Today, we’ll cover more about the different types of cryptos and why you would want to invest in them.
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Platform - like owning the land every crypto project is built on
If you read part one, you’ll remember I broke cryptos into three main categories: Currency, Platform and Utility.
I only discussed the most familiar one, currencies – like Bitcoin, Litecoin and Monero. So today, I’m going to explain the last two types of cryptos – starting with Platform cryptos.
They’re called platforms because they are essentially a platform on which to build other cryptos and apps or decentralised apps.
You can think of platform cryptos as being like land. If you own the land, you get a cut of whatever is built on it. And what’s key to platform cryptos is their ability to utilise “smart contracts”.
To explain, think of a business that provides goods and services.
Your customers pay you for the goods or services at a price you both agree on, when you deliver it in a time-frame and to a standard you both agree on.
This is the basic contract of most businesses. And just as with a financial transaction, it requires trust. You’re trusting that the other party sticks to the terms you both laid out. If they don’t, you will need to get a third party involved – lawyers, banks, etc – to settle it.
Smart contracts are the opposite. They execute automatically with no need of a third party to verify them. The whole process is automated and the contracts can be customised endlessly to fit different situations.
Many of the new cryptos coming out today are based around the creation and execution of smart contracts. But there are three major platform crypto players you should know.
Ethereum: The undisputed #1 in this space
NEM: A user-friendly Ethereum, but faster, easier to use and big in Japan
NEO: “the Ethereum of China
Of these three, Ethereum is by far the safest bet. It has countless major companies working with it and has a number of working Dapps built on it.
Usually, when you see an initial coin offering (ICO), the chances are that the crypto is built on the Ethereum platform.
Utility cryptos - Get value from their use in a system
If platform cryptos are like land, utility cryptos are the businesses built on that land. Utility crytos have one thing in common – they get their value from their use in a wider system.
They are very popular, but the thing is, a lot of utility cryptos don’t serve a function. Many are just used by businesses as a way of getting funding, so they serve no purpose other than to say you gave its creators money.
Most utility cryptos are tokens. This means they don’t have their own blockchain and are created on top of one of platform cryptos, like Ethereum or NEO.
An example of one of the most promising utility cryptos is OX. To explain what OX does, consider this…
One of the fundamental rules of crypto is you don’t leave your crypto on an exchange as they’re vulnerable to hackers.
In addition, some exchanges can’t be trusted at all. Sometimes they withhold your funds for no apparent reason. Sometimes they close down or get shut down by governments.
But there’s a solution for this…Decentralised exchanges.
The idea behind this is that people trading never hand over their cryptos to the exchange. They simply trade with each other, using smart contracts so no one gets scammed.
OX is a major player in decentralised exchanges right now. OX is the software the decentralised exchanges need to run on. And because of a number of high-profile hacks, OX has become more popular.
Just remember, the key with utility cryptos is to look very closely at their proposed use case, and why that would or wouldn’t make them valuable.
I can’t reiterate this important point enough
As I mentioned in part one, before you invest in any crypto whether it’s platform, currency or utility, make sure you DO YOUR OWN RESEARCH
. I can’t reiterate this enough.
Just a reminder, here’s what you can do…
Read the whitepapers
Go on the crypto’s website
Look at the Reddit communities
Now that you have a basic understanding of the different types of cryptos, it’s time to move to the next level – where l’ll pick up on in part three.
Today’s article is a lot to digest, so I’m going to stop here for now. But you can join me next week for part three where I’ll discuss…
How to structure your crypto portfolio
How and where to buy/trade your cryptos
See you next week for part three.
Always remember, knowledge brings you wealth,
We just released a special “2018 Crypto Roadmap”
in February issue of the South African Investor
detailing the five cryptos to buy and hold in 2018 and one crypto avoid. Do yourself a favour and read every word.
It could be your best chance to make life-changing money from the booming crypto market.