This series of posts is geared towards people who are new to crypto and want to figure out the best way to start trading. The most logical place to start is trading different coins and analyzing the differences between them. This will naturally lead us to discussions on the current trends in the overall ecosystem. If there is a topic that you would like to explore please feel free to leave a comment.
I think it is safe to assume that if you took the time to follow this link you are somewhat familiar with Bitcoin. In case this assumption is wrong here are a few highlights.
- Reached new all time highs continuously for the past month
- Current value: $52K
- Increasing institutional adoption
- Posseses many of the same monetary qualities as gold but without the overhead (storage, security and transmission)
- Use cases: scarcity and a hedge against fiat currency debasement
People can argue about valuation of Bitcoin but the purpose of Bitcoin is pretty straightforward. It is a store wealth of a hedge against inflation.
Bitcoin is the first crypto currency and also has the most liquidity. Every major exchange supports Bitcoin and has the most exposure in the media. Most newcomers to the space will almost certainly start trading with Bitcoin. As most major exchanges also support many other tokens many investors will quickly avert their attention to these alternatives. Making sense of these alternatives is quite challenging. There is a debate between the fundamental analysis and technical analysis camps in crypto, but I feel both have a place. The best method of trading really depends on the timelines of your trades.
The next currency most people look at is Ethereum. Bitcoin is very limited in what it can do. For the sake of this discussion Bitcoin can really only transfer coins between parties. This alone is immensely valuable to a lot of people as evidenced by its price. Ethereum took the Bitcoin idea and made it programmable. With Ethereum, instead of just simple transfers of value, programmers can write custom programs. If Bitcoin was a calculator then Ethereum would be a PC. I realize that this is still very abstract but hopefully over the course of this and the following posts the difference will become clear.
Both Bitcoin and Ethereum are networks. It is important to note that these networks cannot communicate with each other. There are mechanisms that enable cross chain communication but this will be discussed in future posts. Bitcoin, being a single purpose network only has one currency, Bitcoin. The Ethereum network being programmable supports any number currencies (or tokens) based on one of several token standards. The most common Ethereum token standard is ERC20. The core token of the Ethereum network is ETH. ETH is used to buy access to the compute resources of the network.
While Ethereum was the first programmable blockchain, many others have followed and are currently in the pipeline. Each new programmable blockchain can host any number of tokens. As explained earlier, blockchain networks cannot communicate with one another. The makes it extremely difficult to analyse a token as you need to research not only the token but also the base layer (eg. Ethereum). On the centralized exchanges alone, there are at least a dozen base layer coins mixed in with programmed tokens. While all of this may seem overwhelming most of the future potential will be in these new chains and their associated tokens.
In the next post we will look more closely at the Ethereum network as a trade as well as what it is being used for.