Nowadays it is possible to invest in a wide range of assets. Stocks provide stability. Throughout most of the 20th century and into the 21st century, stocks have been the go-to investment for accumulating wealth for individuals and organizations alike. The performance of a group of stocks can be measured with the help of indices. In fact, the process of indices trading involves the purchase and sale of financial instruments that are linked to the stock market in some way.
Cryptocurrency is the riskier investment. Despite the possibility of large rewards, it comes with a higher level of risk. Anyway it is worth it.
The main reason why bitcoins and altcoins can still be used to pay for purchases is mining (mining coins for finding new blocks).
This is what makes mining slow and difficult.
A considerable amount of electricity is spent on checking and confirming transactions, and generating new coins. The bitcoin network consumes as much electricity per year as the whole of Switzerland.
Regular purchases of new equipment cost the owners of mining farms hundreds of thousands of dollars. For example, the price of the Bitmain Antminer S19 Pro is $3769. Large customers immediately purchased the entire batch of 2021 releases from the plant.
Mining is prohibited in some countries, where you can not only get a fine for it, but also go to jail. Finding the right location is getting harder and harder.
The functioning of any cryptocurrency is supported by thousands of miners who voluntarily invest their time, energy, and money into it. Theoretically, bitcoin can depreciate if 50% of the “miners” leave. In this case, the network will begin to slow down significantly.
Operations will be processed for days. In reality, automatic regulation of mining difficulty saves from such an outcome — it decreases immediately after the total network capacity drops.
Key Factors Reinforcing Value
The cost of most crypto assets is formed only by the open market. They are not physically supported. That's what affects the price, in addition to mining.
Limited Issue
90% of projects have a pre-fixed maximum number of coins. It is achieved gradually over several decades of minting or is generated once when launching a startup. You cannot make any changes to the code retroactively. Artificial scarcity saves from inflation, resulting in fiat currencies turning into candy wrappers.
Quantity Reduction
Another anti-inflation remedy is incineration. The creators of some tokens quarterly redeem them from the market (buy back) and send them to a wallet without a private key, where the money is blocked forever. Also, bitcoins and altcoins, left on wallets with lost passwords or belonging to dead people, are permanently out of circulation.
The Impossibility of Forgery
Unlike dollars and euros, even the most talented hacker will not be able to “draw” one hundred bitcoins on his account. Therefore, if your wallet is adequately configured and connected to the blockchain, it will only be able to participate in transactions with real coins.
A Separate Case Is Tokens in the Ethereum Network
Due to the simplicity of their creation, scammers make visual clones of newly issued crypto assets and add them to exchange pools on defi exchanges. On PancakeSwap, anyone can offer a new contract for bidding without checking by the administration. The problem does not apply to well-known old coins (Bitcoin, Ethereum, BNB, etc.)
Investments and payments. By 2021, coins will have become the new main asset of institutional investors, along with gold, silver, and oil. Bitcoin began to be recognized by countries as a legal tender. El Salvador made it the second national currency.
In the US and UK, PayPal customers can pay by card from their BTC account for purchases in cafes, transport, and shops. The era of marginalization and criminalization of "crypto" remains in the past. The more it penetrates into all spheres of our life, the greater its value.
What Are the Benefits of Cryptocurrencies
Here are the advantages of Bitcoin and altcoins compared to fiat currencies.
Lack of a single regulatory body. No organization can block or withdraw money from your account, thanks to decentralization. You have complete freedom to manage your funds as you see fit.
Conditional anonymity. Experts say it is possible to calculate the identity of 60% of users in up to 2 weeks. However, the blockchain remains one of the best places to place undeclared funds. A bank, bailiffs or other authorities are unlikely to be able to prove that a person has money there and write it off. When using VPNs, proxies, and mixers (money laundering services), you can achieve 99% anonymity, in which there will be practically no connection between the money and its owner.
Motivation for development. Central banks already have to start competing with coins or integrate them into the country's financial life. Someone issues their digital currency. Someone recognizes the new money as an official means of payment. In any case, the outdated, clumsy financial system is being rebuilt to meet the requirements of the new era.
New financial ecosystems. Faster blockchains and feature-rich coins are emerging. All decisions in their fate are made by the community of fans and investors through democratic voting. These are future products, created based on users' natural desires and problems.
Classic Usage for Cryptocurrencies
Increased volatility is one of the main difficulties that hinder conservative investors and newcomers. For the former, this is an excessive unusual risk, for the latter, it is practically guaranteed bankruptcy. To be able to quickly withdraw funds from a falling position and wait, stablecoins were created. These coins' rate is pegged to tangible assets: the dollar, euro, gold, etc. It is stablecoins that have classical collateral (as their founders say).
Here are the most famous:
- USDT Tether. Pegged to the US dollar. According to a report by auditor company Moore Cayman, Tether accounts hold assets worth at least $62,773,190,075. Prior to this, the regulators had regular complaints and suspicion of lies on the part of the founders.
- TUSD True USD. Direct competitor to Tether. The provision of fiat dollars in banks of trust companies in the ratio of 1 to 1 is declared. The company regularly undergoes several independent audits.
- Gemini dollar. Coin was created by the cryptocurrency exchange of the same name. Gemini's bank balance is verified by BPM, LLP, and independent agencies. The funds are sufficient to secure the issued tokens 1:1 with USD.
Which Cryptocurrencies Can Be Trusted
It is recommended to follow the DYOR rule — do your research. These are the parameters that indicate good prospects.
- Project age. The older, the more predictable the coin. Bitcoin will continue to grow, and Squid is a waste of money.
- Team. The more well-known people in the cryptosphere, the better. Total anonymity makes you wary.
- Partner projects. The same thing — high-profile brands inspire trust. For example, most of the coins listed on Binance have good prospects (because they managed to pass the most challenging check of the analytical department of the exchange).
- Following the roadmap. The team must do everything according to plan, albeit with delays of 1-2 months. If the delays stretch for six months, and the goals constantly change, then you should not trust.
The list can be continued for another 20-30 points, but these are enough for a starting analysis.
