Wednesday, 17 January 2018
3 Basic Concepts Behind Cryptocurrencies
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Cryptocurrencies
are now present everywhere. Pick whoever you want. A random guy you met in the
subway, your local barista or the newspaper delivery boy, every single one of
them knows something about cryptocurrencies. But the question is... do you?
Let’s be honest:
reading an article about Bitcoin is not going to turn you into an expert on the
subject. If you want to be ahead of the game and start trading cryptocurrencies
with an effective, professional approach, then you should acquire a clear
understanding on basic concepts that integrate the crypto-world, for example:
cryptocurrency, blockchain and ICO.
Cryptocurrency
“A cryptocurrency is a digital or virtual currency that
uses cryptography for security. A cryptocurrency is difficult to counterfeit because
of this security feature. A defining feature of a cryptocurrency, and arguably
its most endearing allure, is its organic nature; it is not issued by any
central authority, rendering it theoretically immune to government interference
or manipulation.” (Source: Investopedia)
A cryptocurrency
offers the following benefits for your portfolio: diversification, high
potential, fast return on investment, volatility, less regulation than a
traditional asset.
However, investors
should keep in mind that cryptocurrencies can turn into a challenging asset to
trade, especially if you are not planning to keep them for an extended period
of time.
Blockchain
“A blockchain is a digitized, decentralized, public
ledger of all cryptocurrency transactions. Constantly growing as ‘completed’
blocks (the most recent transactions) are recorded and added to it in
chronological order, it allows market participants to keep track of digital
currency transactions without central recordkeeping. Each node (a computer
connected to the network) gets a copy of the blockchain, which is downloaded
automatically.” (Source: Investopedia)
We can think of
blockchain as the technology behind cryptocurrencies. Blockchain plays a key
role for cryptocurrencies as it is where all transactions are recorded, without
any external (regulators) interference and with no chances to be modified by
any means. Blockchain cuts out banks, making transactions considerably cheaper
for clients.
Initial Coin Offer (ICO)
“An unregulated means by which funds are raised for a new
cryptocurrency venture. An Initial Coin Offering (ICO) is used by startups to
bypass the rigorous and regulated capital-raising process required by venture
capitalists or banks. In an ICO campaign, a percentage of the cryptocurrency is
sold to early backers of the project in exchange for legal tender or other
cryptocurrencies.” (Source: Investopedia)
The best way to
understand an ICO is to think of it as a crowdfunding platform. Have you heard
of Kickstarter? You know… where you upload a project and ask people to give you
some money in exchange for products at discount prices. Same idea applies for
ICOs, but instead of dealing with t-shirts, headphones or watches, the products
behind them are typically cryptocurrencies.
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