(Chellama) Crypto Investing—A New Investor's Guide

 Everyone has heard of Bitcoin BTC 0.0%. It introduced blockchain or distributed ledger technology to the world and as a crypto asset it is the center of the universe. But Bitcoin is not alone. In fact, an entire galaxy of crypto assets has been created to support a wide range of use cases and applications targeting verticals such as identity management, data storage, gaming, banking, lending, social media and streaming. Since Bitcoin started the industry, virtually every other crypto asset is called an alt-coin. Alt-coins can be categorized in several different ways. Protocol tokens Protocol tokens, also referred to as level 1 or base layer tokens, are native to the blockchain and necessary for the operation of the platform. For example, Bitcoin is a protocol token, not only because it's what users send and receive over the network, but because it's also how miners (payment processors) get compensated for powering their computers. PROMOTED   Another protocol token, Ethereum ETH 0.0% is by far the most prominent and popular alt-coin. It has the second largest market capitalization of $513 billion, behind Bitcoin ($1.04 trillion). It was created in 2015 by Vitalik Buterin, who sought to build a blockchain platform that could launch and run any type of software program or application. Bitcoin is quite rigid in its composition, which is intentional, as the multiple functions offered by blockchain can also create additional security vulnerabilities. Ethereum works in a similar way to Bitcoin, where miners spend a significant amount of computing power to add transactions to the network. That said, there are many other prominent blockchains with their own protocol tokens, some of the biggest being Solana SOL 0.0% , Algorand ALGO 0.0% , Cardano ADA 0.0% , Binance Smart Chain , Avalanche AVAX 0.0% , EOS EOS +0.7% and Polkadot DOT 0.0%. MORE ADVISORS FROMFORBES The best travel insurance companies By Amy Danise Editor The best travel insurance plans for Covid-19 By Amy Danise Editor Application Tokens If the underlying layer of the blockchain is the operating system, then decentralized applications (dapps) are the programs that run on top of them. Many of these apps have their own tokens (known as dapp tokens) which are also freely traded on many exchanges. Dapp tokens first rose to prominence in 2017 and 2018 during the initial coin offering (ICO) craze, when many founders raised millions – sometimes billions of dollars – through token sales to fund product development. It is worth noting that the vast majority of these ICO projects failed and their asset value went to zero, reflecting the novelty, hype and excitement of the space. Crypto Confidential: Forbes' definitive guide to crypto and blockchain, delivered to your inbox every Saturday. Email address Log in By registering, you accept and agree to our Terms of Service (including class action and arbitration waivers) and Privacy Statement. However, today there are still dozens of dapp tokens with market capitalizations in the hundreds of millions or even billions of dollars that support applications with real utility and real business operations that make money, led by decentralized finance (DeFi) tokens. Highlights include Compound COMP 0.0%, AAVE AAVE +1.4%, Uniswap, SushiSwap, Curve, PancakeSwap CAKE 0.0% and Maker MKR 0.0%. DeFi is an umbrella term used to capture traditional financial applications (such as banking or lending) that are replicated on the blockchain through dapps and smart contracts, which are automatically executable pieces of code that are activated when certain conditions are met. Think of smart contracts as statements built into blockchains. For example, you can place an order on a decentralized exchange to buy bitcoins if the price reaches a certain point. Today, more than $270 billion is locked up in blockchain applications and DeFi tokens. Finally, it is important to highlight the latest developments in crypto, non-fungible tokens (NFTs). A fundamental component of money, or cryptocurrency, is that every asset is valued equally by every investor. They must be interchangeable. NFTs are the exact opposite of this. While they operate on top of blockchains just like any dapp protocol or token, they have a number of unique properties or characteristics that make them unique. If Bitcoin is the first iteration of precious digital value, then NFTs are the natural successors. Staking And Passive Income For many investors, spot market price exposure was risky and/or lucrative enough for their first forays into cryptocurrency. However, as the industry matures, we are starting to see ways for investors to earn passive income from their holdings. This strategy can help increase profits or hedge against price risk. The two main strategies are staking and yield farming. I will discuss each one separately. Staking out Staking is the act of publishing certain crypto assets as collateral to participate in the operation of the blockchain. As compensation for locking in tenure, users receive regular rewards similar to interest payments. Staking is useful for blockchains that operate a proof-of-stake (POS) consensus mechanism. This is a different approach than proof-of-work (POW), which is a computationally intensive and expensive mechanism used by Bitcoin, Litecoin, Bitcoin Cash, and many other tangents of the original blockchain. Although POW has proven to be highly safe and effective in most cases, there are growing concerns about its energy consumption and associated carbon footprint. Additionally, POW blockchains have scalability and throughput issues (Bitcoin can only process a few transactions per second), while POS platforms can handle hundreds of thousands per second. Prominent stakeable protocols include Ethereum, Solana, Algorand, Cardano, Polkadot, and TezosXTZ 0.0%. Please note that POS consensus mechanisms are not homogeneous and each blockchain network may use a different method of calculating stake rewards, taking into account various factors such as: Minimum wagering requirements Blocking period Payment rules Reward amounts Profitable agriculture In addition to purchasing DeFi tokens, it is also possible to earn them through a process known as revenue farming. Yield farming can be thought of as DeFi 2.0. Previously, if you provided liquidity to a decentralized exchange or lending protocol, you would simply get a fee or some interest. However, in 2020, Compound started a new trend that rewarded users with management tokens, in this case COMP, as an incentive program. In keeping with the decentralized ethos of the space, governance tokens are mechanisms for the respective founders of each protocol to relinquish control of the platform and hand it over to users. In turn, token holders can use their ownership stakes for additional rewards or vote on governance decisions that differ between protocols.