Cryptocurrencies can be considered as a kind of digital money designed specifically to take leverage of the specialized architecture of internet. Conventional money or fiat money relies on a standard financial institution(s) for authentication and verification of transactions. On the other hand, cryptocurrencies rely on computer systems of the users and blockchain technology of a particular cryptocurrency network to check or “confirm” the transactions.
The computer systems used to verify and authenticate the transactions are usually rewarded with a small amount of the same currency in return of their services. This typical process comprised of verification and rewarding is referred collectively as “mining”, and is considered as the primary method of producing the new units of any specific cryptocurrency. Different cryptocurrencies have slightly different mining procedures in place.
Since cryptocurrencies are entirely digital, they enjoy the flexibility to be used in ways traditional money can’t be used, serving as the digitized equivalent of cash. You don’t need to have a typical bank account to use cryptocurrencies. Instead, you can use them in various different ways to buy goods and services. For example, you can trade at Newegg.com and Overstock.com using a renowned cryptocurrency, Bitcoin. Unlike huge transaction fees involved in fiat money networks, some cryptocurrencies don’t have transaction fees at all, while others have significantly lower compared to credit and debit cards and banks’ service charges.
Past few years have seen a tremendous growth in the use of cryptocurrency, especially because of the huge returns offered by so many cryptocurrency networks; for example, Bitcoin market cap went past a whopping US $17 billion recently and countless people have earned huge returns on their initial crytocurrency investment in bitcoin. This inspires many newcomers to claim their fair share of the deal as well, but they don’t know what to consider while determining which cryptocurrencies to invest in.
Market Capitalization of a Cryptocurrency investment and Its Daily Trading Volume
The market capitalization of a cryptocurrency is equated by the total worth all of its coins currently in circulation carry. High market capitalization means a high value per coin of a currency, which also reflects a huge consignment of available coins. Some experts give daily trading volume of a currency even more importance than its market capitalization, as it indicates the value of coins in circulation that exchange hands every day. That’s why it is advised to go for a combo of high daily trading volume relative to the total market capitalization.
Different cryptocurrencies rely on different methods for verification of their transactions, “proof of work” being the earliest and the most commonly used one. It entails dedicating significant amount of time and operational resources of a user’s computer system to solve a complex mathematical problem. One of its most commonly used alternatives is termed as “proof-of-stake” method, which tackles the limitations of its predecessor verification method by designating the verification authority to the users having largest share of the currency.
Another important aspect to consider the most appropriate cryptocurrency investment is to gauge its acceptance rate in traders and retailers, because it won’t be of much importance if you can’t really buy anything with it.
Cryptocurrency is still very much of an evolving technology and people are quite cautious in accepting it, which is the right thing to do. However, the way it has grown in such a short period of time speaks volumes about the potential it holds. So, make sure to consider the facts stated above if you want to make the most profitable cryptocurrency investment.