The internet has changed the way traditional trading decisions are made and expanded people’s access to learning how to trade and invest directly on newly emerging online platforms.
Cryptocurrencies — the door to the world of innovation
More and more people feel more comfortable opting out of a third party or broker and taking the investment into their own hands. According to Investopedia, these digital investment natives are gradually beginning to diversify their portfolios and expand their presence in cryptocurrencies as an asset class.
The blockchain and crypto industry have sensed this, and the industry has responded with several crypto asset management solutions. Just go to CoinMarketRate to see the abundance of cryptocurrency exchanges and DeFi projects. However, there are some basics that beginners in cryptocurrency, and even experienced managers of traditional financial assets, should know.
Types of Crypto Assets
Note: Every cryptocurrency is considered a crypto asset, but not every crypto asset is a cryptocurrency. As you will see below, not all assets work as digital money. Instead, they have other uses in the crypto landscape.
- Digital coins or cryptocurrencies
These are assets that are inherent in a particular blockchain. The Bitcoin blockchain, for example, has BTC, and Ethereum has ETH. Digital coins are commonly used as “money”, or to fuel applications, smart contracts, or transactions.
- Mining liquidity and growing crops is a way to use crypto assets. This type of investment makes the cryptocurrency landscape more liquid.
- Collectible crypto assets, called non-exchangeable tokens (NFTs), are currently very common. These are unique and special tokens created on the blockchain, the value of which is determined by their rarity. Examples are CryptoKitties and Cryptopunks. You can even buy a piece of land or a stake in an expensive sports car as a tokenized asset.
- The value of some crypto assets is directly related to “real” assets, such as the US dollar. These types of assets are called stablecoins, and as their name suggests, they bring stability to what can be quite risky and unstable.
Tokens and their types
Tokens are created in blockchains with different purposes and are used in decentralized applications (dApps):
- The platform’s tokens power the blockchain, and act as a gas for transactions in the chain, such as bank fees.
- Transactional tokens are used for transactions, and serve as units of account and are exchanged for goods and services, such as traditional currencies.
- Tokenized assets are something physical, such as gold, diamonds, or real estate. The value of the object is tokenized, and the authenticity of this value is stored in the blockchain.
- Service tokens are issued to finance the development of the cryptocurrency, but do not grant the token holder “rights” to such things as the company’s equity, shares, or profits. Utility tokens are integrated into an existing protocol in the block chain and are used to access the services of this protocol.
- Security tokens are a digital form of traditional securities. Traditional securities represent ownership in a publicly traded corporation, in a relationship with creditors, or in a government agency. Thus, security tokens grant their holders certain rights, such as company shares, profit shares, real estate ownership interests, or other rights, and are regulated by national financial regulatory organizations.
Blockchain and the crypto industry are relatively new technologies, and for this reason, many blockchain-related projects are looking for funding. These projects have their own tokens and invite potential investors to participate in the project.
Participantscan choose their level of interest, participation, and investment. They can simply be part of a community, or act as part of a DAO (decentralized autonomous organization), depending on the maturity of the project. Investing in a project requires patience and a desire to guide its trajectory. This can be achieved by placing more bets on the project, and having more influence in it.