The most popular cryptocurrencies are different from one another in certain ways that a lot of people find difficult to grasp. This makes investing in a cryptocurrency risky since people cannot properly assess their situation and where the cryptocurrency is heading.
Learning some of the basic factors that go in to a cryptocurrency’s success will go a long way in investing in the right one. Here are some of the basic factors that people should look into when they want to invest in cryptocurrency.
Daily trade volume and capitalization
Cryptocurrency, in a figurative way, can be seen as something similar to stocks. The value of a stock depends largely on its capitalization since the stock represents an undivided interest in the corporation’s assets. Cryptocurrency’s coins work in a similar manner.
Market capitalization represents the total worth of a cryptocurrency’s coin. High values for market capitalization indicates that the cryptocurrency’s value is high. Either that, or there are simply a lot of coins on the market.
Another important factor is the trade volume. Daily trade volume represents the number of times the cryptocurrency’s coin exchanges hands on a regular day. A high exchange rate is a good indicator that the economy tied to the cryptocurrency is healthy. Cryptocurrency investors keep an eye out for this because it is a good sign that the cryptocurrency is stable.
Method of verification
In essence, cryptocurrency mining is basically processing a transaction by calculating a math problem using computer hardware. A cryptocurrency’s system sends out blocks of transaction that its network will process. Processing these transactions rewards the owner of the computer coins from the cryptocurrency. This process is called mining.
A major difference among the most popular cryptocurrency is the method of verification. Proof of work is one of the oldest and widespread methods for verification. Computers have to solve complex math problems that require spending a lot of time and energy. This is why some cryptocurrency investors do their business in locations where the cost of electricity is cheap.
Proof-of-stake systems try to remedy the problems seen in the above mentioned method of verification by letting users with a larger share verify most of the transactions. Its advantage is that the processing power required in this system is less compared to proof of work. However, its downside is that there are security risks involved in this method of verification making it a less of a popular choice among users and investors.
Legal status and retailer acceptance
The legal status of cryptocurrency is a very hot topic. In a lot of countries, cryptocurrency is not legal tender. In layman’s terms, it is a form of currency that cannot be used to satisfy legal obligations. To illustrate, a creditor is legally compelled to accept payment made in the form of currency that is legal tender. The same is not true with cryptocurrency.
In some countries, for example Thailand, some forms of cryptocurrency is outright illegal and cannot be used for transactions.
It is worthy to note that cryptocurrency is still subject to tax. After all, it is something that has legitimate value in the sense that some businesses accept it as a form of payment for goods or services.
Since it is not legal tender, the number of business entities that accept cryptocurrency is quite limited when compared to regular currency. However, the number of business entities which accept cryptocurrency as payment has been increasing and diversifying throughout the past few years.
One of the biggest advantages of the most popular cryptocurrency is that a lot of retailers accept them as a form of payment.
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