Cryptocurrency’s benefits come from its differences from fiat currency, but what makes it different? Which characteristics of cryptocurrency make it so useful? In this article, we’ll go over 17 characteristics of a good cryptocurrency and why they’re beneficial to the currency overall.
The cryptocurrency market is filled with scams and bad energy. One way to know if you’re working with an exchange or trading platform that’s trustworthy is to look for transparency. Make sure you know where your cryptocurrency is coming from, who’s running it, and how it’s going to be handled in the future. Look for companies operating on clear policies, and third-party security audits. It’s also important to note that not all cryptocurrencies are transparent about their holdings; some don’t even have publically available wallets. It’s always best to do your research before sending any money anywhere.
2. Blockchain technology
Blockchains are essentially digitized, decentralized ledgers that record transactions between two parties efficiently and in a verifiable and permanent way. They use cryptography to ensure that each transaction is unique and secure, which gives blockchains an added layer of security. Blockchains don’t need third-party intermediaries such as banks—or even one centralized administrator—to verify a transaction, because they self-manage via smart contracts. Every blockchain has its genesis block, meaning it’s essentially an immutable record of transactions at any given point in time. The data stored on a blockchain exists as shared and continually reconciled databases, meaning it’s nearly impossible for data to be corrupted or hacked.
The cryptocurrency should be easily bought and sold on exchanges with significant trade volume. Liquidity is an important characteristic because it means that you can exchange your cryptocurrency for cash quickly, which is critical in situations where you might want to sell off your crypto holdings before they’ve tanked in value. A lack of liquidity is one of the major criticisms lobbed at bitcoin and Ethereum—and it’s why their prices are so volatile. Many critics complain that smaller currencies, like Litecoin or Ripple, don’t have enough liquidity to be viable options for everyday purchases.
4. Transaction costs
There are some obvious reasons to avoid cryptocurrency, namely that it’s complicated and risky. Cryptocurrencies are unregulated and controlled by anonymous software developers. Transactions cannot be reversed or refunded. In addition, cryptocurrencies can be stolen by hackers who break into your digital wallet and take your coins (although some newer currencies have invented more-secure ways to manage transactions). As well, if you don’t need to use cryptocurrency as a legitimate payment system in place of normal cash—for example, if you’re simply looking for something to invest in—you might want to reconsider any serious investment in bitcoin or Ethereum.
5. Currency supply
Many cryptocurrencies have limited supply, such as Bitcoin. This can reduce deflation risk and help boost value over time. Some economists believe that currency with a predictable supply will be more valuable than inflationary currencies with no fixed end date for issuance (think dollar or euro). The creation and destruction of bitcoin are governed by algorithmic rules embedded in its code. This not only makes it difficult to counterfeit but also ensures an automatic increase in its value over time until 2040 when it is forecasted to reach its maximum number of 21 million coins (roughly 2% annual growth after 2015).
6. Stable value
A good cryptocurrency has a stable value so that its worth won’t go up and down dramatically over time. This will help people and businesses to use it for transactions without having to worry about whether its price is going to change significantly within hours or days. Inflation rate: A good cryptocurrency should have a low inflation rate because too much inflation would make it hard for people to retain their purchasing power when they spend money on it. And too little inflation would mean that prices would increase rapidly over time, making it harder for people to realize their profits when they sell items in exchange for cryptocurrency.
7. Ease of use
A good cryptocurrency should be very easy to use. That’s why it’s crucial to make sure you find a digital currency that’s easy to use and understand. A great first step toward investing in new crypto is researching how it compares with its competitors on price, security, and other criteria—but before you do so, take time to learn about its usability as well.
8. Size of community and social media engagement
What’s it going to take for your coin to make it? Getting people involved is an integral part of driving adoption, and building a large and loyal community is one thing that will ensure widespread use. A good gauge is social media engagement. When users are talking about your coin on platforms like Reddit, Quora, Meta, or Twitter, you know that something good is happening. The key here is strong interest in your coin—you don’t want just anybody jumping on board, but rather those who truly believe in what you are creating. So look at community activity as both an indicator of support and potential areas for growth.
A cryptocurrency must be able to handle large amounts of transactions. The time to confirm each transaction can vary from ten minutes to several hours, and that time is highly dependent on the number of transactions being made. Confirmation times are different for every cryptocurrency based on several factors including block size, block frequency, and how many transactions are going through at one time. Typically though, anything under an hour is considered good and anything over an hour is considered unacceptable. If you’re trying to decide between two cryptocurrencies, take into account confirmation times as well as confirmation fees before deciding which currency you want to use. Weigh your options: Some cryptocurrencies are better than others when it comes to mining costs—this means they require less electricity or hardware to verify transactions.
10. Are they listed on exchanges?
A large network of exchanges is what makes cryptocurrency and altcoins have value because these exchanges provide liquidity. If you’re planning on investing in cryptocurrency, it’s important to check if they’re listed on any major exchanges so that you can buy and sell them. If they’re not listed on any major exchange, it might be tough to find someone willing to buy your coins at a good price.
12. Is there enough trading volume?
The volume of trading in any currency is an important characteristic. A high level of the volume shows that there are many people actively participating in buying and selling, which keeps up prices. It also means that if you want to trade or sell, you can find plenty of opportunities for doing so. But a low level shows that there aren’t many people who want to buy your currency or tokens, and therefore you might find it difficult to make trades even if you have lots of money. If you’re thinking about investing in cryptocurrency, keep an eye on its trading volume over time—you may find that coins with less trading activity experience bigger price swings than others during big dips or spikes.
13. Is it supported by multiple wallets?
It is important to look at how many wallets support your cryptocurrency. The more wallets that support your currency, the more likely it will become widely adopted and used. look for cryptocurrencies with enough support to guarantee they won’t become abandoned when it comes time to exchange them for fiat or use them in transactions. Ideally, you want to find a cryptocurrency that has multiple desktop wallet options as well as mobile wallet options available.
14. How many nodes are there on the network?
The number of nodes on a network is important because it helps ensure that new transactions are approved by consensus. If there aren’t enough nodes, it becomes too easy for malicious hackers to take control of a cryptocurrency and disrupt or destroy it. Therefore, it’s important to pay attention to how many nodes there are on any given cryptocurrency’s network—however many there may be. Before you get started investing in cryptocurrency, make sure you understand how many blockchain nodes there are on its network and why that matters.
15. Do people trust them to use?
The most important characteristic of cryptocurrency is trust. Without it, there’s no point to any other characteristic of a good cryptocurrency. How much do people trust Bitcoin? Are they wary of government control? Are they concerned about private companies gaining access? These questions will help shape your answers to other cryptocurrency characteristics. If people don’t have faith in their money, that’s going to cause economic problems and shake confidence in other cryptocurrencies as well. There are many reasons why people might not trust a currency: Is it too volatile? Can you use it for transactions with others who aren’t part of its network? Is there any way to recover if something goes wrong with your account or if someone steals from you? Do governments or corporations have too much power over how you can use it or how much you can own? What happens if everyone else decides they want out at once—can you sell all your coins before prices drop further?
A cryptocurrency that doesn’t take security seriously isn’t worth investing in. How you store your currency is vital and if it gets stolen, what’s the point? Keeping your coins on an exchange means someone else is liable for them and if they get hacked – again, you’re out of luck. The best way to ensure that your coins are safe at all times is to have them secured in a cold storage wallet that only you have access to. Ledger Nano S or Trezor are two popular hardware wallets but there are software wallets too like Electrum. If you hold large amounts of cryptocurrencies, I highly recommend getting yourself one (or more) as soon as possible!
A decentralized network reduces the risk for everyone involved by keeping technology and information open, accessible, and fair. With no single authority like banks or regulators involved, users have more control over their cryptocurrency. There is little opportunity for internal fraud, as opposed to banking systems where there are few checks and balances in place to monitor fraudulent transactions. With no central point of failure or control, people feel safe transacting with other users on cryptocurrencies’ online platforms because they know they can trust them not to steal their funds. This also means there is less chance that one user will tank an entire network with one mistake or error—and therefore little risk to others who use it. Decentralization keeps everyone honest—and more importantly, it makes sure you’re honest with yourself about what your cryptocurrency does.
Supply and demand are also both essential to understanding value. The number of people who want to buy, sell or trade a cryptocurrency at any given time determines its value. Its popularity can rise and fall rapidly from one moment to another, which could mean big ups and downs in value, depending on whether people are buying or selling. However, if you start seeing red flags during your research (the project has no track record behind it; it seems too good to be true), then you may want to think twice about investing your money.