A Beginner’s Guide to Crypto Coins
There are more than 20,000 types of cryptocurrency (Bitcoin, Ethereum and Tether among them). Each one has its own specific characteristics, but the most important are transparency, immutability and decentralization.
The first characteristic enables you to see every transaction ever made with a cryptocurrency, known as the blockchain. The blockchain is public, so anyone can view these transactions and verify them. This eliminates any room for manipulation, and it also makes it impossible to create counterfeit cryptocurrency.
In addition, all cryptocurrencies are decentralized—there is no central authority that issues them or regulates their behavior. This is important because it gives them the ability to be used around the world without any intermediary, and it prevents any single authority from gaining control of the currency.
Cryptocurrency’s price is determined by its utility and demand. The utility of a cryptocurrency depends on how many people use it, and the demand is determined by how much people want to own it. For example, if a cryptocurrency becomes widely adopted as a form of payment, its value will rise.
Another factor that influences the price of a cryptocurrency is its scarcity. The cryptocurrency Bitcoin, for instance, has a maximum number of coins that can be mined, which increases its value by making it harder to find. In addition, some cryptocurrencies use a feature called “burning” to increase their scarcity and raise the price of those that remain.
There are also other factors that influence the value of a cryptocurrency, including how easy it is to buy and sell. For example, some cryptocurrencies require an exchange to purchase or sell them, and these exchanges credit and debit the respective balances of buyers and sellers before completing the transaction. This process can lead to significant price fluctuations.
Finally, there is the intrinsic value of a cryptocurrency, which is determined by the number of people who want to own it and what they think its future potential is. For example, some people choose to spend their cryptocurrency because they believe its price will continue to rise, while others simply enjoy using it and feel a sense of pride in supporting this new technology.
Despite these unique features, cryptocurrencies do present some challenges for the financial industry. Because they can be anonymous, it’s easier to use them for illegal activities, and the vast amounts of electricity used to mine them raise concerns about the allocation of resources and environmental consequences. Moreover, the current fascination with cryptocurrency markets has increased speculation, which could hurt investor confidence in the long run. For these reasons, some wealth managers are reducing their exposure to the sector or avoiding it altogether. Others are advising their clients to invest in cryptocurrency, but only as part of a diversified portfolio. They advise that a small percentage of a client’s portfolio should be dedicated to crypto assets, so the impact on a portfolio is limited if it does not perform well. For more information, check out this Simplilearn video: Crypto Coin Explained.