Whether it’s Bitcoin, Ethereum, or any other cryptocurrency, they have surpassed many asset classes this year as investment options. With the blockchain technology advancement, it has catapulted itself into the popular asset segment, gaining widespread demand from individual and institutional investors alike.
As a beginner, you might find it confusing to wrap your head around the buzz. First of all, cryptocurrency is not going anywhere. Like our journey from the barter system to digital payments, cryptocurrencies show potential to become the ‘next legal exchange’ for trade and businesses in the future.
Cryptocurrency is here to stay and grow as more and more businesses in the U.S. accept it as payment for goods and services. Even many countries worldwide gave it a legal status in 2021, allowing you to trade them for profit. Before we jump to the question of whether you should invest in cryptocurrencies or not, let’s dig in to understand it first.
The blog helps you understand the technology behind cryptocurrency, its creation, market trends, exchange platforms, and investment options. It gives you a glimpse of both the technical and business aspect of cryptocurrencies, enabling you to make an informed investment decision.
What Is Cryptocurrency?
Cryptocurrency is decentralized, encrypted, digital money based on blockchain technology. You can use it as a medium of exchange for peer-to-peer transactions. Bitcoin and Ethereum are the most popular versions among 5,000 plus different cryptocurrencies in circulation.
The entire ideology behind cryptocurrency is to send and receive money by anyone, anywhere (in the world), without the dependence on trusted intermediaries, like banks and financial service companies. Unlike the U.S. Dollar or Euro, no central authority, bank, or government regulates, tracks, and maintains the value of a cryptocurrency. Instead, the control lies with the vast cryptocurrency users distributed via the internet.
You can use it to buy regular goods and services or consider it as an asset like stocks or precious metals for investments. This peer-to-peer electronic payment system demands cryptographic proof instead of trust for successful transaction completion. It’s the blockchain technology that verifies and records the cryptographic proof of your transaction.
Cryptocurrency Terms You Must Know
Address
It is a unique address containing a string of characters targetted on the blockchain where individuals can receive, store, or send cryptocurrency. They appear in different formats depending on the currency, and without a proper wallet address, you cannot own a cryptocurrency.
Altcoin
It is a term used for all cryptocurrencies that are not Bitcoin. For example, Ethereum is the world’s largest altcoin as of 2021, among all the other altcoins.
Blockchain
It is a digital ledger of all the verified transactions in cryptocurrencies contained in a series of blocks.
Blocks
Blocks make up a blockchain, and each block has three fundamental elements
- Block: It carries historical data of all the transactions conducted on crypto until its full.
- Nonce: It is a 32-bit whole number, generated randomly during block creation, then generates a block header hash.
- Hash: It is a 256-bit number wedded to the nonce that starts with a lot of zeroes.
While creating the first block of a chain, a nonce generates the cryptographic hash and allocates it to the data on the block. Unless you mine, the data gets signed and forever tied to it.
BTFD
It is an acronym for ‘Buy The F**king Dip,’ used when traders tell others to pick up a digital currency with a dropped value.
dApps
It is short for ‘decentralized app,’ signifying any practical application of blockchain/cryptocurrency. It can take the form of mobile games, communications platforms, and social media sites.
DeFi
It is a blanket term for decentralized alternatives to traditional centralized finance. It is an emerging digital financial infrastructure that does not require a central bank or government agency to approve financial transactions. Instead, DeFi automates the exchange of cryptocurrencies among buyers and sellers directly without any intermediary like a bank or credit card.
Distributed Ledger Technology (DLT)
It permits viewing all transactions made on a blockchain. It is also another term used for blockchain technology.
Fiat
It refers to all government-issued currencies, like the U.S. dollar or the Japanese Yen. In short, it is a term to describe any currency controlled by a central authority like the U.S. government for ascertaining the value of U.S. dollars.
Gas
It is the cost of computing power when conducting transactions on the Ethereum blockchain. It is the fee you pay as a gas price to network participants (miners) to go out and receive crypto for you by verifying your transactions.
Halving
It relates to Bitcoin (BTC) and defines the number of BTC tokens you can find in a newly created block. The process takes around four years and allows Bitcoin to ensure that the number of Bitcoin in circulation does not grow exponentially. In 2009, each block contained 50 BTC, with halving every four years now, each block contains – 6.25 BTC. The next halving most likely will occur in 2024, letting a block contain 3.125 BTC.
Hash Rate
It is the measure of computing and processing power used in crypto mining. When you see a higher hash rate, it indicates a more robust network.
ICO
Initial Coin Offering (ICO) is how blockchain projects raise money and establish their cryptocurrency networks. Currently, there are minor-to-no-government regulations present for ICOs. So, anyone can launch one to seek funding by creating a white paper or any other document outlining the system and developing a website/app defining how it works. ICO is a new method for projects and startups to secure funding nowadays.
Mining
It refers to the minting of new cryptocurrencies. It is a process of verifying new transactions on a blockchain. For example, when someone utilizes computer power to solve complex math riddles using a proof-of-work mining system, they get awarded cryptocurrency. Successful mining generates a block, and all of the nodes on the network accept the change, rewarding the miners financially.
Miners
Miners create new blocks on the chain through mining and use special software to solve the immensely complex math problem of finding a nonce that generates an accepted hash. First, they get the right nonce-hash combination (nonce is only 32 bits and hash is 256 bits) which means working through roughly 4-billion combinations and mining the right one.
Nodes
The base of blockchain technology is decentralization. A single computer or organization cannot own a chain. Any electronic device (mostly computers, laptops, or even bigger servers) that maintains copies of the blockchain and keeps the network functioning is a node. It is the infrastructure of a blockchain. All nodes on a blockchain stay connected to each other and constantly exchange the latest blockchain data. It allows blockchain to become transparent, making every action easy to check and view.
NFT, or Nonfungible Tokens
They are one-of-a-kind assets in the digital world, unlike most cryptocurrencies that are fungible (no difference between one coin and another), validated, and stored using blockchain technology. It is a digital asset that enables virtual transactions for collectibles like art, music, or baseball trading cards using smart contracts.
Pump and Dump
It is a price manipulation tactic wherein using false recommendations (pump), the prices of a cryptocurrency get boosted before selling the assets at a higher price (dump). It is a known form of fraud in the stock market. Avoid falling prey to such fraudulent tactics in the crypto world by choosing well-known cryptocurrencies (like Bitcoin and Ethereum). Also, stick to reputed crypto exchanges like Coinbase.
Private Key
It is the super-important string of numbers and letters that you should not share with anyone like your CVV on credit cards or OTPs. This is because you require it to verify transactions while selling or withdrawing your cryptocurrencies. If anyone gets access, you can lose your crypto funds in seconds.
Public Key
It is a string of characters used for purchasing cryptocurrency. Artists, content creators, etc., list their public keys to receive cryptocurrency in exchange for their work. It enables fans to pay through cryptocurrency instead of fiat.
Satoshi
It means two things
- Satoshi Nakomoto, the anonymous founder of the world’s first cryptocurrency – Bitcoin
- Satoshi, a unit of exchange equal to 0.0001 Bitcoins.
Seed
It is the base of your wallet’s digital existence. If something goes wrong or you lose it, a series of 12-16 words form a recovery seed to access your wallet. However, remember once you get your wallet compromised, you lose your funds forever.
Segwit
It refers to the process that separates digital signature data from transaction data, allowing more transactions to fit on one block and enhancing the speed of transactions.
Smart Contract
It is a computer program that runs on the Ethereum blockchain technology, used automatically to execute, control, or document legally relevant events and actions between all participants. Like traditional legal contracts, it holds multiple parties accountable for something and instructs them through codes instead of any spoken language. A few of its applications include financial purposes (like trading, investing, lending, borrowing,) healthcare, real estate, and gaming.
Token
It refers to a unit of digital currency. Currently, it also describes crypto assets running on top of another cryptocurrency’s blockchain. Like – DeFi tokens (Chainlink and Aave) run on top of the existing Ethereum blockchain.
Wallet
It is a crypto wallet that you can use to store your coins, seeds, keys, and addresses to function appropriately. But not all crypto wallets are the same. Hot wallets you create online using a mobile app to store your crypto token for easy accessibility. However, it is more susceptible to hackers, risking the loss of all your cryptocurrencies. The other form is a cold wallet which stores your digital assets offline, making them secure but difficult to trade.
Whales
It refers to individual investors and more refined trading firms with large amounts of Bitcoin and other cryptocurrencies. Some of the Bitcoin whales are folks like Tim Draper, Barry Silbert, and the Winklevoss twins. They are feared and respected among crypto day traders for their power to move prices with single trades.
What Is Blockchain?
In simple words, blockchain is an online, open, distributed ledger that records all transactions in code form. This technology records each transaction in a ‘block.’ It links them together on a ‘chain’ of previous cryptocurrency transactions validating through consensus mechanisms like PoW (proof-of-work), PoS (proof-of-stake), DPoS (delegated proof-of-stake), and PoA (proof-of-authority.)
Consensus Mechanisms
● Proof of Work (PoW)
In PoW, each miner solves a mathematical puzzle to verify a block. After validation consensus from most miners, it gets added to the blockchain ledger. The first computer to successfully do so gets a small amount of cryptocurrency as a reward for the effort. The entire verification process requires an intense amount of computer power and electricity.
● Proof of Stake (PoS)
It is another popular verification method that requires lesser power to check transactions. Under it, the number of transactions each person can verify depends on the amount of cryptocurrency they’re willing to stake. You can consider it like a communal safe or bank collateral for the chance to participate in the process. For successful verification, you receive a reward in cryptocurrency. However, if you choose and verify invalid transactions, you forfeit a part of your stake.
● Delegated Proof of Stake (DPoS)
In DPos, the token holders of the network vote and elect delegates to validate the next block. Token holders spend their coins to vote for them to make critical validation decisions. Only a limited number of delegates (20 to 100) are permissible for each new block, and they must ensure a node always runs smoothly, validate transactions, and work in the best interest of the network.
These delegates are also called block producers or witnesses. The threats like loss of income, seizure of stake, and fall in reputation score, keep them in check from malicious acts. They receive a transaction fee from the validated block, and they share the reward with token holders who pooled their tokens in the successful delegate’s pool. They can be voted out of the system at any point by token holders if they are not on their best behavior.
● Proof of Authority (PoA)
It is a reputation-based consensus algorithm that leverages the value of identities instead of coins as block validators. Under this form of consensus verification, a validator must be an entity that can establish trust and safeguard its assets effectively instead of an individual. They must make their identity known, unlike PoW or PoS, which also introduces the risk of corruption and manipulation. PoA works better for private blockchains than public platforms.
Both PoW and PoS follow consensus mechanisms to verify transactions. A hacker would require at least 51% of the ledgers to match their fraudulent version for a successful forgery or alteration to a block on a blockchain. So, it makes fraud unlikely on the blockchain considering the amount of computing power and resources necessary to do it.
Types of Blockchains
All blockchains fall under the purview of permissioned, permissionless, or both. Permissionless blockchain allows you to join the network without revealing your actual identity information and does not restrict the rights of the nodes on the blockchain network. However, it takes long transaction processing times due to the extensive number of nodes and the large size of transactions.
On the other hand, a permissioned blockchain network requires its users to share their identity details. It limits access to the blockchain network to specific nodes and may even restrict the rights of such nodes on the network. Permissioned blockchains are more efficient, and due to restricted network access, they take less processing time per transaction.
1. Public Blockchains
It is a permissionless blockchain and fully decentralized, permitting all its nodes to
- have equal rights to access the blockchain
- create new blocks of data
- and validate blocks of data
You can use it mainly for mining and exchanging cryptocurrencies. Some of the popular public blockchains are Bitcoin, Ethereum, and Litecoin.
2. Private (or Managed) Blockchains
They are permissioned blockchains controlled by a single organization and have a central authority to determine who can become a node. They do not grant each node equal rights to perform functions and provide restricted public access to these blockchains. Some private blockchains are business-to-business virtual currency exchange networks Ripple and Hyperledger.
Both of the blockchain networks had shortcomings – public blockchain required longer validation time for new data, and private blockchain bears the risk of fraud. Eventually, two more types of blockchain networks developed to settle shortfalls of both public and private blockchains.
3. Consortium blockchains
It is a permissioned blockchain regulated by a group of organizations instead of one single entity. Consortium blockchains enjoy more decentralization than private blockchains but at the same time have higher levels of security. R3 has a consortium blockchain of some of the world’s biggest financial institutions through its platform Corda.
4. Hybrid blockchains
It is a type of blockchain a single organization controls but with a level of oversight performed by the public blockchain, requiring certain transaction validations. IBM Food Trust is one such example of the hybrid blockchain that has improved efficiency throughout the entire food supply chain.
Blockchain promises to be a revolutionary technology that reduces risks, weeds out fraud and brings greater transparency for diverse uses. It is a futuristic technology with many applications in insurance, real estate, voting, securing personal information, securely sharing medical information, artist royalties, government welfare programs, and more, apart from financial exchanges and money transfers.
How Is Cryptocurrency Created?
Theoretically, anyone can create a cryptocurrency, but not everyone has the knowledge or resources to handle the task. Let’s say you manage to make a new cryptocurrency. Don’t think your work ends there; you have to work further for its promotion, listing on exchanges, and ongoing maintenance/upgrades. Before diving into the cryptocurrency creation process, understand the difference between tokens and coins.
Difference Between Tokens and Coins
There are two large subcategories in cryptocurrencies – tokens and coins. Knowing the difference between them enables you to make your cryptocurrency for specific business needs.
Coins
It exists on their distinctive blockchain where all transactions occur like Bitcoin, Ethereum, NEO, and Emercoin. If you want to make your business-specific coins, you need to create your blockchain.
Tokens
Token works on existing blockchain like Ethereum or NEO, which verifies your transactions and makes them secure. It serves like smart contracts representing everything from physical objects to digital services. Primarily, you can use tokens as Security Token Offerings (STO) to acquire funds for your startup projects through a crowd-sale.
7 Steps of Creating Cryptocurrencies
#1. Choose the consensus mechanism
Decide a consensus mechanism as you require it to determine how the nodes will confirm a transaction for it to go through. Proof of Work (PoW) and Proof of Stake (PoS) are the most popular consensus mechanisms in cryptocurrencies.
#2. Pick a blockchain
Choosing a blockchain platform (permissioned/permissionless) is a crucial step. It determines where your coin or token becomes available. Consider factors like your level of technical skill, comfort level, and project goals to make the decision.
#3. Create nodes
Nodes are fundamental to distributed ledger technology (DLT), including blockchains. While creating nodes, consider aspects like
- How will your nodes function?
- Does it want a ‘permissioned’ or ‘permissionless’ blockchain?
- What hardware details would it need?
- How will hosting work?
#4. Build the blockchain architecture
Before launching a cryptocurrency, check all the functionality of the blockchain and the design of its nodes. Whether it is the cryptocurrency’s address format or integration of inter-blockchain communication (IBC) protocol (allowing it to communicate with other blockchains), test things out on a testnet beforehand. Once you launch it, there’s no turning back!
#5. Integrate Application Programming Interfaces (APIs)
Ensure that your newly created cryptocurrency has APIs. It helps it to stand out and increase adoption.
#6. Design the interface
What’s the point in creating a cryptocurrency if people can’t find them! Therefore, pick updated web servers and file transfer protocol (FTP) servers for the task. Consider programming on both the front and backends with future developer updates in mind.
#7. Make Your Cryptocurrency Legal
Research the laws and regulations surrounding securities offerings and related topics in the U.S. to ensure your cryptocurrency does not result in fines or criminal charges. If required, hire a lawyer with expertise in the area to guide you through the steps.
What is Crypto Mining?
Crypto mining is how new units of cryptocurrency get released into the world. It means gaining cryptocurrencies by solving cryptographic equations using your computer. Each miner has to figure out the right nonce-hash combination (nonce is only 32 bits and hash is 256 bits), doing roughly 4-billion combinations-permutations to mine a coin validating a block. In crypto mining, you validate data blocks using a consensus mechanism and add them to the distributed ledger known as the blockchain.
Check out this video from The New York Times, describing how crypto mining works.
Technically, crypto mining is a transactional process that uses computers and cryptographic codes to solve complex mathematical equations for validating transactions on a blockchain.
In theory, any average person can mine cryptocurrency, but mining cryptocurrencies through proof-of-work has now become extremely difficult. It requires immense amounts of energy to mine, and most of the Bitcoin miners end up using 60% to 80% of their earnings from mining to cover electricity costs. If you are interested in crypto mining and have the skill/resources, use other forms of consensus mechanisms like proof-of-stake or delegated-proof-of-stake for efficient mining.
Other Ways of Crypto Creation
Other than mining, there are primarily three ways to create cryptocurrencies. Its creation mainly depends on your level of coding expertise or the creation service you hire.
#1. Create a New Blockchain
It requires coding skills and is one of the most complex ways of creating cryptocurrencies. You can join online courses for it, but they expect you to have a certain level of pre-existing knowledge.
#2. Fork an Existing Blockchain
It is a comparatively less complicated and quicker way of creating cryptocurrencies. It involves taking the open-source code found on GitHub, altering it, and launching a new cryptocurrency with a different name for your business. Like Litecoin developers did by forking from Bitcoin.
#3. Use an Existing Platform
It is the easiest and most popular way of creating cryptocurrency. Create new cryptocurrencies or tokens using the existing platform –
- Ethereum network – ERC-20 standard
- NEO – NEP-5 standard
- EOS – Token standard
If you’re not familiar with writing codes, take the assistance of various creation services for all the technical work.
Why is Cryptocurrency so Valuable?
Bitcoin has put a hard cap or maximum limit of 21 million on the supply, making it a scarce commodity. 90% of mining is over, and the creation of new Bitcoins is unlikely to happen shortly. As the demand for cryptocurrencies rises (based on the usefulness of owning the coins), it becomes more valuable.
Six Factors Influencing Cryptocurrency Value
Nowadays, most cryptocurrencies evolve from private blockchain firms, and therefore their value stems from the company’s image, project viability, and the perceived value of a coin. Take a look at a few prominent factors that influence the value of cryptocurrency.
1. Node Count
It signifies the number of active wallets in a network. If the node count is high, it indicates a strong community and shows strength in-network, raising its value. However, if the node count is low, it gives the opposite impact, reducing the value of the cryptocurrency.
2. Cryptocurrency Exchange
When a token is available at multiple exchanges, it indicates more people are purchasing it. But, if the investors feel the need to swap their cryptos in two or more exchanges, their investment cost increases, affecting the value of cryptocurrencies.
3. Cost of Production
Miners need special servers and hardware along with a substantial power supply to validate daily transactions. Even if they receive a reward for their rigorous work, the rise in the cost of mining directly impacts the value of cryptocurrencies.
4. Government Regulations
In 2021, as more countries began giving cryptocurrencies a legal status, it has become more likely to attract specific government regulations in the future. Some governments appreciate the unregulated, decentralized nature of the currency, but adding taxation to transactions would influence cryptocurrency value a lot.
5. Scarcity
A limited supply of cryptocurrency and a rise in demand will increase its value. Similarly, if supply increases, the value of cryptocurrency would fall. For this reason, Bitcoin has a finite supply as it prevents itself from being devalued by a limitless supply.
6. Market Capitalization or Market Cap
It is the monetary value of a coin or token multiplied by the total cryptocurrency in circulation. It highlights the stability of a cryptocurrency as an asset in the long term. Cryptocurrencies with a large market cap indicate more stable investment, whereas the small ones are more susceptible to the overall market sentiment.
Cryptocurrencies are valuable, but consider all risks before investing in them. The cryptocurrency market is undeniably volatile. Without understanding the factors that affect its value, the price alone can be a misleading indicator for investing in cryptocurrencies.
How and Why Should you Invest in Cryptocurrencies?
There are many cryptocurrencies in the market, attracting you to the bright, illustrious, and successful world of digital assets. But, keep your eyes open and your financial goals realistic while investing in cryptocurrencies.
Steps to Start Investing in Cryptocurrencies
#1. Decide Where To Buy
As beginners, the most accessible method is to buy from a centralized exchange. They act as a third party overseeing transactions to give you the confidence to get what you pay. You use online brokers like Robinhood, Webull, etc., or buy directly from crypto exchanges like Coinbase, Gemini, etc.
#2. Decide How To Pay
The most popular option is to buy using fiat currencies like U.S. dollars. Experienced investors can also trade some of their existing crypto holdings for purchasing other cryptocurrencies, like Bitcoin for Ethereum.
#3. Add Value To Crypto Account
If you choose fiat currencies, most centralized exchanges permit you to deposit funds via your bank account, fund transfers, credit card, or debit card. Purchasing crypto using a credit card can be a risky move as the interest costs can deepen your losses if your investments decline. For investing using cryptocurrencies, transfer it into your account from a digital wallet, then use it to trade.
#4. Choose a Cryptocurrency
There are many cryptocurrencies in circulation, and among all, Bitcoin and Ethereum are the most popular ones. Have a clear investment goal and do your market research to understand their technology.
Reasons to Invest in Cryptocurrency
The cryptocurrency market is speculative and volatile. Many fail due to bad publicity, security issues, unethical behavior, or an unclear progression path, making your investment worthless. Therefore, take a balanced approach towards investing. There are two main reasons for investing in cryptocurrency.
● First, you can make a lot of money.
Some cryptocurrencies have millionaire-making potential, but the key to success is never to invest money that you can’t afford to lose.
● Second, you can diversify your investment portfolio.
Apart from investing in other assets, stocks, etc., use cryptocurrencies to grow wealth. Invest anywhere between 2% to 5% of your investment portfolio in cryptocurrency for a safer approach.
While investing, do not forget cryptocurrencies are a far more volatile investment choice than bonds. It might not align with everyone’s risk tolerance and comfort zone. Moreover, its long-term investment value is still questionable. Therefore, do your market research before investing in any cryptocurrency and be wary of changing market trends.
Why You Should Be Wary of Market Trends?
Cryptocurrencies are risker assets than even stocks. If you are not watchful of the market trends, you can quickly lose trading in cryptocurrencies. Before investing, consider all its risk factors.
- Any sudden change in market sentiment and the value of cryptocurrencies can drop by hundreds, if not thousands of dollars.
- Keep in mind its unregulated factor. Both government and banks have no control over it. Many are still questioning whether to consider it – a commodity or a virtual currency.
- It is unsafe heaven, lacking coordination and clarity on regulatory, financial, tax, and legal treatment. The relatively new nature of the market and sluggish, lagging quality of regulatory catch-up make it a risky investment option.
- No system is perfect. Cryptocurrency exchange platforms continue to boast about their security protocols, yet they struggle with glitches, human errors, and hack attempts.
- As more countries accept cryptocurrency trade, governments like the U.S. have begun to tax crypto holdings as property in 2022.
- Any inability to familiarise yourself with crypto concepts like forking, mining, etc., can multiply your risks and impact your investments drastically.
All in all, cryptocurrency trading might not be suitable for everyone. We advise you to seek independent professional advice before investing or trading in cryptocurrencies.
The Best Cryptocurrencies To Invest in 2022
As the world’s digital assets fell to the bullish market at the start of the year, if anything, crypto investors must learn is to have a high-risk tolerance. If a 30% decline in a month rattles your chain, making you feel like selling out, cryptocurrencies are the wrong asset class for you to invest in now.
However, if you are willing to take a high risk and bear the bumpy ride, take a look at the top five cryptocurrencies ranked according to their market capitalization, as considered a wise choice to invest in 2022.
#1. Bitcoin (BTC)
Market Cap: 722.5 Billion (as of Feb 23, 2022, according to coinmarketcap.com)
It is one of the few tried-and-tested, blue-chip coins you can invest in that continues to dominate all digital assets. Created in 2009 by Satoshi Nakamoto(a pseudonym), BTC became the first CME Group Inc. offering future contracts on US-based exchange-traded funds and the first crypto that an S&P 500 company put on its balance sheet.
BTC runs on blockchain technology, following the proof-of-work process to verify its distributed ledgers. Till now, it has kept itself secure and safe from fraudsters. BTC is going through a volatile phase, touching as low as $38000 in February 2022 and as high as $65,000 in October 2021. Nevertheless, crypto-entrepreneurs and investors continue to consider it as digital gold. Tesla and Microstrategy are some of the top investors in Bitcoin. Any time Bitcoin trades for less than $39,000, consider it a buying opportunity.
#2. Ethereum (ETH)
Market Cap: 319 Billion (as of Feb 23, 2022, according to coinmarketcap.com)
As a cryptocurrency and a blockchain platform, ETH has maintained its second position over a year in the digital assets market. It is the most widely used blockchain technology and is critical to exciting and emerging areas like decentralized finance (DeFi), smart contracts, and nonfungible tokens (NFTs).
In 2022, ETH plans to transition to proof-of-stake from a proof-of-work protocol and improve its scalability, making it more environmentally sustainable. Joseph Lubin, Richard Sherman, Cameron & Tyler Winklevoss are some of the top investors in Ethereum. After BTC, it is the second most valuable cryptocurrency you can invest in at present.
#3. Tether (USDT)
Market Cap: 79.4 Billion (as of Feb 23, 2022, according to coinmarketcap.com)
Tether is the largest stablecoin (stable-value cryptocurrency) that mirrors prices of fiat currencies like U.S. dollars and the Euro. It combines the unrestricted nature of cryptocurrencies with the stable value of the U.S. dollar.The Hong Kong company Tether Limited issues its token built on multiple blockchains. It is one of the most popular investment choices of cryptocurrency for those wary of the extreme volatility of other coins.
It fills the gap where fiat-to-crypto trading pairs are unavailable. However, note that Tether is neither backed by USD nor provides any legal guarantees to convert tethers to dollars. Therefore, invest cautiously and use it as a short-term investment only.
#4. Binance Coin (BNB)
Market Cap: 62.4 Billion (as of Feb 23, 2022, according to coinmarketcap.com)
BNB is a utility token and one of the biggest cryptocurrency exchanges globally. It provides a crypto wallet to traders for storing their electronic funds. It facilitates trades on Binance’s exchange platform that you can use for trading ETH or BTC, payment processing, or even booking travel arrangements. Overall, it is a good investment in the medium to long term, considering the Binance ecosystem keeps expanding, giving BNB tokens more use leading to price appreciation in the future.
#5. USD Coin (USDC)
Market Cap: 52 Billion (as of Feb 23, 2022, according to coinmarketcap.com)
USDC is a stablecoin pegged to the U.S. dollar on a 1:1 basis. Every unit of its cryptocurrency in circulation has a $1 backing held in reserve, in a mix of cash and short-term U.S. Treasury bonds. It has two founding members – Circle and Coinbase. The Circle is a financial services firm backed by large financial institutions like Goldman Sachs, and Coinbase is the largest U.S. – based cryptocurrency exchange.
It is an ERC-20 token powered by Ethereum that you can use for global transactions. Many wallets, exchanges, service providers, and dApps accept USDC allowing businesses to consider it as payments in digital assets, including decentralized finance and gaming. USDC provides an easy way to transfer crypto into dollars. It serves as a bridge between the traditional financial system and the blockchain-powered open financial system.
It is ideal for traditional investors as a low-beta investment that can generate returns better than C.D.s. However, it is not risk-free. It is not easy to verify the exact amount of fiat currency an issuer holds as reserves, and its wallet bears the hacking risk.
Crypto assets may rise and fall at different degrees, so diversify your crypto portfolio by investing in a range of cryptocurrencies. It will manage your risk to an extent. Further, if you choose to invest in less established crypto products, do a bit of research about them seeking answers to questions like
- Who is the head of the project – someone unknown or a well-known identifiable leader?
- Who are the major investors in that cryptocurrency?
- Will you be an owner of a portion in the new crypto company or own cryptocurrency/token?
- Is the chosen cryptocurrency already developed, or is the company still raising money to develop it?
Answering these questions will let you know the legitimacy of the cryptocurrency, its success, and the risk factor involved in the investment. Several organizations, including Microsoft, Shopify, and Wikipedia, began to accept cryptocurrencies as a mode of payment, causing investment in them more lucrative than before. But, you cannot ignore the internet filled with horrors of hackers swindling traders of their gains from poorly protected cryptocurrency exchanges. Therefore, it is critical, before investing, you choose a secure crypto trading platform.
Best Crypto Exchange Platforms in 2022
At present more than 300 crypto exchanges (including apps and platforms) offer crypto trading options in either decentralized or centralized forms. In a decentralized crypto exchange, you get to store crypto wallet keys, whereas, in a centralized one, the exchange platform controls your wallet keys. Before we get into the details about choosing the right crypto exchange platform, to save you time and effort, we have compiled a list of the top five of them in 2022.
#1. Binance
Best Suitable: Trade or invest in lesser-known altcoins
It is one of the largest cryptocurrency exchange apps (in terms of) trading volumes. They have more than 500 cryptocurrencies and are available in more than 180 countries. Apart From the network cost, depositing an asset is free in it. It has a minimum withdrawal amount for each withdrawal request and charges transaction fees for each cryptocurrency.
Pros
- It has the lowest trading fees (0.1 %) for both buyers and sellers.
- It is easy to sign up.
- It has speedy transactions.
- It accepts credit and debit cards.
- It has a large variety of cryptocurrencies and trading partners.
- It provides two-factor authentication as an extra layer of protection to your account.
Cons
- It is a centralized exchange. So, you do not have complete control of the crypto wallet.
- It doesn’t allow you to exchange U.S. dollars for cryptocurrency.
- It’s best for advanced users. Beginners may find it challenging to trade on it.
- It takes between $1 and $15 for fiat currency withdrawal.
#2. Coinbase
Best Suitable: Crypto Exchange for Beginners
It was the first cryptocurrency exchange to go public on the Nasdaq in 2021, with one of the largest and safest platforms, trading 100+ cryptocurrencies in more than 100 countries. It is the most popular crypto exchange platform in the U.S. They charge $10 as a minimum deposit fee and have a straightforward onboarding process.
Pros
- It has a user-friendly design with clear buy/sell buttons.
- It provides analytical tools for traders.
- It has very high liquidity.
- It keeps 98% of users’ crypto in secure, offline storage, protecting it from hackers/digital theft.
- It accepts wire transfer, credit card, and debit card payments.
- It is fully regulated and licensed to operate in the U.S.
Cons
- It is a centralized exchange. You do not control wallet keys.
- It charges a flat 2.49% transaction fee on all purchases.
- It is not available for Hawaii residents.
#3. Kraken
Best Suitable: New and existing cryptocurrency investors and traders
It has one of the largest crypto exchanges by daily market transactional volumes, available in 48 U.S. states and 176 countries. You can consider it the safest platform to trade, as it has high cybersecurity ratings.
Pros
- It encrypts all sensitive account information and strictly controls and monitors access to the account.
- It has a lower transaction fee than Coinbase – 0% to 0.26% per trade.
- It accepts MasterCard, Wire Transfer, and Bank cards for trade payments.
- It also provides analytical tools like Coinbase, making it suitable for beginners.
- It keeps 95% of all deposits in offline, air-gapped, geographically distributed cold storage (offline wallets).
Cons
- It has a limited customer support base.
- It charges high fees for beginners using the Instant Buy platform.
- It doesn’t provide tax support.
- It is not available for exchange to people in New York or Washington.
#4. Gemini
Best Suitable: Both beginner and advanced traders
It has over 40 cryptocurrencies with minimum order amount options (as low as 0.00001 BTC) and offers a bonus of $150 in Bitcoin to new users for investing at least $1,000 within 30 days. It is available to all 50 states in the U.S., and they keep the majority of your cryptocurrency in an offline cold storage system.
Pros
- It has an easy-to-use platform.
- It has a low minimum purchase option.
- The Federal Deposit Insurance Corp. insures your Gemini’s exchange wallet.
- Its Gemini Pay allows purchases at 30,000 retailers using cryptocurrency.
- It accepts VISA, MasterCard, and American Express cards and does accept prepaid cards.
Cons
- No linked debit cards are available.
- Its customer support needs improvement.
- They require submitting a lot of personal data to the platform to register.
- The fee structure is complex for beginners to understand.
- They charge up to 1.49% depending on the trading platform and 3.49% for debit card purchases, relatively expensive for small trades.
- It has a $1,000 limit on debit card purchases, and you cannot raise it by adding more cards.
#5. eToro
Best Suitable: Best Crypto Exchanges for Investors, Overall
It is a social trading platform that offers versatile trading avenues in 17-cryptocurrencies, CFDs, forex, stocks, exchange-traded securities, etc., for 140 countries worldwide and 43 states in the U.S. It is mainly popular among bitcoin and F.X. traders. It permits practicing investment up to $100,000 worth of crypto using eToro Virtual Portfolio. The demo account also helps you track your progress.
Pros
- It serves as a trading platform for Stocks, cryptocurrency, F.X., commodities, and exchange-traded funds.
- It is excellent for new brokers.
- It charges 0.75% for trading crypto and 5% for fiat to crypto conversion.
- It is a safe avenue for those looking for easy-to-use trading platforms.
Cons
- It is available only for 43 states in the U.S., excluding Delaware, Hawaii, Minnesota, Nevada, New Hampshire, New York, and Tennessee.
- Its customer support base needs improvement.
- It has a limited selection of cryptocurrencies.
- It does not allow withdrawals on all the available coins.
- Direct crypto-to-crypto trading is not available to U.S. users.
Comparison Between Platforms
| Attributes | Binance | Coinbase | Kraken | Gemini | eToro |
| Security | 2 Factor Authentication (2FA), API access control and device management | Keeps 98% of deposits in offline, geographically distributed cold storage, Carries crime insurance against theft / cyber breaches | Multiple checkpoints, Strict surveillance, Stores 95% of its assets in a guarded air-gapped cold storage | 2FA, Yubikey hardware security, Majority deposits in offline and is insured with FDIC deposit insurance | Safe and secure, Personal information is guarded under SSL encryption, Operates in accordance with the FCA, CySEC and ASIC |
| Customer Support | Average | Excellent | Below Average | Below Average | Average |
| Fiat Currency Trading | USD/EUR + 50 more | USD | USD | USD | USD/EUR |
| Analytical Tool | Candlestick charts, Depth Carts | Coinbase Analytics | Kraken Terminal | Integration with TradingView | ProCharts |
| Add. Feature | Comprehensive user center for all information | Built-in Wallet | N.A. | Gemini Wallet | Demo/ Education feature |
| Social/Copy Trading | N.A. | N.A. | N.A. | N.A. | Both social and copy trading |
| Max. Trading Amt. (Daily) | Unlimited | $25K | $100K | $500 | $2M |
| Trading Fees | 0.10% | Upto 3.99% | Upto 0.26% | Upto 1% | 0.1% – 0.75% |
| Withdrawal Fees | 3.50% (min. $10.00) | Upto 3% | Upto 60$ | Free | 5$ |
| Payment Methods | Master card, Wire transfer, Debit/credit card | Master card, Wire transfer, Debit/credit card | Master card, Wire transfer, Debit/credit card | Master card, Wire transfer, Debit/credit card | Master card, Wire transfer, Debit/credit card |
| Anoymity | NO | NO | NO | NO | YES |
| Verdict | One of the leading crypto exchange platforms | Reliable, popular, respected crypto exchange platform | Reliable, Secure, Best for beginners
|
Secure, great for large volume and one-off buys | Best for investors offers copy trading service |
How to Choose the Right Cryptocurrency Exchange Platform?
Expectedly, the global cryptocurrency market would be worth $2.73 billion by 2025. If you intend to invest, there are eight things you must consider when choosing a cryptocurrency exchange platform.
#1. Authenticity and Security
The biggest issue in the cryptocurrency industry is the pump-and-dump schemes. Reputed exchanges prevent these frauds and use tokens for trade. Go with a crypto exchange platform with higher security protocols as hackers continuously attack crypto exchanges. Read the security measures and insurances an exchange provide to choose a legitimate and secure platform. If generating an account takes more time, consider it a better secure exchange platform.
#2. Reputation
Reputation always counts, whether it’s any electronic brand, financial services, or cryptocurrencies. Take time to thoroughly research the crypto exchange and read what other users say about them.
- Check online reviews
- Study what the cryptocurrency exchange says about itself
- What they say about their security issues in the past
- How have they addressed problems on their platforms
Dig further; read potential negative stories about the crypto exchanges to arm yourself with a complete picture before landing on any decision.
#3. Method of Purchase
Some crypto exchanges require deposits by bank transfer, some use PayPal, some accept credit and debit cards, and others use only cryptocurrency for purchase. As a beginner, go with the exchange that offers purchase through fiat currency. Also, note how fast or long it takes to process transactions.
#4. Accessibility
Not all countries and states in the U.S. permit every crypto exchange. Whenever you choose one, check their permits in your country or state in the U.S. you live for operating.
#5. Fees and Currency Pairs
Before choosing an exchange, understand what it will cost you to buy and sell crypto on them. There are deposit fees, withdrawal fees, and transaction fees; consider them to know how they will influence your investment. If you plan to be highly active (making everyday transactions), go with a lower per-transaction fee. Also, consider the cryptocurrency pairs, like – compared to Binance, Coinbase, the most popular and successful crypto exchange (in the world), offers a relatively small selection of digital currencies to its users.
#6. User Interface and Experience
Whether you are a beginner or an old investor, an intuitive, user-friendly interface adds value to the whole experience. It enables more informed and more efficient actions on the exchange for you.
#7. Storage
Many crypto exchanges come with crypto wallet offers to secure your investments. Choose a crypto exchange that keeps the large majority of your digital assets in the cold wallet (offline) to protect your investment from hackers.
#8. Customer Support
Last but not least, pick a crypto exchange that provides 24/7 customer support, either directly or via chat. Technical glitches, human errors, or forgotten private key issues can happen anytime, and if you don’t have access to quality customer support, you risk your investment altogether.
Bottomline
No matter which exchange you use or which cryptocurrency you buy, don’t forget it is a highly speculative asset with a relatively shorter track record compared to the stock market. Considering any cryptocurrency as a good long-term investment means it must have widespread adoption like Bitcoin and Ethereum. The smart choice would be to stick with Bitcoin and Ethereum. However, do your market research carefully for investing in others. While investing, experts recommend not to invest more than 5% of your portfolio into cryptocurrencies.