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Profitable Investment Cryptocurrency – By now everyone has heard of Bitcoin. It introduced the world to blockchain technology or the distributed ledger and as a crypto asset, it is the center of the universe. But bitcoin is hardly alone. In fact, a whole galaxy of crypto assets have been created to support a wide range of use cases and applications focused on verticals such as identity management, data storage, gaming, banking, lending, social media and streaming.
Because Bitcoin started the industry, virtually every other crypto asset is called an alt-coin. Alt-coins can be categorized in several different ways.
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Protocol tokens, also called Level-1 or base-layer tokens, are native to a chain and are necessary for a particular platform to function. Bitcoin for example, is a protocol token, not only because it is what users send and receive on the network, but because it is also how miners (payment processors) are compensated for providing computing power.
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Another token protocol, Ethereum is arguably the most important and popular alt-currency. It has the second largest market capitalization at $513 billion, behind only bitcoin ($1.04 trillion). It was created in 2015 by Vitalik Buterin, who sought to build a blockchain platform that could run and run any type of software program or application. Bitcoin is relatively rigid in its composition, which is by design, as more functionality provided by a blockchain can also create additional security vulnerabilities.
Ethereum works in a similar way to bitcoin, where miners spend significant amounts of computing power to add transactions to the network.
That said, there are many other prominent blockchains with their own protocol tokens, and some of the biggest ones are Solana, Algorand, Cardano, Binance Smart Chain, Avalanche, EOS, and Polkadot.
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If the base layer of a blockchain is the operating system, then decentralized applications (dapps) are programs that run on top of them. Many of these applications have their own tokens (known as dap 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 — 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, which was a reflection of the novelty, hyperbole and excitement in the space.
However, today there are still dozens of existing dapp tokens with market capitalizations of hundreds of millions or even billions of dollars that support real service applications and actual money-making business operations titled decentralized token finance (DeFi). Some of the most prominent include Compound, AAVE, Uniswap, SushiSwap, Curve, PancakeSwap and Maker.
DeFi is an umbrella term used to capture traditional financial applications (such as banking or lending) that replicate on a 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 if/then 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, there are more than $270 billion locked up in blockchain applications and DeFi tokens.
Finally, it is important to note the latest development in crypto, non-fungible (NFT) codes. A basic element of money, or cryptography, is that every asset must be valued equally by every investor. They should 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 features or characteristics that make them unique. If bitcoin is the first iteration of digital scarce value, then NFTs are its natural successor.
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For many investors, exposure to spot market prices was risky and/or profitable enough for their first foray into crypto. However, as the industry matures, we are beginning to see ways investors can earn passive income on their properties. This strategy can help achieve profits or hedge against price risk.
Staking is the act of posting certain crypto assets as collateral to participate in the operation of a blockchain. As compensation for closing assets, users receive regular rewards in a manner similar to interest payments. Staking is useful for the operation of blockchains
Which is the intensive and expensive mechanism used in bitcoin, litecoin, bitcoin cash and many other tangents to the original blockchain.
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Although POW has proven itself to be very safe and effective in most cases, there are growing concerns about its energy use and associated carbon footprint. Additionally, POW blockchains have scalability and throughput issues (Bitcoin can only process a fraction of transactions per second), while POS platforms can handle hundreds of thousands per second.
Furthermore, while Ethereum remains a POW blockchain, it is possible to establish its own native ether. This is because Ethereum is currently undergoing a multi-year transition from a POW to a POS consensus mechanism in order to support the high demand for its computing resources.
Please note that POS consensus mechanisms are not homogeneous, and each blockchain network may use a different way to calculate aggregation rewards, taking into account various factors such as:
In addition to purchasing DeFi tokens, it is also possible to earn them through a process known as yield farming.
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Production agriculture can be considered as DeFi 2.0. Previously, when you would provide liquidity to a decentralized exchange or lending protocol, you would simply earn a fee or earn an interest. However, last summer Compound started a new trend that rewards users with governance tokens, COMP in this case, as an incentive program.
In keeping with the decentralized ethos of the space, governance tokens are the mechanism by which each protocol founder hands over control of the platform and hands it over to users. In turn, token holders can use their ownership shares for additional rewards or vote on governance decisions that differ between protocols.
In fact, they have created so many governance and farming opportunities that they have created a group of DeFi wallet managers to help move user funds between opportunities to maximize rewards and reduce transaction fees. Think Betterment or Wealthfront for crypto. One of the most important of these is yearn.finance, which has $28,000 worth of YFI governance tokens.
When Coinbase (COIN) went public in April with the largest direct listing in US history, many investors believed it was their first opportunity to gain crypto exposure through brokerage accounts. However, there are many publicly traded securities that have provided exposure to the crypto space for some time. I can’t mention them all here, but there are two main categories to keep in mind.
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An ETP can be considered a wrapper around an asset or group of assets such as bitcoin and cryptocurrencies, which are traded on an exchange as a security. Exchange-traded funds (ETFs), such as the State Street SPDR S&P 500 Trust ETF, are the most common form of exchange-traded product. Common exchanges where crypto ETPs can be found include OTCQX from OTC Markets, Nasdaq Nordic, CME Group (for crypto futures and options), Deutsche Börse’s Xetra, Swiss SIX Exchange and Canada’s Toronto Stock Exchange. These exchange-traded funds can be found at most discount brokers, such as Fidelity, Charles Schwab, or TD Ameritrade (although exact offerings vary by provider).
The largest ETP provider is Grayscale, whose bitcoin trust (GBTC) is by far the industry’s largest fund available to investors by AUM (assets under management)—$36.6 billion as of this writing. That said, while GBTC has traded at a premium to its net asset value for most of its existence, the onslaught of competition has seen its shares fall at a double-digit discount for most of 2022. Grayscale offers similar products structured according to other assets. such as ether, litecoin, ethereum classic, solana and even some diversified indices.
But the ETP crypto market is much more than Grayscale. For example, Swiss Exchange SIX Switzerland has a strong list of crypto ETPs exceeding 40 indicators, with the largest trading volume being WisdomTree Bitcoin (BTCW.SW) and 21Shares Ethereum ETP (AETH.SW). Canada’s Toronto Stock Exchange launched North America’s first crypto ETF in the first quarter of 2021: Target Bitcoin ETF (BTCC, $1.4 billion AUM)—which got off to a strong start by raising nearly $1 billion in its first month—Evolve Bitcoin ETF (EBIT, AUM US$198 million) and CI Galaxy Bitcoin ETF (BTCX, NAV US$484.5 million).
Additionally, October saw the launch of the first US bitcoin ETF. However, they do not reflect bitcoin spot prices, but futures contracts that are traded on platforms such as the Chicago Mercantile Exchange. The first to launch in October was the ProShares Bitcoin ETF (BITO, AUM $1.25 billion. However, other offerings include the Valkyrie Bitcoin Strategy ETF (BTF, AUM $98 million) and the VanEck Bitcoin Strategy ETF (XBTF, AUM $14.6).
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