 2023 amidst the market volatility. But it goes beyond monetary value. Blockchain, the technology that cryptocurrencies sit on top of, is also revolutionizing multiple verticals, from decentralized finance (DeFi) to managing complex supply chains. As long as you are abreast of the situation and take a prudent investment strategy, like diversifying your holdings, doing your homework on solid projects that have long-term upside potential, and keeping up to date with prices and market movement, then it is possible for you to ride this major wave toward an exciting future while mitigating risks.
Top 10 Cryptocurrency in the World (By Market Cap)
There are thousands of cryptocurrencies on the market. But if an investor wants to find some top-notch cryptocurrencies with potential, here is a suggestion:
1.Bitcoin (BTC)
2.Ethereum (ETH)
3.Binance Coin (BNB)
4.Solana (SOL)
5.Ripple (XRP)
6.Ton Coin (TON)
7.Dogecoin (DOGE)
8.Cardano (ADA)
9.Tron (TRX)
10.Avalanche (AVAX)
There are also several types of cryptocurrency with huge potential. The coins mentioned are regarded as the biggest market cap coins.
Top 10 Cryptocurrency Exchange (By Trading Volume)
1. Binance
2. Bybit
3. Coinbase
4. OKX
5. Upbit
6. Kraken
7. Gate.io
8. HTX
9. Bitfinex
10. KuCoin
Advantages and Disadvantages of Cryptocurrencies
Apart from advantages, there are also several disadvantages to cryptocurrencies. Let’s talk about it.
Advantages:
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Decentralization: No central authority controls the currency.
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Transparency: Transactions are recorded on a public ledger.
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Accessibility: Enables financial services for the unbanked.
Disadvantages:
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Volatility: Prices can fluctuate wildly.
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Regulatory Risks: Governments may ban or restrict cryptocurrencies.
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Security Risks: Potential for hacking and fraud.
Is Crypto a Scam?
Although cryptocurrencies are not scams in themselves, there have been so many legitimate projects and schemes that using them to defraud others has become easy. For example, Silk Road (back online) is no longer the only way to erase bitcoin history. $4+ billion was lost in crypto scams just in 2022 alone, so although established cryptocurrencies like Bitcoin and Ethereum have real-world use-cases that are peer-reviewed, people get distracted by trusting strangers with their money still!
Ponzi schemes, fake initial coin offerings (ICOs), and phishing attacks usually target the vulnerable. Summing it all up, do your research when entering the market—llook for projects with transparent teams and a robust use case, as well as active communities. If investments never declined in value, you would hardly ever see promises of guaranteed high returns. With dedication and being informed, you have more chances to see the opportunities in true scams.
How to Find the Best Profitable Cryptocurrency to Invest In?
Investing in cryptocurrency can be both exciting and confusing, especially if you’re new to the market. Here’s a simplified guide to help you find the most profitable cryptocurrencies to invest in:
Some tips To Find Profitable Cryptocurrencies
1. Start with Well-Known and New Projects
Established Cryptos: Begin by looking at popular and well-established cryptocurrencies. These have been around for a while, have a large user base, and are generally more stable. They are often used in a variety of real-world applications.
Emerging Cryptos: Also, keep an eye on new and upcoming projects. These often come with innovative ideas and can offer significant growth potential. However, they can also be riskier.
2. Check the Market Size
Market Cap: This is the total value of all the coins in circulation. It’s calculated by multiplying the current price of the coin by the number of coins available. Higher market caps generally mean the crypto is more stable, while lower market caps might offer more room for growth but with higher risks.
3. Understand the Use Case
Utility: Look for cryptocurrencies that have a clear use case or purpose. If a crypto solves a real-world problem or has a specific function, it is more likely to grow in value over time.
4. Get in Early
Presales and Early Investments: Sometimes, getting in early on a cryptocurrency before it becomes popular can be very profitable. This often means participating in presales or initial coin offerings (ICOs), where you can buy the crypto at a lower price.
5. Review Historical Data
Performance Over Time: Review how the cryptocurrency has performed in the past. While past performance doesn’t guarantee future results, it can give you an idea of how the crypto responds to market changes.
6. Join Communities and Stay Updated
Active Communities: Joining online communities dedicated to cryptocurrency can help you stay informed about the latest trends and potential investment opportunities. These communities are often a good source of insider tips and updates.
The History of Cryptocurrency
Cryptocurrency’s journey began in 2009 with the launch of Bitcoin, the first decentralized digital currency, by an anonymous individual or group known as Satoshi Nakamoto. This revolutionary innovation was built on blockchain technology, a distributed ledger system that ensures transparency and security without the need for a central authority.
Bitcoin: The Pioneer
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Creation: Bitcoin was introduced as a response to the 2008 financial crisis, with a capped supply of 21 million coins to prevent inflation. It took nearly two years for Bitcoin to reach parity with the U.S. dollar, with its first notable transaction occurring in 2010 when 10,000 bitcoins were used to buy two pizzas—an amount worth hundreds of millions of dollars today.
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Growth: By 2013, Bitcoin’s market cap surpassed $1 billion, marking its transition from a niche interest to a recognized digital asset. As of 2024, Bitcoin’s market cap has exceeded $500 billion, making it the largest cryptocurrency in the world.
The Rise of Altcoins
That Time Bitcoin Made A Lot of Developers Extremely Rich, And They Started Making Their Own Cryptocurrencies (The Altcoins) By 2024 there are actually over twenty-thousand different cryptocurrencies; some focus on introducing new features like Ethereum with its smart contract nature or stablecoins which pegged to less volatile currencies (e.g. the usd).
Regulatory and Technological Developments
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Regulations: Regulatory bodies were drawn towards Cryptocurrencies as they started growing in popularity. Over the last decade, more than 40 countries have put in place regulations for using cryptocurrencies as a way of striking a balance between innovation and protecting consumers.
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Technology: The technology sublayers of cryptocurrencies have evolved as well, with faster Proof of Stake (PoS) consensus mechanisms and improvements in scalability and security eating the way into speedier transactions that are ready for broader adoption.
A Brief History Of Cryptocurrency From Bitcoin to a Global Financial Ecosystem Fintech is embracing innovation at an unprecedented rate.
At the very least, we could probably agree that cryptocurrencies have shaken up the financial industry quite a bit — introducing new problems and solutions either way. Though they offer new opportunities for innovation and profit, existing risks are also associated with them. In this ever-evolving market, it is important to accumulate knowledge and take on an air of caution for anyone who wishes to invest or become involved in the realm of IoT.