The Basics of Cryptocurrency

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By Robert McDougall
About The Basics of Cryptocurrency

Learn about what cryptocurrencies are, and how to research them before you start trading.

Key Takeaways

  • There are various types of cryptocurrency such as currency tokens, exchange tokens, utility tokens, and protocol tokens.
  • Tokenomics is the study of the economic aspects of a cryptocurrency.
  • Before trading or investing in a cryptocurrency, you should research the tokenomics, including trading volume, market cap, maximum supply, and holder base.
  • Visit the official website of a cryptocurrency to learn more about the project before deciding to invest.
  • What are cryptocurrencies?

    A cryptocurrency is a digital currency, that represents value. There are many different types of cryptocurrencies that you should familiarize yourself with. These are some of the main ones:

    Currency tokens such as Bitcoin are purely a store of value, somewhat similar to gold, as they have value based on people's perception. There is no specific use for them except as an anonymous payment method.

    Exchange tokens are cryptocurrencies that are created by exchanges like BinanceCrypto.com, and KuCoin, and they come with benefits for their holders. For example, Binance's coin (BNB) and KuCoin's (KCS) can be used to pay trading fees on their respective platforms, and subsequently receive a discount. When you pay your fees on Binance with BNB you receive 25% discount, and on KuCoin you receive 20% off when paying with KCS. Crypto.com's coin (CRO) can be staked, to earn interest as well as receive a crypto debit card that earns the user cashback each time they spend their fiat currency. 

    Utility tokens can have certain uses on a blockchain, and may become more important as a project grows, making them a potential for long-term growth.

    Protocol tokens are coins that are required to access the service that the underlying protocol provides. Usually, apps or DApps are created on protocols, and without the protocol token, you cannot use it.

    Shitcoins and scam coins are coins with no value or use case at all. They are created in an attempt to make a ton of money from unsuspecting investors. Be careful before investing or trading in any coin, but particularly one that you have never heard of. There are a lot of scams around, so make sure you do your research.

    What are blockchains?

    Blockchain is a technology that allows for the secure sharing of information. It uses a distributed database or ledger, where the power to update the database is distributed among the nodes of a computer network.

    Just as there are different types of cryptocurrencies, there are various types of blockchain. Currency blockchains only have a sole purpose, which is to serve as a ledger of transactions. Bitcoin is the best example of this. 

    The other main type of blockchain is a smart contracts blockchain, and the most well-known example of this is Ethereum. Whereas Bitcoin is just used to keep a record of transactions, Ethereum allows people to enter into contracts on the blockchain, which allows for more uses. Different types of tokens can be issued on Ethereum, and these are known as ERC20 tokens. Other well-known smart contracts blockchains are Cardano, Polkadot, and Solana.

    What is tokenomics?

    Tokenomics is made up of the words 'token and economics' combined, and refers to the study of the economic aspects of cryptocurrencies. This includes factors such as the circulating supply, maximum supply, trading volume, and market capitalization. You also need to consider the holder base, to see the percentage of the coins held by the team behind the project, the founding investors, and the community. If the tokens will be burned, that is another important point to note; by permanently removing coins from circulation, this raises the value of the coin, as supply decreases.

    An easy way to do your own research on the tokenomics of a cryptocurrency is to visit coingecko.com. Here you can look up cryptocurrencies and study the various aspects that you need to consider before investing in a coin. You can see in the screenshot below that Bitcoin is #1 when sorted by Market Cap. The price of 1 BTC is listed next to it in US Dollars, as well as the change in price over the last 1 hour, 24 hours, and 7 days. You also see the 24h volume, which is the total dollar amount of Bitcoin that has been traded in the last 24 hours - at the time of writing, this was almost $11.3 billion. The market cap is calculated as the price per coin, multiplied by the total amount of coins in existence. At the time of writing, the market cap of Bitcoin is over $322 billion.

    If you want to look at more in-depth info, click on the coin you wish to investigate. In our example, we will click on Ethereum, and then you can click on the Tokenomics tab (circled in red in the screenshot below). Here you can see the total supply, max supply, allocation of cryptocurrency, and more. You can also find the official website in the top right, under 'Info'. You can read the documents and learn everything about the project, to help you decide whether it is a worthwhile investment.

    Ready to learn more?

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