pitfalls and opportunities in the cryptocurrency market

ARTICLE I: Blockchain and cryptocurrencies: quesaco?

ARTICLE II: Securing your crypto wallet

ARTICLE III: The legacy and sequence used in cryptocurrencies


You still need to know what to invest. This article will not focus on providing investment advice, but on determining what the idea of ​​the world value of cryptocurrencies represents and distinguishing between the different types of assets that exist within this ecosystem.

I. The idea of ​​value in the digital asset market

Investing in cryptocurrency requires a different analysis from investing in bonds or stocks. To understand this, you need to ask yourself the following question: Where does the value of this asset come from?

The answer can be very different depending on how many cryptocurrencies are already available. Bitcoinfor example, its value is derived from the tools it can perform: store value (which it has now, it is clear, only the characteristics for the lack of having the real situation, despite the disturbing similarity in behavior when a comparison is made between the price of gold and of Bitcoin price over time See Appendix end of this article.), uncensorable medium of exchange (anyone with a computer and electricity can join the network), and so on.

The value proposition of Ether, second capitalization of the cryptos market, contains the possibility to automate the interactions of its register, to allow a new way of financing or investment (through NFTs or token creation) and to be able to do its 24/7. Other use cases may still be considered in the future. However, where Bitcoin stands for its unique history, Ethereum’s ability to maintain its leading position among smart contract platforms is less clear due to the arrival of several competitors: Elrond, Tezos, Solana, Algorand, BNB, and more.

On the other hand, Ether has a huge advantage over its competitors because the network brings together a large number of developers, making it the center of innovation in the cryptocurrency sector. Knowing this and imagining that the Ethereum 2.0 update would have to change its consensus approach to reduce power consumption and improve the ability to manage multiple transactions, what would be the added value to other networks if compared to Ethereum?

These questions should be asked for any investor looking for an interesting position. The cryptocurrency market was similar to all aspects of the internet in the early 2000s, so in -depth and lengthy analysis of assets was an absolute must.

Many competitive advantages can be identified and can lead to saying that “this asset will still exist for 5 years”: the ability to innovate and find new uses in blockchain technology, the ability to form partnerships with companies or states to bring new solutions to reality. -difficulty of life (working on disintermediation of copyright flows for example), the ability to convert new generations of developers to work on their network rather than another, etc.

You may have noticed that we have discussed the case of so -called “infrastructure” networks to discuss the idea of ​​value. However, not all digital assets are cryptocurrencies. Tokens and NFT can be a worthwhile investment, but always keep this question in mind: “Will this asset survive the next five years?” “. Some criteria allow, at the very least, to make a non-negligible sorting.

II. Characteristics of a digital asset

It is no exaggeration to say that most investors who resort to cryptocurrencies are unaware of what they are investing in. Utility tokens, cryptocurrencies, NFT, these various assets have in common that they are difficult (though impossible) to define as special cases are common.

Each token / crypto / NFT works with unique rules, although it is possible to classify them according to different behaviors. For each class, the value proposition question will be asked. These classes are not complete, but they have merit that is easily recognizable.

1) Cryptocurrencies

Cryptocurrencies are the means of exchange used by blockchain networks to pay transaction fees or participate in network security (validating transactions, being a player on the network by guaranteeing its decentralization) . The corners serve, in a way, as fuel for the network to keep it going.

Incomplete examples: XTZ (Tezos), ETH (Ether), AVAX (Avalanche), and so on.

Investing in a cryptocurrency is investing in the network it runs on. So we have to ask ourselves if such a network will be used, for what reasons, and if these reasons are important enough for the third economic actors in the blockchain who have reasons to use it (tokenization of material or real estate assets, alternative financing, currencies digital central banks, etc.).

2) Signs

Tokens are assets that operate in a blockchain register that do not serve as a means of payment to cover the transaction fee (reserved for cryptocurrencies). Tokens come in a variety of types, and the most well-known are protocol management tokens, which is a voting system usually put in place that allows anyone holding a token to able to vote on proposals. A minimum of tokens is usually required to propose new measures, and a quorum must be reached for these measures to be validated.

Specific rights may accompany this management power: participation in the benefits of the protocol, reduction of the cost of its use, and so on.

Incomplete examples: CRV (Curve protocol), AAVE (Aave), UNI (Uniswap), and so on.

There are also a variety of so -called utility tokens. These are tokens that are intended to be used directly for the use of a service. It is therefore necessary to ask whether this service will be so successful that its demand will increase proportionally.

Incomplete examples: UOS (Ultra gaming), BAT (Brave), LINK (Chainlink)

In these cases, a token-by-token method must be performed because they do not have to have the same function, but are usually the main characteristic involved in claiming the value of a token. is the use of the underlying protocol.

3) NFTs

NFT is a unique network registry address that acts as a reference to a file (photo, video, link, etc.) Two things are important about NFT: does it have to represent a job or a right? In both cases, the location of the file hosting (IPFS, private hosting or blockchain internal storage network (e.g. filecoin or arweave) .These solutions are very different and can have an impact on security. -on the file.

The rights that can be attached to NFTs are the same type as regular tokens.

We’ll categorize a wide variety of more alternative properties from purchaseable land in a metaverse to digital artwork, props, and other game content. Here too, the question of the long -term success of the artist or the service offered must be considered.

As you read these asset classes, you will understand that risks are common and economic Darwinism is very important in this market. If it is, now, difficult to position oneself in a particular asset, it is better, for now, to concentrate on the class of cryptocurrencies, those that will be used as fuel for a network to be used in the future.

As such, the significant partnerships made by recognized institutions can be good indicators to make this choice.

We haven’t had a chance to address the idea of ​​tokenomics being, however, a key trait that needs to be explored. This can be answered immediately in our final article devoted to return techniques and revenue generated through blockchain technology.

In any case, the Montaigne Conseil is at your discretion for any question related to investing in digital assets.


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