Cryptocurrencies and Non-Fungible Tokens (NFTs) represent a unique class of investable assets based on distributed ledger technology. This Alternatives Learning Module aims to equip investors with knowledge about these innovative investments.
Digital assets are speculative investments with significant risks that should only be undertaken by those with an elevated risk tolerance.
What is a Cryptocurrency?
Cryptocurrencies are digital currencies that operate without the intervention of a central authority such as banks or governments, like bitcoin. A public ledger known as blockchain records and cryptographically secures these transactions - payments or investments alike can use it.
Crypto analysts often view cryptocurrency as noteworthy for two main reasons: it doesn't take physical form like paper money or coins and operates through decentralized networks using blockchain technology - making transactions possible without needing middlemen like banks that slow or stop processing these transactions.
cryptocurrency has received much publicity recently, yet remains an evolving field. Some experts see its potential to revolutionize finance while Warren Buffett has previously called it a bubble.
What is a Blockchain?
Blockchain is a technology for creating immutable records and transactions, featuring timestamped blocks of transaction information, executed smart contracts, verification codes and verification code linked together in sequence. Each block can only be altered once and cannot be modified later or forgeried by anyone.
Blockchain networks are designed so that multiple computers maintain copies of a shared ledger to reduce risk and ensure faster and safer transfers of value.
Cryptocurrencies and non-fungible tokens (NFTs) are digital assets that utilize blockchain technology. Investors have an opportunity to participate in the growth of this new asset class using Blockchain technology, while supply chains benefit from increased transparency and decreased paperwork reducing operational complexities.
What is a Cryptocurrency Token?
Cryptocurrencies are digital assets protected by cryptography that operate in decentralized systems. They don't rely on central authorities for recording and verifying transactions, allowing 24/7 trading worldwide.
Online financial institutions are faster and cheaper than traditional institutions, only requiring access to an internet-enabled computer or smartphone and an internet connection for investors to open wallets without verification, credit check or background history check requirements.
Tokens are digital representations of assets created using cryptocurrency's blockchain. From transaction records to full-fledged programs executing on the blockchain - including smart contracts - tokens provide an efficient system that operates according to rules and transparency, self-executing and automated. Crypto tokens can be used for buying and selling a wide range of goods and services.
What is a Utility Token?
Utility tokens are cryptocurrency with a specific use in mind. They typically fuel the blockchain platform upon which they're created and give holders access to products or services offered through it; this could range from P2P gaming and metaverse services, through DeFi yields.
Utility tokens differ from security tokens in that they don't represent ownership in a company and are traded on exchanges; rather they provide access to products or services and do not fall under securities regulation compared with traditional investment vehicles. But utility tokens still face challenges related to market saturation, lack of intrinsic value, technology risks, limited governance as well as potential market-crushing effects that might impact their growth as blockchain platforms and their utility token values.
What is a Stablecoin?
Stablecoins have gained increasing attention as an innovative way to protect cryptocurrency investments from market volatility and facilitate DeFi investments. Stablecoins secure their price peg, usually fiat currency or precious metals, using various mechanisms.
These exchanges are typically backed by either dollars, other cryptocurrencies, or both, providing stability and liquidity without necessitating users to convert back into fiat during trading on cryptocurrency exchanges.
Financial professionals advise investors to use cryptocurrency only as a hedge against market fluctuations and generate passive income through lending or staking, not as an alternative banking vehicle. Crypto assets should never replace traditional banking; only use them as investments when under guidance of an experienced financial professional.
