The main use of decentralized currencies is as an investment. As in any situation where you are looking for a financial product whose goal is maximum return and minimum risk, whether short-term or longer-term, the recommendation is to compare several alternatives – this rule is true when buying shares, when choosing a provident fund for investment, when deciding which pension fund to deposit into each month – And also when buying digital currency. In fact, the complexity of the crypto market, its unique characteristics and high volatility, require a comprehensive and in-depth comparison as possible.
A comparison between two (or more) digital currencies requires reference to a long list of relevant parameters.
One parameter is the volume of currency trading. At the same time, it is important to carefully consider the various data that are published in relation to trading volumes – there are studies according to which a significant part of the transactions is fictitious. A second parameter is the way in which each digital currency is produced, as well as the maximum possible amount (Bitcoin, for example, is designed so that in 2040 its mining process will be completed, and in total there will be 21 million Bitcoins in the world).
Another parameter is the security system of each decentralized currency. Another consideration is the rate of block creation – transactions in digital currencies are carried out using Blockchain technology, a block chain, and the higher the speed of block creation, the more transactions can be made in a given period of time and the higher the growth potential of the specific currency.
Each digital currency has a WhitePaper in which all the relevant information about it is detailed. Reading this document provides a basis for an initial understanding of the seriousness of that currency, its characteristics and the chances of generating an impressive long-term return from it.
For example, reading the WhitePaper of Bitcoin and that of Cardano reveals several differences between these two decentralized currencies: in Bitcoin, the maximum amount of coins is 21,000,000, as mentioned, and each coin can be split into 100,000,000 parts. In Cardano, you can reach 45 billion coins, and each coin can be split into a million units. Regarding the production of coins – Bitcoin is mined by whoever finds a block according to the amount of blocks already in circulation, while Cardano is mined by a miner chosen by people with 2% or more (the more coins there are, the greater the influence on the choice of miners). The speed of the blocks in Bitcoin is 9.5 minutes, and in Cardano – 20 seconds. Bitcoin’s security mechanism is based on Blockchain technology, while Cardano’s is based on the democratic choice of miners (by the way, Cardano is the name of the platform, and the coin itself is called Eda).
Another interesting comparison is between Bitcoin and Ethereum – a platform that went live in 2015 after two years of development (by a team led by Vitalik Buterin who was only 19 years old at the beginning of development). One significant difference is that the amount of Bitcoin as mentioned is limited, while Ethereum is designed so that there is no limit to the amount of coins (although the rate of production decreases over time). Also in terms of the time interval between blocks there is a difference because in Ethereum it is only 15 seconds.
The most important emphasis regarding digital currency trading is based on knowledge. First, it is useful to gain general knowledge about the crypto market, and in particular, as mentioned, the differences between the various decentralized currencies, and then it is very advisable to be updated regularly because it is a frenetic market in which there are many changes. Only constant learning and updating will ensure optimal decision-making – and maximizing the potential of the innovative currencies.
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