Even if you missed getting in on the ground floor of crypto, it’s not too late to get started. Indeed, the recent downturn in the crypto market offers potentially an excellent time to buy the dip. As we move towards Web 3.0, crypto will only become more prevalent in our society.
But how do you decide which cryptos to invest in with over 8,000 coins on the market?
Here’s are three cryptos that we recommend to buy and hold:
When people think of cryptocurrencies, they usually think of Bitcoin. Bitcoin is decentralized, meaning no one person or entity controls it. Satoshi Nakamoto (pseudonym) created it as an alternative to the existing system of currencies that are subject to inflationary pressures.
The Federal Reserve controls the fiat money we use now, which is susceptible to heightened periods of inflation if they print excessively. With the massive increase in prices and printed money since 2020, we may be seeing the effects of that now.
To understand why Bitcoin has so much potential, you must first understand the Blockchain technology that makes it possible.
What is a blockchain?
It’s a database that electronically stores information. As the name implies, it’s a chain made up of blocks. Each block contains data, such as the sender, receiver, and the number of coins transferred.
Every block has its own unique hash, or “fingerprint.” It also stores the hash of previous blocks. This way, if someone tampers with any block on the chain, the compromised blockchain can be identified.
Blockchain adds another layer of security by using proof of work—a consensus mechanism for adding new blocks to a blockchain. Proof of work uses a peer-to-peer network to verify that the blockchain is still in order.
With proof of work, crypto miners compete to update the blockchain first. Whoever finds the target hash receives rewards like newly minted crypto and transaction fees.After finding the target hash, anyone on the network can easily verify it. This makes it virtually impossible to hack.
The benefits of Bitcoin
As the world transitions to cryptocurrency, the odds are we will eventually use one digital coin as a cash alternative. Bitcoin is likely to come out on top, not least because of its name recognition.
Although other coins are gaining traction, Bitcoin still reigns king in popularity, user base, and market cap. A recent study reported that Bitcoin’s market cap accounted for 66% of the total market capitalization of all cryptocurrencies.
The downfalls of Bitcoin
One of the biggest drawbacks of Bitcoin and other cryptocurrencies, according to naysayers, is their adverse effects on the environment. Miners’ goals are to earn rewards by finding the target hash before someone else on the network. To accomplish this, they must run multiple computers with the beefiest hardware. Running multiple, high-speed computers eats up a lot of energy, resulting in negative environmental impacts.
Other coins are experimenting with proof of stake instead of proof of work. Users are required to stake their coins to become validators on a network. This way, people compete to be the majority stakeholder rather than having the fastest computers.
If proof of stake proves to be a better consensus mechanism and Bitcoin adopts it, this could keep the network secure while minimizing environmental impact.
Ethereum enables decentralized applications through smart contracts. Its applications run on Ethereum’s crypto token called ether. Like Bitcoin, Ethereum uses blockchain to maintain security. Ethereum expands the functionality of Bitcoin beyond a store of value to allow smart contracts be transacted.
What are smart contracts?
Smart contracts are just like real-life contracts, but they are digitally stored inside a block on a blockchain. They are programmed with if-then statements. For example, if party A meets these conditions, then release x-amount of money to them.
Once someone creates a contract, no one can change it—not even its creator. It undergoes the same peer-to-peer review process discussed earlier. If anyone tries to tamper with a contract, the network will reject it.
The benefits of Ethereum
Ethereum has taken smart contracts and opened a world of possibilities beyond crypto transactions. It could serve many functions like voting, social media, and loans.
The goal of Ethereum is to decentralize applications so that we won’t need third-party services like banks to facilitate transactions, such as lending and borrowing. For example in a world where Ethereum dominates, people could sell and buy goods and services from each other directly without a central authority acting as an intermediary and taking a toll for so doing. An example? You could order a ride directly from a driver instead of going through Uber.
The downfalls of Ethereum
One problem – built into the existing design – with Ethereum is that there’s no way to reverse or modify a smart contract after creation. For example, if someone missed their car payment, the smart contract would automatically take their car away. It can’t consider extenuating circumstances like someone losing their job.
Although it isn’t perfect, this technology has the potential to change the world if Ethereum finds a way to fix its flaws.
The benefits of Polkadot
Before Polkadot, there were many blockchains with no way for them to connect. It’s similar to when personal computers had no way of connecting with each other.
Polkadot’s goal is to solve this problem by making it easier to create and connect blockchains. It uses proof of stake to secure its network.
The downfalls of Polkadot
Polkadot has been hacked twice; however, the vulnerabilities were fixed, and it hasn’t happened again.
It also has a lot of competition to become the leading application platform. Ethereum is currently number one, but Cardano may eventually pose a threat.
Still, the technology Polkadot uses is revolutionary, and there’s a good chance that Polkadot will stand the test of time due to its necessity.
Some final thoughts
As Web 3.0 evolves, cryptocurrencies will become more commonplace. These three cryptos are likely to see even more impressive gains as time goes by but they’re just the tip of the iceberg. Solana, Avalanche, Cosmos, and many others all have a place at the table currently.
While many have drawbacks still, ecosystems of developers are working furiously around the world to advance the technologies of the respective projects. The tailwinds and direction are clear, even if the volatility of prices is stomach-churning from time to time.
The crypto market as a whole will almost certainly see more dips on the way up. Buy-and-hold might be the best strategy for crypto, as it has been for stocks.