Finance

This is how the digitization of the financial world works

Cryptocurrencies are known as a digital means of payment through the Bitcoin. But with their technology, they could also transform contracts, asset classes, and even the art world. We explain how.

Meanwhile, not only young investors or technology enthusiasts know the Bitcoin. The highly volatile has become through many highs Cryptocurrency pushed into the middle of society. Some see Bitcoin as an innovation that will have a major impact on the future financial world, while others describe it as a highly speculative investment object.

But behind the Bitcoin, a large number of new cryptocurrencies have developed, which in addition to the digital exchange of coins also contracts, Asset classes and even art want to revolutionize. We introduce the largest cryptocurrencies – and why they could change the financial world forever.

What are cryptocurrencies?

Cryptocurrencies can have different functions and meanings. The most famous cryptocurrency is Bitcoin, which is a digital currency.

All cryptocurrencies that are saved as Means of payment can be used, call themselves Coins. The individual coins have no tangible equivalent, such as gold coins, but only exist as bytes on computers, hard drives or smartphones. The rate of the currency indicates how much a single one of these coins is worth in a conventional currency such as dollars or euros.

But not all cryptocurrencies are automatically a means of payment. In addition to the coins, there are also those Crypto tokensthat can be used, for example, in securities trading, insurance or for tracking works of art.

How do cryptocurrencies work as a currency?

The original idea of ​​crypto coins goes like this: Whoever uses the currency should be able to carry out transactions, i.e. business, without the influence of banks, governments or financial institutions.

This is made possible by the so-called Blockchain technology. It is comparable to the bookkeeping of banks. Put simply, every transaction is secured with bitcoins on the blockchain, a long digital code made up of numbers and letters. This blockchain is then stored on all computers that trade directly with Bitcoin.

So it is not an institution that has control over the currency, but everyone who trades in Bitcoins. Due to the complex computing tasks with which the individual blocks – and thus the transaction data – of the blockchain are encrypted, it is considered a very secure concept. This makes fraud much more difficult.

What are crypto tokens?

In addition to coins, there are also so-called cryptocurrencies Tokens. They do not have their own blockchain technology, but use existing blockchains of other cryptocurrencies. This enables the creation of decentralized applications.

“A token is a kind of cover in which you can pack different things. You can then move it from A to B on the blockchain infrastructure, in real time and in a legally secure manner,” explains crypto expert Katharina Gehra in the Handelsblatt podcast.

In the sub-category of Security token it is about digital assets, that is, assets that regulators regulate like normal securities. Some “tokenized” bonds and shares are already on the market, according to Gehra; soon more and more would follow, says the crypto expert.

Overall, you’ll find that the Tokenization keep moving in everywhere and enable new forms of investing that would offer more possibilities, similar to the Internet at the time. Even works of art would already be tokenized.

The biggest differences to traditional securities trading are the medium and the processing structure of how you purchase a security. Instead of a certificate, the investor receives a token for tokenized assets and the data is not online in one Securities Register deposited, but on the Blockchain.

According to Gera, the tokens create a kind of intermediate medium with which values ​​can be exchanged from A to B. On the blockchain this works 24 hours a day, 365 days a year, Banks or Exchanges you don’t need it anymore.

In addition, it could be verified in an anonymous way who made which transactions and who owns which securities. According to Gehra, this could take a lot of uncertainty out of everyday financial life.

What kind of cryptocurrencies are there?

The largest coin cryptocurrencies are Bitcoin, Ether and Ripple. Since Ripple through a scandal and a subsequent lawsuit by the US Securities and Exchange Commission has now become as good as worthless, we also consider the smaller cryptocurrency instead Litecoin in our overview.

Bitcoin

Bitcoin is that largest cryptocurrency and the most famous coin. Due to its decentralized structure of the blockchain from no central bank or institution controlled or manipulated. Bitcoin was created in response to the 2008/2009 financial crisis.

Ether

Ether is the little brother of Bitcoin, which is also constantly experiencing new heights due to the success of Bitcoin and is also popular with investors. Ether uses the decentralized, open source software platform Ethereum. This also works on its own blockchain basis.

Ether is therefore based on the same technology as Bitcoin – even if it uses a different blockchain coding. Unlike Bitcoin, Ethereum but can be used in a variety of ways, since in addition to the coin ether there is also a whole Ökonetz offers.

So, among other things, the Ethereum blockchain Smart contracts to lock. This refers to contracts in which the contract data is stored on a blockchain – and thus offer protection against manipulation and subsequent changes.

Lots Tokens use Ethereum’s blockchain, for example. Experts therefore also refer to ethers as “Cryptocurrency 2.0“because it is much more versatile than the Bitcoin blockchain.

Litecoin

Litecoin has made it its goal to streamline the structures of Bitcoin. So processed Litecoin Transactions much faster than Bitcoin. A decisive advantage, because the Bitcoin network is notorious for its long waiting times for payment transactions.

This is precisely the point that critics criticize again and again – because who wants to with you everyday means of payment Would you like to wait five minutes at the counter until your coffee is paid for?

Around more quickly than Bitcoin, Litecoin uses about one faster production in the blockchain. A Litecoin can be calculated four times as fast. Also is that algorithm less complicated in the blockchain than with bitcoin. According to expert circles, however, it should still be sufficient to guarantee the security of the blockchain.

Also good news for you as a user: The fees are lower with Litecoin than with Bitcoin. But he doesn’t just watch the small, slim cryptocurrency. Changes in Litecoin have proven, are often used later in the Bitcoin blockchain.

How do I invest in cryptocurrencies?

Anyone who believes in the future of cryptocurrencies has various options for investing in coins and tokens:

  • Centralized exchangeswhere you can buy or sell cryptocurrencies directly
  • Decentralized exchangeson which you can trade cryptocurrencies anonymously

The most common are the so-called centralized exchanges. Cryptocurrencies can be easily bought or sold on them. The most famous providers such as Coinbase, Binance, Kraken and Geminini fall into this category. Behind the trading venues are private companies that require their customers to identify themselves with ID – so they are not anonymous.

The major exchanges have a high Trading volume, a high liquidity and some give one on the money in the wallets insurance out. However, this only applies if an investor loses coins due to a mistake by the company.

Depending on which coin or take you want to invest in, you have to select your wallet. Because not all of them offer the same cryptocurrencies. The largest coin cryptocurrencies, Bitcoin, Ether and Litecoin, but are offered by all leading exchanges.

At central exchanges, the coins or tokens are not stored on their own computers, but on the providers’ servers. Also security features like that Recovery key and the security key is not in the user’s hand.

You can use these providers as Newcomers easier to use. In addition, the Bitcoins can be accessed from anywhere with an internet connection.

If you want to manage the purchased coins or tokens yourself, you can use most crypto currencies decentralized exchanges and save your wallet on your own hard drive.

In the case of decentralized exchanges, every computer is part of the system. This structure ensures that the trading venues are significantly safer Hacker attacks are, but also Regulations cannot be enforced in this system.

Identification is usually not required on these exchanges. Every investor can use the platform as they wish – for legal as well as illegal purposes.

Can i trade cryptocurrencies?

Yes, on that Crypto exchanges you can trade your newly acquired tokens and coins with other investors. There are exchanges like Coinbase or Kraken that Fiat money, i.e. conventional currencies such as dollars or euros, and exchanges on which only with Cryptocurrencies can be traded.

So here you first have to buy cryptocurrencies with fiat money (e.g. euros) on an exchange such as Coinbase and then transfer these to a wallet – a digital purse – on a closed exchange. These are mostly decentralized and more anonymous.

What is also important when acting fees of the trading center to consider. Here, for example, Coinbase is criticized and its American counterpart Kraken is in the favor of investors.

If you’re looking for low fees, you shouldn’t be Trading volume lose sight of it. After all, a low-volume exchange also has little trading activity. Here it should take significantly longer for you to find a buyer for your crypto currencies than on the major exchanges.

Do I have to pay tax on my cryptocurrencies?

Yes, even profits from the sale of Cryptocurrencies you have to pay tax. Unlike profits from the sale of stocks, where the bank has the Tax contributions automatically deducts, buyers of cryptocurrencies have to pay the taxes themselves.

However, this only applies if the profit arose within one year of the purchase. Then the receipts are considered to be Speculative gainsubject to the regular income tax rate.

So it is important that investors document the purchase. Because in order to know how much is taxed, the state has to Initial investment know. Who else in more than one (Crypto) system invested, can offset profits and losses against each other.

Fees are also taken into account here. If profit still dominates at the end of the calculation, a applies Allowance from 600 euros – after that the taxes are due.

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