What is a cryptocurrency and its different types?
There are currently more than 1500 different types of cryptocurrencies. But what are they and how do you invest in them? Cryptocurrencies make a great investment opportunity, but with so many different types of coins available, it can be difficult to know where to begin. There are several main categories of cryptocurrency: first is the type of blockchain technology on which it’s built; the second is its utility as a digital token. There are various platforms through which you can track crypto wallet transactions such as Block Sonar, which is the best blockchain explorer and crypto wallet tracking platform. This article will explain the difference between these various types and help you decide which kind of cryptocurrency you want to invest in.
Types of Cryptocurrencies:
Hedging currency — Storing your wealth in a hedging currency is one of the oldest and best-known investment strategies. A good example is a Chinese renminbi, which has traditionally been pegged against the U.S. dollar, even when the two currencies have been at odds. The appeal of this strategy is that your investment is protected from fluctuations in the market, though you’ll miss out on any gains.
Futures contracts — Investing in futures contracts is a similar strategy that’s used to mitigate risk and protect against the possibility of the price of a commodity (like gold or silver) dropping. In theory, a futures contract is a standardized contract to buy or sell a commodity at a predetermined price in the future.
Equity-based cryptocurrency — It’s best to think of equity-based cryptocurrencies as digital stocks. The most famous example is Bitcoin, which has a market cap of almost $130 billion. Other examples include Ethereum and Litecoin. If you choose this path, you’ll want to invest in a platform that allows you to buy shares in a particular crypto company. There are several platforms that allow you to do this, but the two best-known options are Coinbase and Binance.
Currency-based cryptocurrency — The only thing that differentiates a currency-based cryptocurrency from a real currency is that it’s not recognized as legal tender. The best example is Tether, which is pegged to the U.S. dollar. Other examples include Tron and Dai. Most platforms that allow you to trade cryptocurrencies will also let you trade in these types of tokens.
Token-based cryptocurrency — The main difference between a token-based cryptocurrency and a utility coin is that a utility coin offers a specific service or function, while a token-based currency is simply an investment. The most famous example is Ether, which was used to fund the development of the Ethereum blockchain. Other examples include NEO and Bitcoin Cash.
Exchange-Based Coin — The exchange-based coin is the rarest type of cryptocurrency. It’s basically a coin that represents a stake in the parent company of an exchange. For example, if you own a Binance Coin, you own a stake in the Binance exchange. This type of coin is usually reserved for investors who want to be part of a select group that’s given special privileges or early access to new products and services. If you want to trade in this type of coin, you’ll have to meet a higher standard since these coins are often reserved for major investors. Bridging the gap — Traders who don’t have time to analyze the performance of hundreds of cryptocurrencies have the option of investing in a cryptocurrency hedge fund. A hedge fund is basically a specially managed investment fund that’s open to investors who have a high net worth. Most hedge funds are open to accredited investors, which means you have to have a net worth of at least $1 million (not including your primary residence).
Storing Your Crypto: Where and How to Store Your Coins
Hardware wallet — The best way to store your cryptocurrency is in a hardware wallet. A hardware wallet is a small device that’s designed to store your coins offline. This makes it much harder for hackers to get into your account, and it also makes it easy to transfer your coins to a new wallet if you want to change providers. The most famous hardware wallet is the Trezor, which costs $99. Other options include the Ledger Nano S, KeepKey, and the Digital Bitbox. The main disadvantage of a hardware wallet is that it’s not as easy to access as an online wallet. Online wallet — If you decide to store your coins online, you have two options. One is an online wallet that’s provided by an exchange. The other option is a web-based software wallet, which is often free to use. The advantage of an online wallet is that it’s very easy to access your coins, but the disadvantage is that you’re storing your coins on an unsecured server. There have been many cases where hackers have managed to break into online wallets and steal users’ coins. Paper wallet — A paper wallet is simply a printed version of your public and private keys. It’s best to use this method if you want to store your coins long-term. The main disadvantage of a paper wallet is that it’s difficult to access your coins if you need to spend them. You’ll also have to make sure that you properly secure your paper wallet, or it could be hacked.
Final Words: Investing in cryptocurrencies
Cryptocurrencies are a great way to diversify your portfolio, reduce risk, and make some extra money on the side. It’s best to think of them as long-term investments that you’ll hold for several years. Once you’ve chosen the type of crypto that you want to invest in, make sure you store it properly. It’s also a good idea to diversify your holdings in order to mitigate risk and protect yourself against the inevitable market fluctuations.