Altcoins Project Classifications
- Smart Contract Platforms
Cryptocurrencies like Bitcoin and Ethereum are powered by a technology called the blockchain. At its most basic, a blockchain is a list of transactions that anyone can view and verify. The Bitcoin blockchain, for example, contains a record of every time someone sent or received bitcoin.
The Lightning Network accommodates issues of scaling past Bitcoin's 12 transactions per second.
Cryptocurrencies and the blockchain technology that powers them make it possible to transfer value online without the need for a middleman like a bank or credit card company.
Almost all cryptocurrencies, including Bitcoin, Ethereum, Bitcoin Cash, and Litecoin, are secured via blockchain networks. Which means their accuracy is constantly being verified by a huge amount of computing power.
The list of transactions contained in the blockchain is fundamental for most cryptocurrencies because it enables secure payments to be made between people who don’t know each other without having to go through a third-party verifier like a bank.
Due to the cryptographic nature of these networks, payments via blockchain can be more secure than standard debit/credit card transactions. When making a Bitcoin payment, for instance, you don’t need to provide any sensitive information. That means there is almost zero risk of your financial information being compromised, or your identity being stolen.
Blockchain technology is also exciting because it has many uses beyond cryptocurrency. Blockchains are being used to explore medical research, improve the accuracy of healthcare records, streamline supply chains, and so much more.
At its core, cryptocurrency is typically decentralized digital money designed to be used over the internet. Bitcoin, which launched in 2008, was the first cryptocurrency, and it remains by far the biggest, most influential, and best-known. In the decade since, Bitcoin and other cryptocurrencies like Ethereum have grown as digital alternatives to money issued by governments.
- The most popular cryptocurrencies, by market capitalization, are Bitcoin, Ethereum, Bitcoin Cash and Litecoin. Other well-known cryptocurrencies include Tezos, EOS, and ZCash. Some are similar to Bitcoin. Others are based on different technologies, or have new features that allow them to do more than transfer value.
- Crypto makes it possible to transfer value online without the need for a middleman like a bank or payment processor, allowing value to transfer globally, near-instantly, 24/7, for low fees.
- Cryptocurrencies are usually not issued or controlled by any government or other central authority. They’re managed by peer-to-peer networks of computers running free, open-source software. Generally, anyone who wants to participate is able to.
- If a bank or government isn’t involved, how is crypto secure? It’s secure because all transactions are vetted by a technology called a blockchain.
- A cryptocurrency blockchain is similar to a bank’s balance sheet or ledger. Each currency has its own blockchain, which is an ongoing, constantly re-verified record of every single transaction ever made using that currency.
- Unlike a bank’s ledger, a crypto blockchain is distributed across participants of the digital currency’s entire network
- No company, country, or third party is in control of it; and anyone can participate. A blockchain is a breakthrough technology only recently made possible through decades of computer science and mathematical innovations.
NFTs (or “non-fungible tokens”) are a special kind of cryptoasset in which each token is unique — as opposed to “fungible” assets like Bitcoin and dollar bills, which are all worth exactly the same amount. Because every NFT is unique, they can be used to authenticate ownership of digital assets like artworks, recordings, and virtual real estate or pets.You can think of NFTs as being kind of like certificates of authenticity for digital artifacts. They’re currently being used to sell a huge range of virtual collectibles.
How Is an NFT Different from Cryptocurrency?
NFT stands for "Non-Fungible Token". It’s generally built using the same kind of programming as cryptocurrency, like Bitcoin or Ethereum, but that’s where the similarity ends.Physical money and cryptocurrencies are “fungible,” meaning they can be traded or exchanged for one another. They’re also equal in value—one dollar is always worth another dollar; one Bitcoin is always equal to another Bitcoin. Crypto’s fungibility makes it a trusted means of conducting transactions on the blockchain.NFTs are different. Each has a digital signature that makes it impossible for NFTs to be exchanged for or equal to one another (hence, non-fungible).
“Proof of Work” and “Proof of Stake” are the two major consensus mechanisms cryptocurrencies use to verify new transactions, add them to the blockchain, and create new tokens. Proof of work, first pioneered by Bitcoin, uses mining to achieve those goals. Proof of stake — which is employed by Cardano, the ETH2 blockchain, and others — uses staking to achieve the same things.
- At their core, the operations of these businesses are not managed by an institution and its employees — instead the rules are written in code (or smart contract, as mentioned above). Once the smart contract is deployed to the blockchain, DeFi dapps can run themselves with little to no human intervention (although in practice developers often do maintain the dapps with upgrades or bug fixes).
- The code is transparent on the blockchain for anyone to audit. This builds a different kind of trust with users, because anyone has the opportunity to understand the contract’s functionality or find bugs. All transaction activity is also public for anyone to view. While this may raise privacy questions, transactions are pseudonymous by default, i.e. not tied directly to your real-life identity.
- Dapps are designed to be global from day one — Whether you’re in Texas or Tanzania, you have access to the same DeFi services and networks. Of course, local regulations may apply but, technically speaking, most DeFi apps are available to anyone with an internet connection.
- “Permissionless” to create, “Permissionless” to participate — anyone can create DeFi apps, and anyone can use them. Unlike finance today, there are no gatekeepers or accounts with lengthy forms. Users interact directly with the smart contracts from their crypto wallets.
- Flexible user experience — don’t like the interface to a certain dapp? No problem — you can use a third party interface, or build your own. Smart contracts are like an open API that anyone can build an app for.
- Interoperable — new DeFi applications can be built or composed by combining other DeFi products like Lego pieces — e.g. stablecoins, decentralized exchanges, and prediction markets can be combined to form entirely new products.
Custody is a financial services term that refers to the ability to hold, move, and protect assets.
Accounts vs Wallets vs Exchange
- Custody is the location of an asset for DeFi (Decentralized Finance) Liquidity purposes
- Crypto presents several alternatives which can be engaged simultaneously for Position Adjustments (Facilitation via DeFi Liquidity eg-AAVE)
- On-Exchange Wallet
- An Exchange provides Custody of the Coins and Tokens on the User's behalf
- Not your Keys, not your Coins
- Off-Exchange Wallet
- Software Wallet - User loads an application where Coins and Tokens are stored, User maintains Keys
- Your Keys, your Coins aka Lose the Keys, Lose your Coins
- On-Chain Wallet
- Blockchain Explorer - Use search software to locate a selected blockchain address to view Public Key and Private Key information
- Your Keys, your Coins aka Lose the Keys, Lose your Coins
- Off-Chain "Cold Storage" Wallet
- Use a hardware device with User Private Keys to store Coins and Tokens
- Transfers via USB, QR Code and Private Key address
- Your Keys, your Coins aka Lose the Keys, Lose your Coins
As the cryptoeconomy grows and evolves, there are more ways than ever to earn rewards for holding crypto, learning about crypto, or interacting with decentralized finance (or DeFi) apps.
What is Spot Trading in Crypto?
When it comes to cryptocurrencies, spot trading is the most basic type of investment you can make. It entails buying a crypto at the current market price and holding it in your exchange wallet until you decide to make a subsequent trade.
What is a Spot Market?
The spot market is where financial instruments such as commodities, currencies, and securities are traded for immediate delivery. In the Bitcoin spot market, investors own, buy, and sell actual Bitcoin. In simple terms, it is the underlying market where bitcoins are exchanged.
What is the benefit of spot trading?
One of the positive aspects about trading in spot markets is that investors are trading in real assets, and not future contracts. Moreover, investors have direct ownership of the coins. These two aspects in particular give traders a greater sense of security and a more simple way to invest.
What is the downside of spot trading?
Regarding trading, spot markets require higher fees to use leverage, and since they have a limited supply of coins in their lending pools, they thus offer lower levels of leverage.Operationally, one of the potential downsides to spot trading cryptocurrencies is investors must first set up a digital wallet with online platforms and exchanges. This process may be difficult for those unfamiliar with the crypto landscape. Second, certain web-based exchanges are more susceptible to technical errors, app freezes, and security concerns. Thus, it is potentially risky to leave cryptos in your exchange spot wallet, as you may be unable to access them when the markets are extremely active.
What is Futures Trading in Crypto?
A derivative is a contract for which value is based on the performance of the underlying entity, which can be a financial asset or a set of assets like commodities, currencies, and stocks. Derivative products are usually used to mitigate risk or to increase exposure to certain price movements, otherwise known as speculation.
Derivatives Trading vs. Spot Trading
Trading derivatives is different than spot trading. First, this is because traders do not actually need to own the underlying cryptocurrency. For example, let’s consider the GOLD/USD contract. When trading this product, you are not actually buying or selling gold itself. However, the value of the contract is designed to follow the price of gold. This means that as the value of gold rises or drops, so does the value of the contract. In this way, you are able to benefit from the price movements of gold without actually ever having to buy or sell gold. Of course, there are many more complexities involved in trading contracts, but the fundamental idea is that you bet on the price of an asset such as gold or Bitcoin to either go up or down. Whether you profit or lose will depend on the accuracy of your prediction.
What is a Futures Market?
In the Bitcoin derivatives market, investors enter into an agreement or contract to buy Bitcoin at a predetermined price and a specified time in the future. As mentioned above, in this market investors don’t own actual bitcoins but rather trade on Bitcoin’s speculative price. Bitcoin contracts, which can either be futures, perpetual contracts, swaps, or options obtain their value from the value of Bitcoin.
A non-deliverable forward (NDF) is a cash-settled, and usually short-term, forward contract. The notional amount is never exchanged, hence the name "non-deliverable." Two parties agree to take opposite sides of a transaction for a set amount of money—at a contracted rate, in the case of a currency NDF. This means that counterparties settle the difference between contracted NDF price and the prevailing spot price. The profit or loss is calculated on the notional amount of the agreement by taking the difference between the agreed-upon rate and the spot rate at the time of settlement.