Most people are aware of Bitcoin, and some casual investors are aware of other cryptocurrencies like Ethereum, LiteCoin, and even more obscure ones like Dogecoin, which was a flash in the pan not too long ago.
And with FTX in the news for all the wrong reasons, crypto, DeFi, and NFTs are becoming much more recognizable to the average person and casual investor.
While the names of some of these tokens are familiar, and some of the terms are becoming more mainstream, most people don’t really understand what each term is and how it is used in digital currency and decentralized finance.
Like with any investment, there are risks associated with investing in digital currency. For the beginner, it’s better to create a long-term approach to digital investing and balance any investments you may have with more traditional ones.
Once you become more familiar with digital currency and grasp the power of DeFi, you can begin to become more aggressive with those types of investments.
To start with, let’s define a few terms;
- DeFi
- Cryptocurrency
- Mint token
- NFTs
- Blockchain
Table of Contents
DeFi
DeFi is short-hand for decentralized finance. Most currencies are based on being issued and backed by a government or central bank, which controls the quantity of the currency in circulation, helping to maintain its value as well.
The point of these controls is to help protect purchasing power and denote the acceptable value range for the currency on exchange markets.
Without centralized controls, currencies would devalue and skyrocket in value, causing widespread volatility in the pricing of goods and services that are being bought and sold by that currency.
DeFi is the opposite. With DeFi, there simply is no governmental agency that controls supply or regulates trade in such a way as to influence the value of the currency.
Instead, with DeFi products like cryptocurrency, the value of each currency is based on the availability of the crypto and the demand for it.
For crypto, that means that the value could fluctuate wildly throughout a month, day, or even by the hour. As a result, speculators frequently try to predict market fluctuations and trade to capitalize on the potential.
Cryptocurrency
A type of currency that is decentralized and values are based on demand versus supply. Transactions are recorded through cryptography rather than a centralized authority.
Though new ones are being created daily, Bitcoin is the most recognized type of cryptocurrency.
Mint Token
Crypto token minting is the process of creating new coins by creating new blocks, verifying data, and documenting verified information on a blockchain.
NFTs
NFTs are short for non-fungible tokens, standalone tokens that can’t be partially sold or divided. NFTs are unique and cannot be replicated, and can represent real-world items such as art or real estate or digital ones like in-game avatars, domain names, and more.
Blockchain
A blockchain is a series of computers that are linked in peer-to-peer networks and record transactions, especially those made with cryptocurrency.
Every cryptocurrency is recorded on a blockchain that tracks and verifies the crypto during a transaction.
If you were to use Bitcoin to make a purchase, it would be recorded on the blockchain.
And a whole host of things can be purchased with Bitcoin.
With crypto becoming so widespread, you can practically use it to make a purchase at;
- Car dealerships
- Tech and e-commerce
- Consumer electronics
- Gaming and online streaming
- Jewelry
- Insurance
- Real estate
If you were to consider using cryptocurrency as an investment opportunity, the volatility of each coin is the most desirable and riskiest aspect of those investments.
At any given moment, crypto can gain and lose value quickly. There is considerable profit for savvy investors of crypto who study the market trends and know how to get in and out quickly.
But for many others, crypto should be a long-term investment balanced out in a portfolio of traditional stocks and bonds. That way, if your crypto holdings appreciate, that’s excellent news. But if not, you’ll not lose your savings all at once.
The key to crypto investing is understanding the market fundamentals and the available investment options and developing a balanced investment strategy.
As more people become aware and familiar with DeFi, the value of crypto and NFTs will only continue to grow and become more prevalent in businesses and societies.
