Understanding Technology Protects Your Funds

Knowledge is power, especially in the blockchain world. Understanding the technologies behind a cryptocurrency not only makes you well-versed in tokenomics but also helps protect your funds. When choosing a crypto, find answers to these questions.

Token or native coin?

Start with defining the type of the asset you choose: is it a native coin or a token?

For a coin, it’s essential to dive into the technology of corresponding blockchain. Get to know more about the core innovations of a network, the consensus mechanism used, security methods, etc. For instance, if you use Bitcoin, learn how mining and Proof of Work operates.

For a token built on a smart contract, it’s recommended to know the type of standard. Token standard is a set of guidelines that developers must stick to ensure the compatibility and safety of the tokens they create. There are some trusted formats, for instance, ERC-20 and TRC-20 used for USDT. Opt for tokens launched on popular, audited, and thus more reliable, standards.

How decentralised is the technology behind a cryptocurrency?

Blockchain is meant to be decentralised, spreading control across the community. Yet, the level of decentralisation also depends on the type of crypto.

For native coins, decentralisation is often reflected in the transaction validation process. For example, Bitcoin is viewed as a prime illustration of distributed control through its Proof-of-Work consensus mechanism. In contrast, tokens on smart contracts are closer to traditional assets. For example, the smart contract stablecoins (USDT, USDC), governed and issued by specific companies, are more centralised and vulnerable to manipulation and restrictions. Make sure you understand the difference and possible risks.