What is Crypto Coin? How to Invest in Coins for Beginners

What is a coin? This question is still commonly asked even though investing in coins and trading coins has become a popular trend in today’s market. You don’t need to look far; today’s article will summarize terms related to crypto coins, what coin trading is, how to make money from trading coins, where to store coins, how to identify potential coins in 2022, and more. These are essential knowledge for investors and traders, especially for those who are new to the market.

1. WHAT IS CRYPTO?

Crypto is short for the term “Cryptocurrency,” which translates to “digital currency” or “virtual currency” in Vietnamese. Crypto is a type of virtual currency that does not rely on any third-party financial institutions, such as banks, to approve transactions or create new coins. Instead, it uses a digital approval mechanism to verify transactions on a public distributed ledger called blockchain.

Currently, the number of cryptocurrencies in circulation can reach tens of thousands, each having different values and purposes. Within crypto, there are two smaller categories: coins and tokens. Tradafx has previously written about tokens, so today’s article will answer the rest of the question: what is a coin, and what is a token, by focusing on analyzing and providing essential information about coins in the market.

1.1. What is a Coin?

The first coin to appear in the market was Bitcoin, and it set the standards for future cryptocurrencies. It carries the characteristics of a currency in the real market, but note that, as of now, Bitcoin is still considered virtual currency in Vietnam. A coin is defined as a digital currency, an asset originating from a blockchain and existing on its own blockchain.

Coin transactions are transferred from one user to another, but in reality, no physical assets are being exchanged; it only exists on a vast global database network (the blockchain).

Not only should we understand what a coin is, but let’s also look at the characteristics of a coin:

• Works on blockchain: Transactions involving the coin are tracked, stored, and approved by the blockchain.

• Used as currency: Bitcoin was created with the aim of gradually replacing traditional currencies. Its transparency and anonymity have led developers to continue creating the next generation of coins.

• Can be mined: A coin is created through mining using a Proof of Work mechanism like Bitcoin. This mining process also serves to validate transactions and secure the network in exchange for rewards in the form of the coin.

1.2. What are the types of coins?

Now that we understand what a coin is, is there any classification of coins into smaller groups? The answer is yes, coins are typically divided into two simple categories: Bitcoin and the rest. The rest is commonly referred to as altcoin, short for “alternative coins.”

• Bitcoin: The first cryptocurrency, which currently holds a market capitalization of more than half of the total crypto market. The consensus mechanism for this coin has no plans to transition or change and continues to be based on Proof of Work, despite this mechanism being highly energy-consuming and having many limitations.

• Altcoins: The simplest way to distinguish altcoins from Bitcoin is that they are coins that are not Bitcoin. Some altcoins have also switched to using the Proof of Stake consensus mechanism, with Ethereum being the most notable. Altcoins are constantly striving to become independent to avoid being affected by Bitcoin’s price fluctuations.

2. CREDIBLE COIN EXCHANGE PLATFORMS

After understanding what a coin is and how to distinguish them, the next logical step is to find where you can trade, invest in, or exchange coins. This place is called a cryptocurrency exchange. A coin exchange platform is where you can buy, sell, and exchange various cryptocurrencies in a basic form. Today, exchanges have incorporated additional features beyond just trading to attract users and increase competition. Essentially, coin exchanges are divided into:

• Centralized Exchange (CEX): Acts as a third-party intermediary between buyers and sellers. They are operated by organizations or companies, which makes them more reliable. Some of the most reputable centralized exchanges include: Binance, Huobi, Gate.io, and more.
• Decentralized Exchange (DEX): Unlike CEX, a DEX allows users to perform peer-to-peer coin transactions without the involvement of a third party or intermediary. However, it does have limitations in terms of security and may not support users in trading with fiat currencies.

2.1. Criteria for choosing a coin investment platform

There is no shortage of both centralized and decentralized coin exchanges. This article will not list the best or safest exchanges but will provide some criteria that you can consider when selecting a coin exchange platform that best suits your needs:

• Security and Safety: The primary reason for choosing a coin exchange is to be able to buy and sell coins, but it is equally important to ensure security. If you were to ask what the first factor to consider when choosing an exchange is, it would undoubtedly be the security of the platform. Currently, most countries do not have regulations to protect users in case of any risks, so safety remains the most important factor when selecting a cryptocurrency exchange.

• Cost: The final profit from investing in or trading coins will be affected if the costs you have to pay are too high. Transaction fees on exchanges are typically calculated as a percentage of the transaction volume. Many coin exchanges offer promotional programs for transaction fees if you own the exchange’s token.
• Liquidity: This is also a crucial factor because when you want to sell a coin, the exchange must be able to handle that volume. Currently, most of the leading exchanges have the largest trading volumes. As you may know, price fluctuations on cryptocurrency exchanges happen very quickly. If you choose an exchange without sufficient liquidity, you may have to liquidate your position at an undesirable price.

These are just three of the many criteria you can consider. The criteria in today’s article about what a coin is can be used as a reference, and you can add other necessary factors. It’s not essential to solely choose an exchange based on these factors.

2.2. Which Coin storage wallet should you Choose?

Similar to coin exchanges, there is a wide variety of coin storage wallets available today. As the name suggests, a coin wallet is where you can store your coins, and some wallets even allow you to exchange, send, and receive coins. Essentially, coin wallets are divided into two types: cold wallets and hot wallets. Tradafx has also written an article analyzing the differences, along with the pros and cons of these two types of wallets. You can read more to choose the most suitable wallet for your coin storage during the investment process.

Each coin storage wallet has its own features and characteristics, but they share some common traits. To receive coins from someone, you will need to copy your wallet address. Some cryptocurrency wallets even provide a QR code to make it more convenient for you. Conversely, when sending coins, you will need the recipient’s wallet address, then click on the “Send” section in the wallet, enter the address, amount of coins, and sign to confirm.

3. FACTORS TO EVALUATE POTENTIAL COINS

As mentioned in the first section, there are numerous potential coins, so traders and investors can refer to the following factors to help them choose the most promising coins for investment.

• Market Capitalization: This is always the most common factor for evaluating or ranking coins in the market.
• Evaluate the supply and demand of the coin.
• Analyze price fluctuations in the past. Have you ever heard someone say, “Future price behavior is best predicted by its past price actions”? Of course, this is not always true in the volatile crypto market, but it remains a solid basis for investors to consider.

4. COMMON COIN TRADING TERMS FOR BEGINNERS

Not only do you need to understand what a coin is, but new traders are likely to have countless questions related to this market. Below are some of the most popular terms that traders may find helpful.

4.1. What is Coin Trading?

In reality, the answer to what coin trading is and what coin investing is, is the same. Traders in the market often refer to trading coins as “playing coins.” So, if you’re learning about crypto, you shouldn’t feel strange about this term.

4.2. What is the difference between Coin and Token?

Finance Solutes has already written a detailed article about what tokens are and pointed out the difference between coins and tokens. Since traders often confuse the two concepts, it’s important for beginners to understand the distinction between them to avoid confusion.

In the simplest and shortest explanation, if you are purchasing something that requires payment, that’s a coin. On the other hand, if you use a service and need to pay a fee to access a platform or utility, that’s when you would use a token. Tokens do not need to operate on their own blockchain; they can be built on another blockchain.

4.3. How much is 1 Coin Worth?

Alongside the question “What is a coin?”, this is also one of the most common questions from new traders about coins. The value of 1 coin, or how much 1 coin is worth, depends on which coin it is. You can check the price of coins on platforms that provide cryptocurrency information, such as CoinMarketCap and Coingecko.

4.4. Garbage Coins and Top Coins

Looking at the terms “garbage coins” and “top coins,” you might have an idea of what they mean. Top coins are the leading coins in terms of market value, usually coins with a large market capitalization. However, garbage coins aren’t necessarily worthless coins but are coins with low value, lower popularity, and are not widely known by traders or listed on major exchanges. These coins often lack specific utility or purpose and tend to increase in price partly due to market sentiment influences.

4.5. Platform Coins

This term refers to reputable coins that have established a significant presence and position in the cryptocurrency market. They are typically built on their own blockchain, rather than on another blockchain.

4.6. What is Shill Coin?

“Shill Coin” is a term you’ll come across when researching new coin projects in the market. It refers to the excessive promotion by ventures or influencers (KOLs) to stimulate the psychological desire to buy, creating fear of missing out (FOMO) on the potential profits of a particular coin.

4.7. How to make money from Coin Trading

Traders will definitely be interested in how to make money from coin trading in addition to understanding what a coin is. There are two most popular ways to make money from coin trading: one is trading coins to make a profit from price differences, and the other is staking coins on staking platforms to earn coins as rewards. The second method can be considered a more passive way to make money from coin trading.

5. CONCLUSION 

In reality, the concept of “What is a Coin?” has many other related terms that we can’t cover fully in this article. Instead, for each project and necessary concept, Finance Solutes has detailed articles with essential knowledge that traders and investors shouldn’t miss. You can find and read them on the Finance Solutes website!