We are sure you’ve come across the word cryptocurrencies and how they can be a lucrative investment vehicle for your portfolio. Here are some basic facts on Cryptos.
1. High Volatility One thing you have to know when it comes to cryptocurrencies especially bitcoin is that they are very volatile. The main reason for the volatility is that trading happens on many exchanges as it is not centralized.
2. No backing Cryptos like bitcoin, Ethereum Litecoin Monero and many more. Have no backing, What do I mean by backing? If you look at something like money, you will realize that it is a store of value as it represents old stacked somewhere by the parent nation. Cryptos however have none of that, it’s just the code behind the coin and speculation based on trends.
3. There are a lot of cryptocurrencies
Yes, in fact, there are around 1500 cryptocurrencies operational to date. But as many as they are, about only TEN cryptocurrencies dominate the market and that is Bitcoin, Ethereum, Ripple, Bitcoin Cash and Litecoin (based on coinmarcatcap.com data) altcoin. Bitcoin cash also comes close in terms of dominance.
4. Blockchain Rules If Cryptocurrencies are angels, then blockchain is the god of the whole system. It’s impossible for cryptocurrencies to exist without the backing of blockchain, a digital ledger system for verifying transactions.
5. Mining In addition to the blockchain, crypocurrencies are often created and obtained through mining. Yes, you can go on an exchange to buy bitcoin but for the bitcoin to be there, there was a ‘miner’ who had to offer his computer’s processing power to verify transactions in exchange for new bitcoin with every successful verification.
6. It’s Decentralized! There is no explicit organization or company monitoring the activity around cryptocurrencies. The whole system is entirely decentralized from bottom up. This means you are able to carry out your transactions without being worried about a ‘third’ eye watching over you.