Become a better investor
Lesson in Course: Crypto (advanced, 5min )
We want to invest in crypto. Which ones are the most popular and why?
Even though stablecoins allow us to dip our toes in crypto with less risk, they don't generate much of a return. There are several other cryptocurrencies out there that create a return and enable us to participate more in decentralized finance.
To narrow them down, let's consider what we want to get out of our crypto investment. If we intend to buy crypto to make quick money, we'd be speculating. There are many cryptocurrencies to do that with; however, as investors, let's consider the long-term prospects of crypto and how much utility we want. Once we decide if we wish to invest in coins or want utility, we'll consider a few popular starting points: BTC, ETH, BNB, and FTM.
Investing in coins is excellent if we believe in a world with better and faster decentralized digital payments but don't want to get into the nitty-gritty of how different blockchains work.
The largest digital currency is Bitcoin (BTC), and it was created to eventually become a replacement for traditional cash. While Bitcoin isn't the only coin available, it's the most widely recognized and used. Adoption and recognition are two important factors when it comes to currency.
For example, the US dollar is recognized and transacted by domestic and international companies, with people and businesses worldwide choosing to use US dollars. On the contrary, the value of the Argentinian peso declined relative to the US dollar due to weaker acceptance and concerns about inflation, leading to skepticism about its perceived value.
When investing in a decentralized global currency, we should consider the winner-take-most nature of adoption and recognition.
Investing for utility enables us to take a step further than investing in coins. Utility tokens allow us to use our crypto in large swaths of DeFi communities building on specific blockchains. By investing in utility tokens, we are investing in increased future usage and adoption of blockchain technology.
Ethereum is the most popular blockchain used in DeFi. If we've purchased a stablecoin, we probably already interacted with the Ethereum blockchain.
Other dApps built on Ethereum, like those that power NFTs, all follow ERC-20 standards and require ETH, the utility token, to execute their smart contracts. We can expect the adoption of ETH to grow as these dApps attract more users.
Binance, a popular centralized exchange, launched its own blockchain after switching from Ethereum. Doing so allowed Binance to spin up its own decentralized exchange, DEX.
BNB is the crypto token used in transaction fees on Binance.com, Binance DEX, and Binance blockchain. We can expect the adoption of BNB to increase as more people trade on Binance's exchanges.
Fantom is an up-and-coming blockchain that offers solutions to some of Ethereum's weaknesses at scale. Fantom's Lachesis consensus mechanism is a proof-of-stake method that can facilitate thousands of transactions per second. Fantom limits spikes in transaction and gas fees. A few organizations have started using Fantom, including the Afghanistan Ministry of Public Health, Royal Star Pharma, Chainlink, and Ontology.
If we are curious about alternative digital assets to cryptocurrency, we'll need to purchase crypto first to pay for those assets.
Investing in NFTS allows us to be collectors and own digital assets regardless of how we feel about decentralized finance or blockchain technology.
If we are interested in NFTs, we should consider buying the native crypto of the blockchain that the NFTs are built on. For example, the majority of NFTs are created on the Ethereum blockchain and are purchased with ETH.
Buying NFTs on the marketplaces requires us to be custodians of our own digital wallets like Metamask. These wallets allow us to spend ETH or any other crypto to purchase assets and allow us to access DEXs.
Depending on the CEX we choose, some coins or tokens may not be available for competitive, regulatory, or technical reasons. If this becomes a limiting factor for us, we can move our digital assets into our own wallets and use DEXs with more options.