Tips for choosing a cryptocurrency: Here are six essential factors

Cryptocurrency is a popular digital currency these days. Apart from being a medium of exchange, cryptocurrencies are also widely used as investment assets because their prices are increasing due to high market demand.

Currently, there are more than 6 thousand cryptocurrencies available in the market. The many choices of course make us confused, which is the best cryptocurrency? How to choose the right cryptocurrency to invest in? To understand more deeply, let's look at some tips for choosing cryptocurrencies in the following article

Factors to consider when choosing a cryptocurrency

Here are tips for choosing the right cryptocurrency by paying attention to several fundamental factors such as the origin of cryptocurrencies, how it works, market capitalization, price history, to netizen conversations.

1. Origin of crypto currency

When you want to research cryptocurrencies, you need to first find out where they came from. The reason is, each type of currency has its own history.

Bitcoin, for example, is a pioneer cryptocurrency that was published in 2009 by someone under the pseudonym Satoshi Nakamoto. A few days before launching Bitcoin, Satoshi Nakamoto published a paper describing a peer-to-peer financial system. The aim is to provide a financial scheme that is transparent and without involving bank or government authorities.

Some time later, Satoshi Nakamoto stopped being involved with Bitcoin development. He handed over the management of the currency to Gavin Andresen, who eventually became Lead Developer at the Bitcoin Foundation.

Meanwhile, the Ether coin came a few years after the issuance of the first Bitcoin. Vitalik Buterin and his colleagues launched Ether in 2013 because they wanted to create a cryptocurrency that not only acts as a medium of exchange, but can also represent real assets such as stocks or property.

In the following years, various variants of other cryptocurrencies emerged as alternatives to Bitcoin. Cardano published in 2017 seeks to solve environmental issues that have become critical of Bitcoin.

By knowing the origins of cryptocurrencies, you can understand more about the purpose for which the coin was created and the extent of its potential in the future.

2. How the cryptocurrency system works

It is important to know how cryptocurrencies work. The reason is, this technology will determine its usefulness and growth potential in the future.

Bitcoin uses blockchain technology with the Proof of Work (PoW) method. This means that everyone can compete to mine Bitcoin by solving complex algorithms. Whoever manages to solve the algorithm, then he will get a reward in the form of coins. However, to mine you need a large amount of electricity and a computer with high specs. Therefore, Bitcoin can be said to be energy-intensive and not environmentally friendly.

Unlike the Proof of Stake (PoS) method applied by Cardano and Solana coins. PoS allows you to mine Bitcoin by storing coins that you have had on the network for some time. As a commission from this, you can get a wage.

This technological system could affect the popularity of cryptocurrencies in the future. If we compare the two working methods above, it is likely that the PoS method will be more popular in the future because of these environmental issues.

3. Market capitalization

Market cap is all crypto assets circulating in the market. By knowing the market capitalization of a cryptocurrency, you can understand how much public interest is in the currency. In addition, this indicator can also be used to measure growth over time. To date, Bitcoin, Ethereum, and Binance Coin are the three coins with the largest market cap.

4. Currency price history

Although the price of cryptocurrencies is very volatile, their movements will form a trend when viewed in the long term. Therefore, historical currency price information is important for those of you who want to make a profit from investing in cryptocurrencies. To analyze currency history, you can use technical analysis with trend line indicators, resistance and support levels, to moving averages.

5. Community chat on the internet

Cryptocurrency prices are heavily influenced by market sentiment. One way to predict market sentiment is to observe community conversations on the internet about cryptocurrencies. That way, you will know people's perceptions about the currency. You can also monitor the social media posts of influential people. For example, Elon Musk whose Twitter tweets often have a big influence on cryptocurrency prices.

6. News about cryptocurrency

News about cryptocurrencies in the media can also affect investor sentiment towards cryptocurrencies. An example is news about the latest government regulations and other important events.

That's an explanation of tips for choosing cryptocurrencies and the factors that must be considered. Doing research before entering into a new investment instrument is the right thing to do. As an investor, of course, you must know what "goods" you will buy later. Hopefully the information above is useful, yes!