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Cryptocurrency is often discussed these days as an innovation that will revolutionize money, personal finance, banking, and financial services more generally. Cryptocurrencies digitize currency and try to make it independent of centralized authorities like banks or other financial institutions. Discussions of this decentralization often include mentions of distributed ledgers, blockchains and blocks. These are key technologies that underpin the operation of cryptocurrencies, and grasping how they work helps our understanding of the changes that crypto might bring.
If you are a investor or hope to become one, you know that the world of crypto is highly unstable and volatile. Fortunately, as digital currency advances so does the innovation behind it. Furthermore, assuming you need strength, life span, and dependability, you want to put resources into this innovation.
Cryptocurrencies are digital currencies secured using cryptographic techniques. They generally operate on a peer-to-peer basis and are, to varying degrees, decentralized. This means they don't rely upon a central authority but instead settle transactions in accordance with a set of predetermined rules known as a protocol. Transactions are generally recorded on a blockchain.
Peer-to-peer or P2P networks are distributed systems in which each peer or node contributes to the working of the system by sending and receiving data without the need for a centralized server. This allows P2P networks to be scalable and resilient. By eliminating a centralized point of failure, it can allow them to be very secure. In the absence of a hierarchy subordinated to a central authority or server, consensus is required for nodes on a blockchain network to reach agreement.
Cryptocurrencies aspire to broaden access to financial services in a secure and scalable way. For this reason, many cryptocurrencies and blockchains opt for decentralized structures that use consensus and allow permissionless participation. This helps to open up access to the system while making it more resilient and secure.
What's decentralization?
A decentralized network does not rely upon a central server or node around which other, client nodes are arranged. Rather than a single co-ordinating master node, decentralization uses multiple master nodes to share data processing and storage and to serve client nodes. This can improve resilience, speed, security, and flexibility, but requires additional coordination.
A distributed network does away with master nodes and shares the network's workload equally across all nodes. This less hierarchical model requires effective consensus-based decision-making. Decentralized, Distributed, and Trustless Systems - networks are scalable, transparent, and highly resilient.
What's a block?
A block is a file in which transaction data is permanently recorded. Cryptocurrencies store these blocks in a linear sequence or chain, which is referred to as the blockchain. Data in a block might include the nature of the transaction or transactions recorded, a timestarnp, and a unique, cryptographic reference to the immediately preceding block.
Cryptocurrency DeFi Finance
Imagine making money with your cryptocurrency while taking out a loan on that same investment, essentially paying your borrowing interest with your crypto profits. Sounds like an investor's dream come true. However, it is now a reality with DeFi technology.
While the process requires knowledge and finesse, DeFi has many investors taking the time to learn about this new investment opportunity. In fact, its popularity has grown since its inception in 2017 to include over $54 billion locked into over 100 different platforms. If you want to take advantage of this technology, then getting in on it early is key. Start here by learning why DeFi is the future of cryptocurrency finance.
Coins, Tokens, and NFTs
Cryptocurrencies are a widely discussed innovation in the areas of technology and finance. Coins are a longstanding part of currencies, so it's unsurprising to hear them mentioned in the context of cryptocurrencies, less obvious is the distinction between a coin and a token or what distinguishes a regular token from a non-fungible token or NFT.
A coin is a unit of the native asset of a given blockchain and tends to function as a currency unit within the blockchain's financial system, being used for exchange or storage of value on that blockchain. Such a coin is not dependent upon any other third-party blockchain.
Though these terms are often used interchangeably, this independence distinguishes coins from tokens. A token is generally issued on a third-party blockchain, that is, it is not the native asset of that blockchain. Tokens more often serve utility functions. For example, they can represent some other asset that has been tokenized. That might be a real-world, physical asset, or it might be an entitlement to online storage or processing capacity or to a discount on the cost of online services.
What is DeFi?
Short for decentralized finance, DeFi functions just as it sounds. If you know anything about cryptocurrency, you know that it operates on peer-to-peer networks (blockchains) and processes secure, anonymous transactions. The same goes for DeFi, except that instead of trading cryptos, it acts like a bank, providing financial assistance to its constituents.
It does this by using a blockchain, most often the Ethereum Network, to connect people via smart contracts. Various DeFi platforms host these smart contracts, allowing users to interact with each other and the network itself. Interactions include lending and borrowing cryptocurrencies like bitcoin and altcoins, stablecoins linked to fiat like USD, and tokens that represent assets within a community of holders.
Some DeFi platforms also act as decentralized exchanges (DEX) where liquidity pools are created by its users and transactions are not maintained or monitored by any company. This keeps transactions anonymous, unlike centralized exchanges that require a KYC. Let's get into about what makes DeFi the perfect investment haven.
How Does DeFi Make Investing Easier?
Getting a loan through a bank requires collateral, credit, identification, and approval. You also need a specific good reason to ask a bank for money, whether it be a business, personal, or car loan. The bank wants to know how you will use their money, which affects their decision to approve your loan.
DeFi literally defies all of these traditional standards by only requiring one thing: collateral in the form of crypto. In addition, DeFi also makes the post-loan process easier. Interest rates, for example, could be as low as 0%. This depends on which coin, platform, and interest option (stable or variable) you choose to borrow. However, the average interest on a small business loan from a bank ranges from 2.54% to 7.02%, depending on individual variables.
Another innovative aspect of DeFi is its lending feature. Create a passive income using your crypto investments by placing them on a lending platform. Your interest rate has no limitation and is determined by the influx of supply and demand on the platform as well as its liquidity of coins.
Next Gen of Cryptocurrency Finance
It's often said that cryptocurrencies allow you to be your own bank, or, alternatively, to be bank-free. The idea is that when you use cryptocurrencies, you get greater control over your money than the traditional banking system allows.
Traditional banks offer practically no interest, making crypto appealing in comparison. In addition, you get to do a number of things with cryptocurrency, commonly associate with traditional banks - use debit cards, make direct deposits, make international payments, and so on.
The crypto economy is quickly gaining recognition as a viable financial system that you can turn to for your financial future. What follows are examples of the ways in which you can make crypto a part of your life.
Get your paycheck deposited directly
From PayPal to Square, many financial services companies allow you to have your employer direct deposit your paycheck there, making it easier for you to turn the funds into crypto. Some crypto exchanges allow you to directly deposit your paycheck with them in part or in whole, and convert it to crypto automatically, as well, making for a seamless crypto experience. You can often even get a crypto debit card and earn crypto rewards when you use it. All of this activity frequently comes with no fees. Even some regular banks, allow you to make crypto a part of your regular accounts.
What's a crypto card
Both Visa and MasterCard have done considerable work bringing crypto into the mainstream. Visa, for instance, ties up with dozens of crypto wallet providers. You can take your crypto balance, and use it in the form of a credit or debit card at millions of merchants worldwide. Visa processed about $2 billion worth of crypto payments and receipts in 2021.
Staking
With many cryptocurrencies now, staking is a way to speed up crypto transactions. Staking allows crypto networks to verify and secure transactions without inserting a costly and time-consuming payment processor into the mix. Being part of a proof of stake and locking some of your crypto funds can even earn you rewards.
Crypto Investing - Caution! ⚠️
Investing in the right cryptocurrency can help you gain financial freedom. Many people will never have to work again because they made the right decision to get into crypto early on. What can you do if you're just getting started? Here are three tips you can start using today to increase your chances of success.
Reduce your risks using insight
Each currency has a different approach to how it's managed. As such, part of your success depends on the people who stand behind your investment. Even though the currency itself is decentralized, a team leads each project. The safety of your investment depends on the effectiveness of each project.
Look out for the level of support the currency has from developers. Before you put any money in, go onto the project's website. Search for developer forums related to that project. This exercise will reveal insights that will help you decide if your money is safe. Then observe the behavior of past investors.
For instance, consider how long investors tend to hold your chosen currency. Match that against your personal approach. Make your decision by asking yourself if you'll be in good company.
Give yourself time - Long-term gains
There was a time when few people could see the value of crypto. As soon as crypto got some mainstream recognition, there was exponential growth. Many people got rich. However, the modern market has become much more sophisticated. You can't expect the same gains as the original investors did.
Of course, it's still possible to make money overnight but that's not a sound investment approach. Focus on playing the long term game. Don't rush into making large amounts of money quickly. Holding for long periods is the easiest way to make a profit. Patience, combined with the next tip, is the key to investing.
Thanks for reading!