Over the last few months, cryptocurrency has seen a huge surge as big-time investors finally start to jump on board the bandwagon. The global total market cap for the cryptocurrency is currently over 1.8 trillion dollars. If you’re considering investing in cryptocurrency then it’s important to know the different types of cryptocurrency. Let’s take a look at the four main types of cryptocurrency as well as some specific coins that are a great place to start for a new investor.
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Proof of Work (PoW)
Proof of work coins is where it all started. Blockchain technology requires proof of work to process transactions. This is how coins like Bitcoin, Ethereum, and Dogecoin work.
All three of these coins are great choices in cryptocurrency for beginners. Proof of Work coins are available to buy on all exchanges, but you might want to find out more about buying dogecoin first.
Proof of Stake (PoS)
Proof of stake is slightly different from PoW. Proof of stake works to maintain the integrity of cryptocurrencies. It’s similar to how PoW coins work, but it takes much less computing power and energy consumption to do so.
Ethereum is currently looking at integrating proof of stake into its new upgrade. One of the earliest and most successful proofs of stake coins is Cardano (ADA).
Other proof of stake coins worth considering for a new investor include:
- ATOM (Cosmos)
- ALGO (Algorand)
- RUNE (ThorChain)
- ROSE (Oasis Network)
- ICX (ICON)
Nothing is a given in the crypto-world, but more coins will likely be geared towards proof of stake due to their increased integrity and efficiency.
Tokens
You can use Pos and PoW coins as a digital currency. Tokens, on the other hand, are built on existing blockchains and they’re more like the chips you get at a casino.
You can’t exchange tokens directly for fiat currency. This means their value is assessed against the cryptocurrency that the specific token belongs to.
If you’re a new investor you might want to assign around 25% of your portfolio to token coins. Some great choices to look in to include:
- CHZ (Chilliz)
- SUSHI (SushiSwap)
- MATIC (Polygon)
- BNT (Bancor)
- RSR (Reserve Rights)
More recently, a type of token known as NFTs (Non-fungible tokens) has become increasingly popular. NFTs represent unique digital items. Think of them as digital collectibles.
Stablecoins
Stablecoins are designed to maintain the same value. This makes them a great choice for storing your digital wealth.
Let’s say you make a 100% profit on a coin like SushiSwap. You trade your SushiSwap to Bitcoin. But Bitcoin can depreciate in value, so you might end up losing your profits.
If you trade against a stablecoin, it’s a lot like trading into a fiat currency. If you want to guarantee that your profits are safe, always trade into a stablecoin or fiat currency.
Investing in Cryptocurrency
Now you know about the different types of cryptocurrency you can make a better decision as to how you’ll invest. It’s important to remember that the cryptocurrency market is extremely volatile.
You need to be aware that you might lose money as well as make it. As with all investments, only invest what you can afford to lose.
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