Chapter 8: Crypto Analysis

Portfolio Diversification: The Whats, the Whys, and the Hows

Interesting Fact:

Did you know that portfolio diversification is one of the most prominent risk management strategies?

medium

9 minutes

In this section, we’re going to look into the portfolio diversification definition and why is diversification important in an investment portfolio!

Portfolio diversification and its techniques are among the most important skills that every trader should aim to acquire. Crypto trading is almost synonymous with “risky”, and it’s exactly why portfolio diversification is so important. It reduces the risk.

Despite its obvious importance, portfolio diversification often gets overlooked, especially by beginners. You see, acting cautiously and calculating your moves is not something that goes viral. Therefore, after having spent some time online in crypto spaces, a beginner may reach a conclusion that it’s not that important. And that would be a big mistake!

In this section, we’re going to outline the portfolio diversification definition, take a look at 5 portfolio diversification techniques, and answer the questions of why diversification is important in an investment portfolio. After all, the primary purpose of portfolio diversification is to make safer, more thoughtful investments, and step up your trading game!

Let’s get to it!

5 Best Crypto Portfolio Diversification Strategies (Animated Explanation)

Video Explainer

Video Explainer: Portfolio Diversification: The Whats, the Whys, and the Hows

Reading is not your thing? Watch the "Portfolio Diversification: The Whats, the Whys, and the Hows" video explainer

Portfolio Diversification Definition

Let’s kick this section off by taking a look at the portfolio diversification definition.

At its very core, portfolio diversification is a risk management strategy. Those who practice this strategy spread investments across a variety of assets, and, by doing so, they reduce the overall risk that comes with investing.

The risk is reduced by investing in different types of assets that are not closely related. If one of the investments flop, the others still have the chance to remain afloat, or, even better - generate gains that would counterbalance the losses from the previous, failed investment.

The wisdom of the proverbial saying of "not putting all your eggs in one basket," represents the idea behind portfolio diversification perfectly. But here, let’s consider a more contemporary, yet precise example.

Imagine traveling to a foreign country. Now, would you keep all of your essential belongings, such as your passport, credit cards, and cash in one place, like your backpack? In case of it being stolen, you’re about to have a really bad time.

Therefore, the right thing to do here would be to diversify your traveling portfolio, and spread your valuable belongings across a variety of different places. Such as, your wallet, a fanny pack, or even the safe back at the hotel.

Portfolio diversification definition: What is it?

Of course, crypto is a relatively new industry, and portfolio diversification in this space looks a little bit different than it does in the traditional sense. Typically, this strategy means spreading your investments across various asset types such as stocks, bonds, real estate, and cash.

Now, when it comes to crypto, the same principles apply, they just take up a different form. In the crypto space, portfolio diversification is applied by not ignoring the fact that there are many different cryptocurrencies.

Therefore, investing in various coins, such as Bitcoin, Ethereum, and many others, mitigates the risk that comes from tying your financial well-being to one, single cryptocurrency.

Consider a real-life example. Back in 2022, those who had invested the majority of their savings into the FTX token went through a rather harsh life lesson. As the news broke out about FTX, the crypto exchange platform, having financial problems, the exchange’s native token took a nosedive, and never recovered.

On November 8, 2022, the FTX Token was still being sold for over $22. Two days later, its price was just a little bit over $2.

So, people who had unreasonable amounts of money invested in this one particular token, saw a tenfold reduction in their portfolio’s size. However, those who had invested in the FTX Token, but it was only a part of their diversified portfolio, didn’t face the end of their careers as crypto investors.

This story perfectly encapsulates that the primary purpose of portfolio diversification is to mitigate risks that, unfortunately, are all over the place when it comes to crypto.

So, having said that, I could safely state that the portfolio diversification definition includes neutralizing the threats that come from the fact that the cryptocurrency market is so volatile and unpredictable.

Of course, portfolio diversification is not a solution to all the crypto world’s problems. Sometimes, even the most sophisticated diversification solutions couldn’t help the investors avoid losses.

Sometimes, the entire industry will just take a hit, and every coin will turn red. But, even in cases like this, a diversified portfolio provides more stability and less risk than going all in on a single cryptocurrency.

Okay, having said that, we can move on from the theory, and get more practical. Let’s take a look at actual ways of how portfolio diversification can be done. Let’s consider 5 portfolio diversification techniques.

Crypto Portfolio Diversification Techniques

When it comes to "not putting all your eggs in one basket," there are numerous ways of doing that. The same applies to crypto portfolio diversification techniques. Despite their differences, these techniques help traders achieve a balanced allocation of their assets, and reduce the risk that’s inherent in crypto.

Crypto Asset Allocation

The first one is the most self-explanatory. It’s a technique of allocating assets by simply doing exactly that - allocating your crypto assets. Instead of one cryptocurrency, you choose several. You select the coins of your choice, based on their market capitalization, price, community, the coin’s potential, and other similar, equally- important factors.

Portfolio diversification definition: Crypto asset allocation.

Of course, many would agree that the safest way is to invest in the industry’s most-established cryptos, such as Bitcoin or Ethereum. Investing in both of them, instead of a single one, would be a step toward the direction of portfolio diversification.

Yet, in addition to that, traders consider investing in other, less-established coins. These coins are cheaper, probably more volatile, and they have a smaller market cap.

Yet they’ve got something else - growth potential. By diversifying your portfolio and allocating a portion of your funds to coins like this, you expect higher returns, and, while having part of your money invested in the industry’s giants, you’d end up balancing the risk that comes from investing in smaller coins.

This technique is often followed by the 80/20 rule. It simply means that 80% of your investments should be aimed at large-cap coins, while the remaining 20% at mid & low-cap coins. By allocating such percentages, traders minimize the risk, but continue taking chances to see those smaller coins shoot into the sky.

Sector Diversification

The second technique is known as Sector Diversification. As its name suggests, it involves investing your crypto in different sectors. So, instead of simply investing into coins, based on their price and market cap, you get more specific.

Portfolio diversification definition: Sector diversification.

For example, in addition to the large-cap coins, you invest into stablecoins, privacy coins, exchange tokens, NFTs, or in the DeFi sector as such, by, for example, becoming a staker.

Such a technique allows investors to further reduce the risk that comes with crypto investing. For example, if the NFT market would suddenly freeze, and people would lose interest in acquiring new NFTs, those traders who diversified their portfolios among different sectors would avoid a crisis.

Geographical Diversification

Up next, we’ve got Geographical Diversification. Once again, the name says it all. This technique is all about taking into account one more factor: which region does the coin or token originate from. Despite crypto’s global nature, each coin is issued in a different country, which means that the coin’s issuer is subject to their country’s national legislation.

Portfolio diversification definition: Geographical diversification.

So, imagine you invest into a crypto of your choice. It looks promising, with high potential, and it seems that there’s not much to worry about. And then, out of nowhere, news broke out that the government has banned crypto in a particular country, and so it happened that this coin of your choice was issued exactly there.

Suddenly, regulatory challenges become a strong obstacle that messes up the seemingly apolitical market dynamics. Therefore, a considerate approach, and the evaluation of the geographical aspect while choosing where to invest are what make the geographical diversification technique useful.

Investment Style Diversification

Moving on, let’s talk about the Investment Style Diversification. This technique is a bit more advanced, since it requires traders to understand the differences between different investment styles.

Portfolio diversification definition: Investment style diversification.

For example, traders can allocate part of their investments into assets based on their current value, and the other part into assets based on their growth potential, while always actively participating in the so-called Momentum Investing. This means that they have to constantly be on the hunt for signals that could help identify which assets may go through a sudden upward price momentum.

Others may simply not have time for this. Therefore, they could include HODLing in their investment style mix. Simply obtaining and holding particular assets with the hopes that it will pay off in the long run, while continuously obtaining other assets based on their value, growth, and so on.

Asset Allocation into Stablecoins

Last, but not least, we’ve got the most traditional technique of portfolio diversification. This means that it involves the active allocation of your assets into coins that are connected to traditional fiat currencies. I’m talking about stablecoins. This technique allows traders to keep a distance from the volatility storms that are always present in the crypto market.

Portfolio diversification definition: Stablecoins.

A trader that invests in stablecoins does not expect them to generate a return, because, obviously, stablecoins have a fixed price. Yet, owning stablecoins creates an opportunity to quickly jump into the crypto market whenever a great opportunity presents itself.

This technique allows traders to save time, since swapping stablecoins for other cryptocurrencies is a faster process than going through the entire procedure of buying them with fiat money.

By the way, if you feel like your knowledge about stablecoins could need some upgrading, make sure to check out my channel - there's a section about this topic, specifically!

Wrapping Up

Having said that, we arrive at the end of this section. I hope that, by now, you’ve got a better understanding of the portfolio diversification definition, and why is diversification important in an investment portfolio, to begin with.

As the crypto industry evolves, the ways and techniques of diversifying your assets will, eventually, change as well, but until then, these methods that I’ve presented today, are among the most popular, trusted and practiced in the industry.

Bitcoin, rely on crypto mining, because it’s thanks to mining that these currencies enter circulation in the shape of new, freshly-mined coins.<\/p>\n<p><img style=\"display: block; margin-left: auto; margin-right: auto;\" title=\"What is crypto mining: Mining definition.\" src=https://www.bitdegree.org/"https:////assets.bitdegree.org//crypto//storage//optimized//what-is-crypto-mining-01.jpg/" alt=\"What is crypto mining: Mining definition.\" width=\"1000\" height=\"574\" \/><\/p>\n<p>That’s where the term \"<em>mining<\/em>\" comes from, since there is a limited number of new coins that can be “extracted”, or “mined”, same as with mineable natural resources in the real world, such as diamonds or coal.<\/p>\n<p>Technically, crypto mining is part of something that’s known as a “<strong>consensus mechanism<\/strong>”.<\/p>\n<p>A consensus mechanism is like a <strong>rulebook for how a blockchain operates<\/strong>. Different blockchain networks have different consensus mechanisms, which ensure that all network participants reach an agreement on what things should look like without the need for a central authority.<\/p>\n<p>Let’s consider chess. Chess has its rules, and people simply follow them. There’s no need for a referee to sit beside and make sure that no one’s gonna begin making checkers’ moves with chess figures.<\/p>\n<p>When it comes to the “<em>rules of the blockchain<\/em>”, this means that a consensus mechanism serves the purpose of <strong>ensuring that all the blockchain network participants agree on the validity of transactions and the state of the network<\/strong>. Different blockchains have different consensus mechanisms, and some of them don’t require mining in order to be functional.<\/p>\n<p><em>By the way, it’s impossible to understand this without having a decent understanding of what a blockchain is. If you feel like you could refresh your knowledge about them, be sure to <a href=https://www.bitdegree.org/"https:////www.bitdegree.org//crypto//learn//what-is-blockchain/">check out this section<\/strong><\/a>! Okay, now back to consensus mechanisms.<\/em><\/p>\n<p>The consensus mechanism that relies on mining is known as <a href=https://www.bitdegree.org/"https:////www.bitdegree.org//crypto//learn//crypto-terms//what-is-proof-of-work-pow/">Proof-of-Work, or, more commonly, PoW.<\/p>\n<p>To explain PoW in simple terms, we can imagine a running competition. The fastest wins the race. In terms of crypto mining, this translates to “<em>the fastest miner wins the reward<\/em>”. Here’s what I mean.<\/p>\n<p><img style=\"display: block; margin-left: auto; margin-right: auto;\" title=\"What is crypto mining: Competition.\" src=https://www.bitdegree.org/"https:////assets.bitdegree.org//crypto//storage//optimized//what-is-crypto-mining-02.jpg/" alt=\"What is crypto mining: Competition.\" width=\"1000\" height=\"604\" \/><\/p>\n<p>PoW involves<strong> miners competing to solve complex mathematical puzzles<\/strong>. These puzzles are known as <strong>hashes<\/strong>. Hashes are 64-digit numbers, and in order to find the right hash, miners have to put in quite a lot of effort. But this effort isn’t physical or mental. It’s <strong>pure computational power<\/strong> that requires a lot of electricity.<\/p>\n<p>In addition to mining, this computational effort is used to <strong>ensure the security of the network<\/strong>, constantly monitor the integrity of transactions, and make it near impossible for malicious actors to manipulate the blockchain's transaction history.<\/p>\n<p>So, that’s the definition of Proof-of-Work, the consensus mechanism. But, as you’ll soon see, understanding PoW is almost the same as understanding crypto mining as such. However, enough talking about consensus mechanisms, let’s get back to the concept of mining.<\/p>\n<p>In itself, the mining process has nothing to do with pickaxes, or even mining, in general. It’s something way less exciting, since it’s literally just <strong>machines solving complex mathematical puzzles 24\/7<\/strong>.<\/p>\n<p>And these puzzles can get really, really difficult. Therefore, efficient and profitable crypto mining is almost impossible without having access to the latest, state-of-art pieces of equipment. And it can get pretty expensive!<\/p>\n<p><img style=\"display: block; margin-left: auto; margin-right: auto;\" title=\"What is crypto mining: Mining hardware.\" src=https://www.bitdegree.org/"https:////assets.bitdegree.org//crypto//storage//optimized//what-is-crypto-mining-03.jpg/" alt=\"What is crypto mining: Mining hardware.\" width=\"1000\" height=\"590\" \/><\/p>\n<p>But there’s logic to it. Investing in a <a href=https://www.bitdegree.org/"https:////www.bitdegree.org//crypto//learn//crypto-terms//what-is-mining-rig/">crypto mining rig<\/strong><\/a> should lead to getting these puzzles solved, which would then lead to the <strong>miners receiving an award for their efforts and investments<\/strong>. And this award comes in the shape of the cryptocurrency that’s native to the blockchain that miners are working on.<\/p>\n<p>Once again, <strong>the most important minable cryptocurrency is<\/strong> <a href=https://www.bitdegree.org/"https:////www.bitdegree.org//crypto//learn//what-is-a-bitcoin/">Bitcoin, therefore, whenever miners solve these complex problems on the Bitcoin network - they receive some Bitcoin as a reward. Or, in other words - they successfully mine Bitcoin.<\/p>\n<p>When cryptocurrencies were just kicking off, no expensive gadgets were necessary in order to participate in crypto mining. But today, <strong>special crypto mining software<\/strong>, combined with such hardware units as <a href=https://www.bitdegree.org/"https:////www.bitdegree.org//crypto//learn//crypto-terms//what-is-asic/">ASICs (Application-Specific Integrated Circuits), or <a href=https://www.bitdegree.org/"https:////www.bitdegree.org//crypto//learn//crypto-terms//what-is-graphical-processing-unit-gpu/">GPUs (Graphics Processing Units), are no longer enough! Crypto miners set up entire <strong>warehouses full of high-tech crypto mining rigs<\/strong> just so they could participate in the crypto mining race.<\/p>\n<p>Therefore, Bitcoin mining has become a less accessible activity for most people, since setting up a crypto mining rig and installing the necessary crypto mining software would lead to heavy costs, and a constantly high electricity bill.<\/p>\n<p><img style=\"display: block; margin-left: auto; margin-right: auto;\" title=\"What is crypto mining:\" src=https://www.bitdegree.org/"https:////assets.bitdegree.org//crypto//storage//optimized//what-is-crypto-mining-04.jpg/" alt=\"What is crypto mining: Bitcoin mining.\" width=\"1000\" height=\"542\" \/><\/p>\n<p>Yet, it still remains on the menu for those who want to experience this process fully. There are many <strong>other cryptocurrencies that are still very much available for mining<\/strong>, even without having access to expensive crypto mining rigs. In many cases, owning a laptop, a PC, or investing into an ASIC can be enough to begin your mining journey. <\/p>\n<p>Therefore, when we talk about crypto mining profitability, it depends on the cryptocurrency. Nevertheless, before jumping into it, be sure to look up a <strong>specialized crypto mining calculator<\/strong> that would allow you to evaluate whether such an investment would be a smart move!<\/p>\n<p>Recently, when Bitcoin went through a decrease in its value, there have been many stories about crypto miners facing problems, debts and downfalls, and even bankruptcies. <strong>This industry can get really rough<\/strong>!<\/p>\n<p>Okay, so that’s what crypto mining looks like in theory. Let’s get practical. Let’s consider the importance of crypto mining when it comes to something as big and important as Bitcoin.<\/p>\n<h2>Crypto Mining & Bitcoin<\/h2>\n<p>As mentioned earlier, crypto mining, or, in this case, Bitcoin mining, is <strong>the process of validating Bitcoin transactions and adding them to the Bitcoin blockchain<\/strong>, or, as it’s often referred to, the public ledger that holds all transactions that have taken place on the network.<\/p>\n<p>In the process of doing so, Bitcoin mining allows new Bitcoin to be created, and ensures the security of the entire network. It’s like the cement that holds the blockchain’s bricks, or <a href=https://www.bitdegree.org/"https:////www.bitdegree.org//crypto//learn//crypto-terms//what-is-block/">blocks, together, and allows the further construction of this colossal <a href=https://www.bitdegree.org/"https:////www.bitdegree.org//crypto//learn//what-is-web-3-0/">Web3 skyscraper.<\/p>\n<p><em>Here’s how it works<\/em>. Imagine someone makes a transaction on the Bitcoin network. Now, the <strong>information about this particular transaction has to be recorded on the blockchain<\/strong> - the public ledger. That’s necessary in order to make sure that any attempts at tampering with the transaction history, and any instances of fraud, would be blocked.<\/p>\n<p><img style=\"display: block; margin-left: auto; margin-right: auto;\" title=\"What is crypto mining: New Bitcoin.\" src=https://www.bitdegree.org/"https:////assets.bitdegree.org//crypto//storage//optimized//what-is-crypto-mining-05.jpg/" alt=\"What is crypto mining: New Bitcoin.\" width=\"1000\" height=\"508\" \/><\/p>\n<p>In order for this transaction to be inscribed into the blockchain, <strong>it has to be written into a block<\/strong> that would then be added to the network. When an old block is filled, a new block has to be created, thus continuously forming the chain of blocks - the blockchain.<\/p>\n<p>And this is where the miners come in. Adding the newly-created block into the blockchain requires miners to find the already mentioned “<em>hash<\/em>.” You can view these hashes as a sort of a unique identifier, a block’s ID card that makes it possible for every validator to recognize and verify these blocks and their order within the blockchain.<\/p>\n<p><strong>Whenever a new block is about to be added to the blockchain, a new hash has to be found<\/strong>, which would correspond with the previous block’s hash. This process establishes a chronological order of transactions and creates a secure transaction history.<\/p>\n<p><img style=\"display: block; margin-left: auto; margin-right: auto;\" title=\"What is crypto mining: The blockchain.\" src=https://www.bitdegree.org/"https:////assets.bitdegree.org//crypto//storage//optimized//what-is-crypto-mining-06.jpg/" alt=\"What is crypto mining: The blockchain.\" width=\"1000\" height=\"511\" \/><\/p>\n<p>Therefore, in order to calculate it correctly and on time, miners must rely on the previously-described specialized crypto-mining software and hardware. Bitcoin users want to see their transactions verified ASAP; thus, fast and efficient machinery is required to reduce the hash-finding time.<\/p>\n<p>Now, this means that <strong>transaction validation is directly dependent on miners<\/strong>. But, as you can see, the blockchain and the creation of new blocks also depend on them! Therefore, it only makes sense that the hard work of miners gets rewarded. And these rewards are known as “<strong>Block Rewards<\/strong>.”<\/p>\n<p>Whenever a miner successfully adds a new block to the blockchain, they are rewarded with newly minted Bitcoin. Since that’s a lot of money, it allows miners to invest into their crypto mining rig and software, while still remaining profitable.<\/p>\n<h2>Problems & Criticism<\/h2>\n<p>As you can see, crypto mining can get really intense. And when you have so much machinery that’s running all year long… you end up with rather <strong>high electricity bills, and some giant environmental problems<\/strong>. That’s where the main source of criticism towards crypto mining comes from.<\/p>\n<p>Critics argue that the energy consumption that comes from mining Bitcoin contributes to carbon emissions, accelerates climate change, and intensifies the usage of fossil fuels and fossil fuel-based energy sources, which, of course, emits greenhouse gases.<\/p>\n<p>Then, as you may have already realized, the industry heavily relies on constant upgrades of the hardware that’s used for mining. This means that all the <strong>machinery that becomes obsolete simply turns into e-waste<\/strong>, thus further contributing to the environmental problems that arise from Bitcoin mining.<\/p>\n<p><img style=\"display: block; margin-left: auto; margin-right: auto;\" title=\"What is crypto mining: Criticism.\" src=https://www.bitdegree.org/"https:////assets.bitdegree.org//crypto//storage//optimized//what-is-crypto-mining-07.jpg/" alt=\"What is crypto mining: Criticism.\" width=\"1000\" height=\"538\" \/><\/p>\n<p>So, it’s not rocket science to reach a conclusion that crypto <strong>mining may not be a truly sustainable solution in the long run<\/strong>.<\/p>\n<p>Of course, as the industry evolves, new ways of mining, new consensus mechanisms, and new ways of validating transactions and securing the blockchain are being created, as well. Yet, Bitcoin prevails as the number one crypto in the world, and <strong>crypto mining is almost always synonymous with “Bitcoin mining.”<\/strong> Besides, Bitcoin is not going anywhere anytime soon.<\/p>\n<p>Therefore, it’s important to be well-versed when it comes to understanding crypto mining, because this question is sure to be the center of many heated debates in the near future.<\/p>\n<h2>Wrapping Up<\/h2>\n<p>Having said this, we reached the end of the section! By now, I hope, you’ve got a better understanding of what is crypto mining and how does crypto mining work. Also, keep in mind that, <strong>instead of a pickaxe, you’d need proper crypto mining software and to set up a crypto mining rig to be able to participate in this activity<\/strong>!<\/p>\n<p>Even though this industry can be profitable, and it allows many blockchains to actually function in a decentralized way, it nevertheless faces many questions, dilemmas, and problems. Therefore, whenever crypto mining is being considered, the educated thing to do is to be aware of both sides and seek the best solution for everyone.<\/p>","definition":"Did you know that crypto mining is not only a means of creating many digital assets, but also a means of securing them?","status":"published","meta_title":"What is Crypto Mining and How Does It Work?","meta_description":"You've probably heard something about Bitcoin mining, but what is crypto mining as a whole, and how does it actually work? Find out here!","meta_keywords":"what is crypto mining, how does crypto mining work, crypto mining software, crypto mining rig, crypto mining calculator, crypto mining profitability","modified_content":"<p>In this section, we’re going to look into <strong>what is crypto mining, and how does crypto mining work<\/strong>!<\/p>\n<p>If you’re reading this section, it means that you’ve had enough of hearing about crypto mining everywhere, and decided to finally tackle the question of “<em>what is crypto mining<\/em>” once and for all. That’s a good call, since mining is a fascinating and dynamic aspect of the cryptocurrency world, and <strong>it plays a vital role in the creation and security of many digital assets<\/strong>.<\/p>\n<p>Even though this subject can get pretty polarizing, it still remains a fundamental pillar of the decentralized nature of cryptocurrencies. And you’re about to understand what makes this topic so interesting, yet so dividing, as well.<\/p>\n<p>In this section, we’re going to look into the questions of what is crypto mining, how does crypto mining work, <strong>what kind of<\/strong> <strong>crypto mining software and hardware miners require<\/strong>, and everything else that’s related to the topic. For beginners, these questions may seem headache-inducing, but you can’t venture into the land of crypto without knowing the answers to them.<\/p>\n<p><em>Without any further ado, let’s grab that virtual pickaxe and get to work.<\/em><\/p>\n<div class=\"container\">\n <div class=\"row justify-content-center\">\n <div class=\"col-md-10 suggested-comparisons pb-3 mb-4\">\n <div class=\"d-flex flex-row\">\n <div class=\"text-center\">\n <div class=\"img-block-yt\">\n <img src=https://www.bitdegree.org/"https:////assets.bitdegree.org//crypto//assets//images//compare-crypto-exchanges.gif/"/n alt=\"Crypto Mining Explained: How to Earn From Mining Bitcoin? (Animated)\"\n title=\"Crypto Mining Explained: How to Earn From Mining Bitcoin? (Animated)\" class=\"border-0\">\n <p>Video Explainer<\/p>\n <\/div>\n <\/div>\n <div class=\"col-xs-10 col-sm-10 col-md-10 text-left py-3 yt-info\">\n <h4 class=\"mb-1\">Video Explainer: Crypto Mining: What It is and How Does It Work?<\/h4>\n <p class=\"py-1 mb-0 youtube-video-subtitle\">Reading is not your thing? Watch the \"Crypto Mining: What It is and How Does It Work?\" video explainer<\/p>\n <\/div>\n <\/div>\n <div class=\"row justify-content-center text-center\">\n <div class=\"col-12 col-md-11 px-3\">\n <div class=\"wrapper mb-0\">\n <div class=\"position-relative youtube mb-4 bg-transparent p-0 video-modal-popup\" data-toggle=\"modal\"\n data-target=\"#video-modal\" data-id=\"-2AqtP1ZFJU\" data-title=\"CryptoFinallyExplained\">\n <div class=\"video-gradient-top\"><\/div>\n <p class=\"text-left dyk-video-title\">Crypto Mining Explained: How to Earn From Mining Bitcoin? (Animated)<\/p>\n <img data-srcset=\"https:\/\/assets.bitdegree.org\/youtube\/crypto-finally-explained\/crypto-mining-explained-how-to-earn-from-mining-bitcoin-animated.jpg?tr=w-420 500w,\n https:\/\/assets.bitdegree.org\/youtube\/crypto-finally-explained\/crypto-mining-explained-how-to-earn-from-mining-bitcoin-animated.jpg?tr=w-760 1000w\"\n alt=\"Crypto Mining Explained: How to Earn From Mining Bitcoin? (Animated)\"\n title=\"Crypto Mining Explained: How to Earn From Mining Bitcoin? (Animated)\"\n class=\"p-0 lazyload\">\n <img class=\"play-button lazyload\" data-target=\"#video-modal\"\n data-src=\"https:\/\/assets.bitdegree.org\/crypto\/assets\/video-button.png?tr=w-85\"\n alt=\"Crypto Mining Explained: How to Earn From Mining Bitcoin? (Animated)\">\n <\/div>\n <\/div>\n <\/div>\n <\/div>\n <div class=\"row justify-content-center text-center\">\n <div>\n <a href=https://www.bitdegree.org/"https:////www.youtube.com//c//CryptoFinallyExplained?sub_confirmation=1\%22\n class=\"btn yt-promo mb-2\" target=\"_blank\" rel=\"nofollow noopener noindex\">\n <div class=\"row justify-content-center align-items-center mx-0 text-center\">\n <div class=\"col-4 col-md-4\">\n <i class=\"fab fa-youtube yt-dyk-btn\"><\/i>\n <\/div>\n <div class=\"col-8 col-md-8 text-center yt-promo-text\">\n <h4 class=\"m-0 text-white\">SUBSCRIBE<\/h4>\n <span>ON YOUTUBE<\/span>\n <\/div>\n <\/div>\n <\/a>\n <\/div>\n <\/div>\n <\/div>\n <\/div>\n<\/div>\n<div class=\"modal fade\" id=\"video-modal\" tabindex=\"-1\" role=\"dialog\">\n <div class=\"modal-dialog modal-dialog-centered modal-lg\" role=\"document\">\n <div class=\"modal-content\">\n <div class=\"modal-body p-0\">\n <button type=\"button\" class=\"video-modal-close close\" data-dismiss=\"modal\" aria-label=\"Close\">\n <i aria-hidden=\"true\" class=\"fas fa-times\"><\/i>\n <\/button>\n <div id=\"iframe\"><\/div>\n <\/div>\n <a class=\"text-decoration-none\"\n href=https://www.bitdegree.org/"https:////www.youtube.com//c//CryptoFinallyExplained?sub_confirmation=1\%22\n rel=\"nofollow noopener noindex\" target=\"_blank\">\n <div class=\"modal-footer p-0 d-block bg-white\">\n <div class=\"row justify-content-center m-0\">\n <div class=\"col-3 col-md-4 col-lg-2 p-0\">\n <img class=\"w-100 h-100\" src=https://www.bitdegree.org/"https:////assets.bitdegree.org//crypto//assets//crypto-subscribe.jpg/" alt=\"Subscribe\">\n <\/div>\n <div class=\"col-9 col-md-8 col-lg-2 px-0 d-flex\">\n <div class=\"modal-subscribe w-100\">\n <p class=\"m-0 mt-1 mr-3\">SUBSCRIBE<br>\n <span class=\"m-0\">ON YOUTUBE<\/span>\n <\/p>\n <\/div>\n <\/div>\n <div class=\"col-12 col-md-12 col-lg-8 p-0 text-center d-flex justify-content-center align-items-center\">\n <div class=\"modal-subscribe-text\">\n <h4 class=\"m-0\">Understand crypto with ease<\/h4>\n <span>New explainer videos every week!<\/span>\n <\/div>\n <\/div>\n <\/div>\n <\/div>\n <\/a>\n <\/div>\n <\/div>\n<\/div>\n<h2>What is Crypto Mining?<\/h2>\n<p>Starting from the very beginning, we should probably define the concept, first. <strong>So, what is crypto mining?<\/strong><\/p>\n<p>In its essence, crypto mining is the process that is used to <strong>create new digital coins, verify new transactions, and add them to the blockchain ledger<\/strong>. Many cryptos, and most importantly - <a href=https://www.bitdegree.org/"//crypto//buy-bitcoin-btc/">Bitcoin, rely on crypto mining, because it’s thanks to mining that these currencies enter circulation in the shape of new, freshly-mined coins.<\/p>\n<p><img style=\"display: block; margin-left: auto; margin-right: auto;\" title=\"What is crypto mining: Mining definition.\" src=https://www.bitdegree.org/"https:////assets.bitdegree.org//crypto//storage//optimized//what-is-crypto-mining-01.jpg/" alt=\"What is crypto mining: Mining definition.\" width=\"1000\" height=\"574\" \/><\/p>\n<p>That’s where the term \"<em>mining<\/em>\" comes from, since there is a limited number of new coins that can be “extracted”, or “mined”, same as with mineable natural resources in the real world, such as diamonds or coal.<\/p>\n<p>Technically, crypto mining is part of something that’s known as a “<strong>consensus mechanism<\/strong>”.<\/p>\n<p>A consensus mechanism is like a <strong>rulebook for how a blockchain operates<\/strong>. Different blockchain networks have different consensus mechanisms, which ensure that all network participants reach an agreement on what things should look like without the need for a central authority.<\/p>\n<p>Let’s consider chess. Chess has its rules, and people simply follow them. There’s no need for a referee to sit beside and make sure that no one’s gonna begin making checkers’ moves with chess figures.<\/p>\n<p>When it comes to the “<em>rules of the blockchain<\/em>”, this means that a consensus mechanism serves the purpose of <strong>ensuring that all the blockchain network participants agree on the validity of transactions and the state of the network<\/strong>. Different blockchains have different consensus mechanisms, and some of them don’t require mining in order to be functional.<\/p>\n<p><em>By the way, it’s impossible to understand this without having a decent understanding of what a blockchain is. If you feel like you could refresh your knowledge about them, be sure to <a href=https://www.bitdegree.org/"https:////www.bitdegree.org//crypto//learn//what-is-blockchain/">check out this section<\/strong><\/a>! Okay, now back to consensus mechanisms.<\/em><\/p>\n<p>The consensus mechanism that relies on mining is known as <a href=https://www.bitdegree.org/"https:////www.bitdegree.org//crypto//learn//crypto-terms//what-is-proof-of-work-pow/">Proof-of-Work, or, more commonly, PoW.<\/p>\n<p>To explain PoW in simple terms, we can imagine a running competition. The fastest wins the race. In terms of crypto mining, this translates to “<em>the fastest miner wins the reward<\/em>”. Here’s what I mean.<\/p>\n<p><img style=\"display: block; margin-left: auto; margin-right: auto;\" title=\"What is crypto mining: Competition.\" src=https://www.bitdegree.org/"https:////assets.bitdegree.org//crypto//storage//optimized//what-is-crypto-mining-02.jpg/" alt=\"What is crypto mining: Competition.\" width=\"1000\" height=\"604\" \/><\/p>\n<p>PoW involves<strong> miners competing to solve complex mathematical puzzles<\/strong>. These puzzles are known as <strong>hashes<\/strong>. Hashes are 64-digit numbers, and in order to find the right hash, miners have to put in quite a lot of effort. But this effort isn’t physical or mental. It’s <strong>pure computational power<\/strong> that requires a lot of electricity.<\/p>\n<p>In addition to mining, this computational effort is used to <strong>ensure the security of the network<\/strong>, constantly monitor the integrity of transactions, and make it near impossible for malicious actors to manipulate the blockchain's transaction history.<\/p>\n<p>So, that’s the definition of Proof-of-Work, the consensus mechanism. But, as you’ll soon see, understanding PoW is almost the same as understanding crypto mining as such. However, enough talking about consensus mechanisms, let’s get back to the concept of mining.<\/p>\n<p>In itself, the mining process has nothing to do with pickaxes, or even mining, in general. It’s something way less exciting, since it’s literally just <strong>machines solving complex mathematical puzzles 24\/7<\/strong>.<\/p>\n<p>And these puzzles can get really, really difficult. Therefore, efficient and profitable crypto mining is almost impossible without having access to the latest, state-of-art pieces of equipment. And it can get pretty expensive!<\/p>\n<p><img style=\"display: block; margin-left: auto; margin-right: auto;\" title=\"What is crypto mining: Mining hardware.\" src=https://www.bitdegree.org/"https:////assets.bitdegree.org//crypto//storage//optimized//what-is-crypto-mining-03.jpg/" alt=\"What is crypto mining: Mining hardware.\" width=\"1000\" height=\"590\" \/><\/p>\n<p>But there’s logic to it. Investing in a <a href=https://www.bitdegree.org/"https:////www.bitdegree.org//crypto//learn//crypto-terms//what-is-mining-rig/">crypto mining rig<\/strong><\/a> should lead to getting these puzzles solved, which would then lead to the <strong>miners receiving an award for their efforts and investments<\/strong>. And this award comes in the shape of the cryptocurrency that’s native to the blockchain that miners are working on.<\/p>\n<p>Once again, <strong>the most important minable cryptocurrency is<\/strong> <a href=https://www.bitdegree.org/"https:////www.bitdegree.org//crypto//learn//what-is-a-bitcoin/">Bitcoin, therefore, whenever miners solve these complex problems on the Bitcoin network - they receive some Bitcoin as a reward. Or, in other words - they successfully mine Bitcoin.<\/p>\n<p>When cryptocurrencies were just kicking off, no expensive gadgets were necessary in order to participate in crypto mining. But today, <strong>special crypto mining software<\/strong>, combined with such hardware units as <a href=https://www.bitdegree.org/"https:////www.bitdegree.org//crypto//learn//crypto-terms//what-is-asic/">ASICs (Application-Specific Integrated Circuits), or <a href=https://www.bitdegree.org/"https:////www.bitdegree.org//crypto//learn//crypto-terms//what-is-graphical-processing-unit-gpu/">GPUs (Graphics Processing Units), are no longer enough! Crypto miners set up entire <strong>warehouses full of high-tech crypto mining rigs<\/strong> just so they could participate in the crypto mining race.<\/p>\n<p>Therefore, Bitcoin mining has become a less accessible activity for most people, since setting up a crypto mining rig and installing the necessary crypto mining software would lead to heavy costs, and a constantly high electricity bill.<\/p>\n<p><img style=\"display: block; margin-left: auto; margin-right: auto;\" title=\"What is crypto mining:\" src=https://www.bitdegree.org/"https:////assets.bitdegree.org//crypto//storage//optimized//what-is-crypto-mining-04.jpg/" alt=\"What is crypto mining: Bitcoin mining.\" width=\"1000\" height=\"542\" \/><\/p>\n<p>Yet, it still remains on the menu for those who want to experience this process fully. There are many <strong>other cryptocurrencies that are still very much available for mining<\/strong>, even without having access to expensive crypto mining rigs. In many cases, owning a laptop, a PC, or investing into an ASIC can be enough to begin your mining journey. <\/p>\n<p>Therefore, when we talk about crypto mining profitability, it depends on the cryptocurrency. Nevertheless, before jumping into it, be sure to look up a <strong>specialized crypto mining calculator<\/strong> that would allow you to evaluate whether such an investment would be a smart move!<\/p>\n<p>Recently, when Bitcoin went through a decrease in its value, there have been many stories about crypto miners facing problems, debts and downfalls, and even bankruptcies. <strong>This industry can get really rough<\/strong>!<\/p>\n<p>Okay, so that’s what crypto mining looks like in theory. Let’s get practical. Let’s consider the importance of crypto mining when it comes to something as big and important as Bitcoin.<\/p>\n<h2>Crypto Mining & Bitcoin<\/h2>\n<p>As mentioned earlier, crypto mining, or, in this case, Bitcoin mining, is <strong>the process of validating Bitcoin transactions and adding them to the Bitcoin blockchain<\/strong>, or, as it’s often referred to, the public ledger that holds all transactions that have taken place on the network.<\/p>\n<p>In the process of doing so, Bitcoin mining allows new Bitcoin to be created, and ensures the security of the entire network. It’s like the cement that holds the blockchain’s bricks, or <a href=https://www.bitdegree.org/"https:////www.bitdegree.org//crypto//learn//crypto-terms//what-is-block/">blocks, together, and allows the further construction of this colossal <a href=https://www.bitdegree.org/"https:////www.bitdegree.org//crypto//learn//what-is-web-3-0/">Web3 skyscraper.<\/p>\n<p><em>Here’s how it works<\/em>. Imagine someone makes a transaction on the Bitcoin network. Now, the <strong>information about this particular transaction has to be recorded on the blockchain<\/strong> - the public ledger. That’s necessary in order to make sure that any attempts at tampering with the transaction history, and any instances of fraud, would be blocked.<\/p>\n<p><img style=\"display: block; margin-left: auto; margin-right: auto;\" title=\"What is crypto mining: New Bitcoin.\" src=https://www.bitdegree.org/"https:////assets.bitdegree.org//crypto//storage//optimized//what-is-crypto-mining-05.jpg/" alt=\"What is crypto mining: New Bitcoin.\" width=\"1000\" height=\"508\" \/><\/p>\n<p>In order for this transaction to be inscribed into the blockchain, <strong>it has to be written into a block<\/strong> that would then be added to the network. When an old block is filled, a new block has to be created, thus continuously forming the chain of blocks - the blockchain.<\/p>\n<p>And this is where the miners come in. Adding the newly-created block into the blockchain requires miners to find the already mentioned “<em>hash<\/em>.” You can view these hashes as a sort of a unique identifier, a block’s ID card that makes it possible for every validator to recognize and verify these blocks and their order within the blockchain.<\/p>\n<p><strong>Whenever a new block is about to be added to the blockchain, a new hash has to be found<\/strong>, which would correspond with the previous block’s hash. This process establishes a chronological order of transactions and creates a secure transaction history.<\/p>\n<p><img style=\"display: block; margin-left: auto; margin-right: auto;\" title=\"What is crypto mining: The blockchain.\" src=https://www.bitdegree.org/"https:////assets.bitdegree.org//crypto//storage//optimized//what-is-crypto-mining-06.jpg/" alt=\"What is crypto mining: The blockchain.\" width=\"1000\" height=\"511\" \/><\/p>\n<p>Therefore, in order to calculate it correctly and on time, miners must rely on the previously-described specialized crypto-mining software and hardware. Bitcoin users want to see their transactions verified ASAP; thus, fast and efficient machinery is required to reduce the hash-finding time.<\/p>\n<p>Now, this means that <strong>transaction validation is directly dependent on miners<\/strong>. But, as you can see, the blockchain and the creation of new blocks also depend on them! Therefore, it only makes sense that the hard work of miners gets rewarded. And these rewards are known as “<strong>Block Rewards<\/strong>.”<\/p>\n<p>Whenever a miner successfully adds a new block to the blockchain, they are rewarded with newly minted Bitcoin. Since that’s a lot of money, it allows miners to invest into their crypto mining rig and software, while still remaining profitable.<\/p>\n<h2>Problems & Criticism<\/h2>\n<p>As you can see, crypto mining can get really intense. And when you have so much machinery that’s running all year long… you end up with rather <strong>high electricity bills, and some giant environmental problems<\/strong>. That’s where the main source of criticism towards crypto mining comes from.<\/p>\n<p>Critics argue that the energy consumption that comes from mining Bitcoin contributes to carbon emissions, accelerates climate change, and intensifies the usage of fossil fuels and fossil fuel-based energy sources, which, of course, emits greenhouse gases.<\/p>\n<p>Then, as you may have already realized, the industry heavily relies on constant upgrades of the hardware that’s used for mining. This means that all the <strong>machinery that becomes obsolete simply turns into e-waste<\/strong>, thus further contributing to the environmental problems that arise from Bitcoin mining.<\/p>\n<p><img style=\"display: block; margin-left: auto; margin-right: auto;\" title=\"What is crypto mining: Criticism.\" src=https://www.bitdegree.org/"https:////assets.bitdegree.org//crypto//storage//optimized//what-is-crypto-mining-07.jpg/" alt=\"What is crypto mining: Criticism.\" width=\"1000\" height=\"538\" \/><\/p>\n<p>So, it’s not rocket science to reach a conclusion that crypto <strong>mining may not be a truly sustainable solution in the long run<\/strong>.<\/p>\n<p>Of course, as the industry evolves, new ways of mining, new consensus mechanisms, and new ways of validating transactions and securing the blockchain are being created, as well. Yet, Bitcoin prevails as the number one crypto in the world, and <strong>crypto mining is almost always synonymous with “Bitcoin mining.”<\/strong> Besides, Bitcoin is not going anywhere anytime soon.<\/p>\n<p>Therefore, it’s important to be well-versed when it comes to understanding crypto mining, because this question is sure to be the center of many heated debates in the near future.<\/p>\n<h2>Wrapping Up<\/h2>\n<p>Having said this, we reached the end of the section! By now, I hope, you’ve got a better understanding of what is crypto mining and how does crypto mining work. Also, keep in mind that, <strong>instead of a pickaxe, you’d need proper crypto mining software and to set up a crypto mining rig to be able to participate in this activity<\/strong>!<\/p>\n<p>Even though this industry can be profitable, and it allows many blockchains to actually function in a decentralized way, it nevertheless faces many questions, dilemmas, and problems. Therefore, whenever crypto mining is being considered, the educated thing to do is to be aware of both sides and seek the best solution for everyone.<\/p>","youtube_video":{"id":85,"channel_id":1,"sort":27,"video_title":"Crypto Mining Explained: How to Earn From Mining Bitcoin? (Animated)","description":"What is crypto mining?\n\nBy now, everyone\u2019s heard of crypto mining. But, how does crypto mining work? Is it difficult, is it worth it? What are the main risks, and drawbacks of crypto mining? These are among the questions that I address in this video.\n\nUnderstanding crypto mining is a necessary step for anyone who wants to understand crypto, Defi, and the future of finance. And it all begins with learning about Proof-of-Work and Bitcoin mining!\n\nHave you tried crypto mining? Would you like to? Is there a question that you would like to ask? Please let us know in the comment section below!\n\nVideo Time Table:\n\n0:00 Introduction to What is Crypto Mining?\n1:06 Crypto Mining Explained\n6:01 What is Bitcoin Mining?\n8:06 Problems & Criticism\n9:21 Wrap-up: What is Crypto Mining?\n\nGet Quick Crypto Tips on Twitter - Follow:\nhttps:\/\/twitter.com\/crypto_xplained \n\n#CryptoMining #BitcoinMining #MiningRig","video_id":"-2AqtP1ZFJU","duration":616,"view_count":236,"thumbnail_url":"https:\/\/assets.bitdegree.org\/youtube\/crypto-finally-explained\/crypto-mining-explained-how-to-earn-from-mining-bitcoin-animated.jpg","thumbnail_width":1280,"thumbnail_height":720,"published_at":"2023-06-16T14:04:24.000000Z","created_at":"2023-06-16T23:00:16.000000Z","updated_at":"2024-01-09T23:00:04.000000Z","channel":{"id":1,"title":"CryptoFinallyExplained","channel_id":"UCOryUY0yxC08eJtK23mNgiA","main_playlist_id":"UUOryUY0yxC08eJtK23mNgiA"}}}" :prev-section="{"id":483,"chapter_id":8,"order":5,"featured_image_id":3097,"youtube_video_id":84,"author_id":1,"created_at":"2023-05-17T12:54:44.000000Z","updated_at":"2023-12-27T19:15:09.000000Z","slug":"how-to-research-crypto","title":"Crypto Research Fundamentals & Social Signals: Your Daily Trading Strategy","content":"<p>In this section, we’re going to talk about <strong>how to research crypto<\/strong>!<\/p>\n<p>Crypto is no longer a buzzword. It’s already a household name for <strong>the financial system of the future<\/strong>.  <em>But… <\/em>Getting into crypto didn’t get easier. Matter of fact, it’s probably the opposite, since the number of crypto coins is already in the tens of thousands, and news about new scams comes from every corner.<\/p>\n<p>So, quite naturally, an important question arises: <em>How to research crypto and how not to get tangled up in the maze of new projects, complicated terminology and overwhelming feeling of <a href=https://www.bitdegree.org/"https:////www.bitdegree.org//crypto//learn//crypto-terms//what-is-fomo/">FOMO?<\/em> Well, in this section, I will tell you all about it.<\/p>\n<p>In this section, we’re going to look into how to research crypto, what to research when buying crypto, how is this process done correctly, and what to concentrate on while doing your own research.<\/p>\n<p><em>Without further ado, let's get to it!<\/em><\/p>\n<h2>Crypto Research 101<\/h2>\n<p>First of all, ironically enough, even the word ‘<em>research<\/em>’ requires some research. Here’s what I mean.<\/p>\n<p><img style=\"display: block; margin-left: auto; margin-right: auto;\" title=\"How to research crypto: Research types.\" src=https://www.bitdegree.org/"https:////assets.bitdegree.org//crypto//storage//optimized//how-to-research-crypto-01.jpg/" alt=\"How to research crypto: Research types.\" width=\"1000\" height=\"487\" \/><\/p>\n<p>Let’s say you’re about to begin researching a new crypto project. <em>Alright, where do you begin?<\/em> These projects often have many layers to them. You can conduct <strong>tokenomics research, airdrop research, DeFi research, NFT research<\/strong>… There are many aspects that require serious evaluation before making a financial decision.<\/p>\n<p>Understandably, this may seem overwhelming. To start making sense of it all, let’s quickly define these different ways of researching crypto.<\/p>\n<h3>Tokenomics Research<\/h3>\n<p>So, what’s ‘<strong>tokenomics research<\/strong>’?<\/p>\n<p>In this context, the term ‘<em>tokenomics<\/em>’ refers to <strong>inspecting the economic principles and the design of cryptocurrencies<\/strong>. Usually, tokenomics research consists of analyzing the coin's key characteristics. These are: supply, distribution, utility, and, in many cases, governance.<\/p>\n<p><img style=\"display: block; margin-left: auto; margin-right: auto;\" title=\"How to research crypto: Tokenomics research.\" src=https://www.bitdegree.org/"https:////assets.bitdegree.org//crypto//storage//optimized//how-to-research-crypto-02.jpg/" alt=\"How to research crypto: Tokenomics research.\" width=\"1000\" height=\"553\" \/><\/p>\n<p>If you feel like you need to refresh your knowledge about these key indicators, be sure to <a href=https://www.bitdegree.org/"https:////www.bitdegree.org//crypto//learn//how-to-track-new-crypto-coins/">check this section<\/strong><\/a>, where I cover and explain these terms in detail!<\/p>\n<p>OK, back to tokenomics research. Analysis of this kind lets users <strong>estimate the functionality of a crypto coin<\/strong>, and whether it’s well thought-through. In many cases, it’s easy to spot red flags immediately. Let’s consider a well-known example.<\/p>\n<p>Tokenomics behind <strong>the infamous<\/strong> <strong>BitConnect scam<\/strong> made it clear that this project was up to no good from its very inception. The project promised high returns to investors, yet they did not disclose how these returns were generated. In addition, the only utility for the token was… Investing in the Bitconnect lending platform.<\/p>\n<p>Quite obviously, such an ordeal sounds dubious, to say the least. And, conducting tokenomics research was enough to avoid falling victim to this scam.<\/p>\n<h3>Airdrop Research<\/h3>\n<p>Moving on, let’s talk about researching <strong>airdrops<\/strong>. Let’s say you stumble upon a promising project, and airdrops are what they’re talking about.<\/p>\n<p>The term itself refers to the <strong>distribution of crypto<\/strong>. The crypto that’s issued by the project you’re interested in. Once again, there is an <a href=https://www.bitdegree.org/"https:////www.bitdegree.org//crypto//learn//what-is-an-airdrop/">entire section about this topic<\/strong><\/a>, be sure to check it out!<\/p>\n<p><img style=\"display: block; margin-left: auto; margin-right: auto;\" title=\"How to research crypto: Airdrop.\" src=https://www.bitdegree.org/"https:////assets.bitdegree.org//crypto//storage//optimized//how-to-research-crypto-03.jpg/" alt=\"How to research crypto: Airdrop.\" width=\"1000\" height=\"563\" \/><\/p>\n<p>So, a project is organizing an airdrop. In order to understand whether it’s a viable move, and not just a cheap PR trick to attract attention, experienced users go and take a look at <strong>how this may affect the coin’s tokenomics, and its role in the DeFi ecosystem<\/strong>.<\/p>\n<p>This means analyzing how the airdrop will affect the coin’s supply, demand, and whether it will not cause a massive drop in its value. Imagine if an airdrop quadrupled the coin’s circulating supply. The particular cryptocurrency would experience major <a href=https://www.bitdegree.org/"https:////www.bitdegree.org//crypto//learn//crypto-terms//what-is-inflation/">inflation in the blink of an eye.<\/p>\n<h3>DeFi Research<\/h3>\n<p>I’ve mentioned that experienced traders take into account the project’s role in the entire DeFi ecosystem. But how do they measure such a criterion? By conducting <strong>DeFi research<\/strong>.<\/p>\n<p>In its very essence, this means <strong>asking the big questions<\/strong>. It means evaluating the role of a particular project in the entire DeFi space. <em>Does the project promise a solution to a problem that hasn’t been solved yet? Does the project offer a real use case?<\/em><\/p>\n<p><em><img style=\"display: block; margin-left: auto; margin-right: auto;\" title=\"How to research crypto: Coinye.\" src=https://www.bitdegree.org/"https:////assets.bitdegree.org//crypto//storage//optimized//how-to-research-crypto-04.jpg/" alt=\"How to research crypto: Coinye.\" width=\"1000\" height=\"578\" \/><\/em><\/p>\n<p>Evaluating crypto projects based on their utility sounds like a no-brainer. Yet, you’d be surprised how <strong>many projects have been created just for the sake of attracting investors' money<\/strong>. And they succeeded just because the creators knew how to cover the uselessness of their project in hip, glittery buzzwords.<\/p>\n<p>Let’s take a look at an example. Back in 2014, a new crypto was being introduced to the market. It was called <strong>Coinye<\/strong>. <em>And yes, it was named after Kanye West<\/em>. Quite obviously, this coin had literally zero utility, and was built entirely to capitalize on the pun. West’s legal team brought this project down very quickly, and the only losers were those who actually invested in it.<\/p>\n<h3>NFT Research<\/h3>\n<p>Many projects attract the public's attention by releasing <a href=https://www.bitdegree.org/"https:////www.bitdegree.org//crypto//learn//crypto-terms//what-is-non-fungible-token-nft/">NFT collections. If you think you’d like to learn more about NFTs, <a href=https://www.bitdegree.org/"https:////www.bitdegree.org//crypto//learn//what-are-nfts/">check this section out<\/strong><\/a>. But today, we’re here to learn <strong>how to research crypto projects<\/strong>, and, in this case, their NFT collections.<\/p>\n<p>So, when you find out about a project and its NFT collection, in order to conduct a proper inspection of it, these are the aspects that require attention.<\/p>\n<p>First of all, take a look at <strong>what is the blockchain network that the NFT collection is released on<\/strong>. A well-established, and trustworthy blockchain is the first green flag. It also allows you to evaluate whether the project will potentially face scaling, security, and similar issues.<\/p>\n<p><img style=\"display: block; margin-left: auto; margin-right: auto;\" title=\"How to research crypto: NFT research.\" src=https://www.bitdegree.org/"https:////assets.bitdegree.org//crypto//storage//optimized//how-to-research-crypto-05.jpg/" alt=\"How to research crypto: NFT research.\" width=\"1000\" height=\"551\" \/><\/p>\n<p>Other aspects include <strong>the people behind the project<\/strong>, whether they are industry-insiders, and not some inexperienced strangers. Then, evaluating <strong>the strength of the community<\/strong> is important. <em>How many people engage with the project’s communication? How buzzing the atmosphere is?<\/em> The more people, the more accountability the project developers hold.<\/p>\n<p>Besides that, just like with crypto projects in general, it’s important to <strong>evaluate the collection’s market potential<\/strong>. <em>Does it have any perks and benefits that other collections don’t offer? Is it a unique project or just a cheap attempt at cashing out at the expense of the uninformed beginners?<\/em><\/p>\n<h2>How to Research Crypto?<\/h2>\n<p>As you can see, there are many different approaches and angles to researching crypto. But, separately, they present only a partial look at a particular crypto project and how solid it really is.<\/p>\n<p>Therefore, let’s see <strong>how to conduct proper research that allows you to evaluate the crypto project as a whole<\/strong>. Because it’s easy to tell people to <em>DYOR - Do Your Own Research<\/em>, and it’s way more difficult to present a coherent system of how that’s actually done. But, that’s what I’m here for.<\/p>\n<p><img style=\"display: block; margin-left: auto; margin-right: auto;\" title=\"How to research crypto: DYOR.\" src=https://www.bitdegree.org/"https:////assets.bitdegree.org//crypto//storage//optimized//how-to-research-crypto-06.jpg/" alt=\"How to research crypto: DYOR.\" width=\"1000\" height=\"544\" \/><\/p>\n<p>So, let’s say a new crypto project pops up in your newsfeed. It looks promising, revolutionary even. The temptation to invest in it is real. <em>But… Is it legit?<\/em> Time to do some research.<\/p>\n<p><em>What’s the first step? Going on the project’s website, seeing if it looks reliable, well thought-through and not shady?<\/em> <strong>Wrong<\/strong>. That’s what many users do, and scammers are very much aware of that. Sometimes they create websites that look more legit and trustworthy than those of real, value-creation-oriented companies.<\/p>\n<h3>Step 1: Check Out Telegram and Reddit<\/h3>\n<p>The first step, instead of going on the company’s website, is to go and <strong>check out Telegram and Reddit<\/strong>. These places play the role of crypto research sites, since this is where the under-the-hood talk takes place.<\/p>\n<p>Whether it’s the official project’s Telegram channel, or just people discussing it on a tech-related forum, this is precisely where you could find the first signals that the project is, indeed, legit.<\/p>\n<p><img style=\"display: block; margin-left: auto; margin-right: auto;\" title=\"How to research crypto: Social signals.\" src=https://www.bitdegree.org/"https:////assets.bitdegree.org//crypto//storage//optimized//how-to-research-crypto-07.jpg/" alt=\"How to research crypto: Social signals.\" width=\"1000\" height=\"558\" \/><\/p>\n<p>The term “<strong>social signals<\/strong>” is something that’s important to keep in mind while researching crypto. It refers to various indicators that let people know whether a project is actually talked about. Social signals represent the <strong>prevailing market sentiment, public opinion and feelings surrounding the particular crypto project<\/strong>.<\/p>\n<p>If you can’t find any social signals regarding a crypto project, it’s an indicator that you shouldn’t act in haste when it comes to making a financial decision. <em>But, how does social signal tracking look like?<\/em><\/p>\n<p>The good news is that there are platforms, designed specifically for this purpose. One of them is the <a href=https://www.bitdegree.org/"https:////www.bitdegree.org///">BitDegree Social Signals & Traffic Tracker<\/strong><\/a>. Once you’re on it, you select a crypto project of your choice, and all the most recent social signals-related data is presented to you. You’ll see stuff like stats from Twitter, Reddit, Telegram, trending posts and such data as their website’s traffic.<\/p>\n<p>Keep in mind that <strong>many fresh projects may not yet have enough data to be presented by the social signal tracker<\/strong>. But, taking a look at the well-established projects through the tracker can give you an idea of what a healthy and trustworthy crypto project looks like.<\/p>\n<p>Okay, so, what do we do when a project is so young and fresh that the social signal tracker is not enough for us to evaluate its potential? We get ready to embark on the research journey. And the first stop is <strong>checking their social media<\/strong>.<\/p>\n<h3>Step 2: Check Out Twitter<\/h3>\n<p>I’ve already mentioned the importance of checking out Telegram and Reddit, as the primary sources of critically-evaluated information regarding particular crypto projects.<\/p>\n<p><img style=\"display: block; margin-left: auto; margin-right: auto;\" title=\"How to research crypto: Twitter.\" src=https://www.bitdegree.org/"https:////assets.bitdegree.org//crypto//storage//optimized//how-to-research-crypto-08.jpg/" alt=\"How to research crypto: Twitter.\" width=\"1000\" height=\"574\" \/><\/p>\n<p><strong>Then, it’s time for Twitter<\/strong>. After all, this is where everything happens. Yet, if you only take Twitter into consideration, you could easily miss out on serious, technical projects. Many of them don’t have a huge following, or overly-active social media presence.<\/p>\n<p>On the flip side, many new low-volume projects overemphasize the importance of their Twitter performance, and their self-promo content may flood your newsfeed. Therefore, it’s important to keep in mind that <strong>just because a project knows how to build a Twitter following by posting nice pieces of content, doesn’t necessarily mean that this project is a valid one<\/strong>.<\/p>\n<h3>Step 3: Analyze the Whitepaper and Funding<\/h3>\n<p>Now, having established that a project is being discussed in various forums, and has a valid Twitter presence, it’s less risky to go to their website.<\/p>\n<p>And that’s where you’ll most likely find two key ingredients that will allow you to continue with your research. The first one is the company’s whitepaper.<\/p>\n<p><strong>A whitepaper is a<\/strong> <strong>document that emphasizes the technical side of the project, its features, goals, and potential<\/strong>. These documents are usually written by the core members of the project’s team, and they can reveal a lot about how serious it is. In this context, whitepapers are like some kind of crypto research reports.<\/p>\n<p><img style=\"display: block; margin-left: auto; margin-right: auto;\" title=\"How to research crypto: Whitepaper.\" src=https://www.bitdegree.org/"https:////assets.bitdegree.org//crypto//storage//optimized//how-to-research-crypto-09.jpg/" alt=\"How to research crypto: Whitepaper.\" width=\"1000\" height=\"541\" \/><\/p>\n<p>A great example is the famous <strong>Bitcoin whitepaper<\/strong>. Written in 2008 by the enigmatic Satoshi Nakamoto, and titled “<em>Bitcoin: A Peer-to-Peer Electronic Cash System<\/em>”, this document presented an idea which, eventually, became the foundation for the entire DeFi system.<\/p>\n<p>Those who’ve read it, and realized its potential, were the ones who didn’t hesitate to get themselves enough <a href=https://www.bitdegree.org/"//crypto//buy-bitcoin-btc/">Bitcoin when its price was still in the cents.<\/p>\n<p>Apart from the technical details, whitepapers allow users to <strong>accurately evaluate the product’s use case<\/strong>, and how realistic it is to expect a demand for it. This allows users to get the answers to the previously mentioned big questions of “<em>why?<\/em>” and “<em>how?<\/em>” is this project being developed? If the answers don’t satisfy you, it’s a clear indicator that the project is probably not worth your attention.<\/p>\n<p>The second ingredient is <strong>funding<\/strong>.<\/p>\n<p>Usually, you’ll be able to find this information on the project’s website, in the “<em>funding<\/em>” section. There, you’ll be able to see <strong>what investors and financial backers have already shown their belief in the project<\/strong>. And, of course, if you find prominent names among them, it’s a green flag.<\/p>\n<h2>Wrapping Up<\/h2>\n<p>This brings us to the end of this section. I hope that, by now, it has become clearer how to research crypto. It’s a vital part of being successful in this field. Therefore, it’s essential that traders, especially beginners, know where to start, and avoid falling victim to scammers & zero-value projects.<\/p>","definition":"Did you know that the first step of researching a crypto project should be checking out Telegram and Reddit, instead of the company's website?","status":"published","meta_title":"How to Research Crypto: A Thorough Guide for Beginners","meta_description":"Are you curious about what to research when buying crypto? Learn all the ins and outs of how to research crypto using this thorough guide.","meta_keywords":"how to research crypto, what to research when buying crypto, crypto research reports, crypto research sites","modified_content":"<p>In this section, we’re going to talk about <strong>how to research crypto<\/strong>!<\/p>\n<p>Crypto is no longer a buzzword. It’s already a household name for <strong>the financial system of the future<\/strong>.  <em>But… <\/em>Getting into crypto didn’t get easier. Matter of fact, it’s probably the opposite, since the number of crypto coins is already in the tens of thousands, and news about new scams comes from every corner.<\/p>\n<p>So, quite naturally, an important question arises: <em>How to research crypto and how not to get tangled up in the maze of new projects, complicated terminology and overwhelming feeling of <a href=https://www.bitdegree.org/"https:////www.bitdegree.org//crypto//learn//crypto-terms//what-is-fomo/">FOMO?<\/em> Well, in this section, I will tell you all about it.<\/p>\n<p>In this section, we’re going to look into how to research crypto, what to research when buying crypto, how is this process done correctly, and what to concentrate on while doing your own research.<\/p>\n<p><em>Without further ado, let's get to it!<\/em><\/p>\n<div class=\"container\">\n <div class=\"row justify-content-center\">\n <div class=\"col-md-10 suggested-comparisons pb-3 mb-4\">\n <div class=\"d-flex flex-row\">\n <div class=\"text-center\">\n <div class=\"img-block-yt\">\n <img src=https://www.bitdegree.org/"https:////assets.bitdegree.org//crypto//assets//images//compare-crypto-exchanges.gif/"/n alt=\"Crypto Research Fundamentals: How to DYOR (Animated Explainer)\"\n title=\"Crypto Research Fundamentals: How to DYOR (Animated Explainer)\" class=\"border-0\">\n <p>Video Explainer<\/p>\n <\/div>\n <\/div>\n <div class=\"col-xs-10 col-sm-10 col-md-10 text-left py-3 yt-info\">\n <h4 class=\"mb-1\">Video Explainer: Crypto Research Fundamentals & Social Signals: Your Daily Trading Strategy<\/h4>\n <p class=\"py-1 mb-0 youtube-video-subtitle\">Reading is not your thing? Watch the \"Crypto Research Fundamentals & Social Signals: Your Daily Trading Strategy\" video explainer<\/p>\n <\/div>\n <\/div>\n <div class=\"row justify-content-center text-center\">\n <div class=\"col-12 col-md-11 px-3\">\n <div class=\"wrapper mb-0\">\n <div class=\"position-relative youtube mb-4 bg-transparent p-0 video-modal-popup\" data-toggle=\"modal\"\n data-target=\"#video-modal\" data-id=\"dA0lEcFViDc\" data-title=\"CryptoFinallyExplained\">\n <div class=\"video-gradient-top\"><\/div>\n <p class=\"text-left dyk-video-title\">Crypto Research Fundamentals: How to DYOR (Animated Explainer)<\/p>\n <img data-srcset=\"https:\/\/assets.bitdegree.org\/youtube\/crypto-finally-explained\/crypto-research-fundamentals-how-to-dyor-animated-explainer.jpg?tr=w-420 500w,\n https:\/\/assets.bitdegree.org\/youtube\/crypto-finally-explained\/crypto-research-fundamentals-how-to-dyor-animated-explainer.jpg?tr=w-760 1000w\"\n alt=\"Crypto Research Fundamentals: How to DYOR (Animated Explainer)\"\n title=\"Crypto Research Fundamentals: How to DYOR (Animated Explainer)\"\n class=\"p-0 lazyload\">\n <img class=\"play-button lazyload\" data-target=\"#video-modal\"\n data-src=\"https:\/\/assets.bitdegree.org\/crypto\/assets\/video-button.png?tr=w-85\"\n alt=\"Crypto Research Fundamentals: How to DYOR (Animated Explainer)\">\n <\/div>\n <\/div>\n <\/div>\n <\/div>\n <div class=\"row justify-content-center text-center\">\n <div>\n <a href=https://www.bitdegree.org/"https:////www.youtube.com//c//CryptoFinallyExplained?sub_confirmation=1\%22\n class=\"btn yt-promo mb-2\" target=\"_blank\" rel=\"nofollow noopener noindex\">\n <div class=\"row justify-content-center align-items-center mx-0 text-center\">\n <div class=\"col-4 col-md-4\">\n <i class=\"fab fa-youtube yt-dyk-btn\"><\/i>\n <\/div>\n <div class=\"col-8 col-md-8 text-center yt-promo-text\">\n <h4 class=\"m-0 text-white\">SUBSCRIBE<\/h4>\n <span>ON YOUTUBE<\/span>\n <\/div>\n <\/div>\n <\/a>\n <\/div>\n <\/div>\n <\/div>\n <\/div>\n<\/div>\n<div class=\"modal fade\" id=\"video-modal\" tabindex=\"-1\" role=\"dialog\">\n <div class=\"modal-dialog modal-dialog-centered modal-lg\" role=\"document\">\n <div class=\"modal-content\">\n <div class=\"modal-body p-0\">\n <button type=\"button\" class=\"video-modal-close close\" data-dismiss=\"modal\" aria-label=\"Close\">\n <i aria-hidden=\"true\" class=\"fas fa-times\"><\/i>\n <\/button>\n <div id=\"iframe\"><\/div>\n <\/div>\n <a class=\"text-decoration-none\"\n href=https://www.bitdegree.org/"https:////www.youtube.com//c//CryptoFinallyExplained?sub_confirmation=1\%22\n rel=\"nofollow noopener noindex\" target=\"_blank\">\n <div class=\"modal-footer p-0 d-block bg-white\">\n <div class=\"row justify-content-center m-0\">\n <div class=\"col-3 col-md-4 col-lg-2 p-0\">\n <img class=\"w-100 h-100\" src=https://www.bitdegree.org/"https:////assets.bitdegree.org//crypto//assets//crypto-subscribe.jpg/" alt=\"Subscribe\">\n <\/div>\n <div class=\"col-9 col-md-8 col-lg-2 px-0 d-flex\">\n <div class=\"modal-subscribe w-100\">\n <p class=\"m-0 mt-1 mr-3\">SUBSCRIBE<br>\n <span class=\"m-0\">ON YOUTUBE<\/span>\n <\/p>\n <\/div>\n <\/div>\n <div class=\"col-12 col-md-12 col-lg-8 p-0 text-center d-flex justify-content-center align-items-center\">\n <div class=\"modal-subscribe-text\">\n <h4 class=\"m-0\">Understand crypto with ease<\/h4>\n <span>New explainer videos every week!<\/span>\n <\/div>\n <\/div>\n <\/div>\n <\/div>\n <\/a>\n <\/div>\n <\/div>\n<\/div>\n<h2>Crypto Research 101<\/h2>\n<p>First of all, ironically enough, even the word ‘<em>research<\/em>’ requires some research. Here’s what I mean.<\/p>\n<p><img style=\"display: block; margin-left: auto; margin-right: auto;\" title=\"How to research crypto: Research types.\" src=https://www.bitdegree.org/"https:////assets.bitdegree.org//crypto//storage//optimized//how-to-research-crypto-01.jpg/" alt=\"How to research crypto: Research types.\" width=\"1000\" height=\"487\" \/><\/p>\n<p>Let’s say you’re about to begin researching a new crypto project. <em>Alright, where do you begin?<\/em> These projects often have many layers to them. You can conduct <strong>tokenomics research, airdrop research, DeFi research, NFT research<\/strong>… There are many aspects that require serious evaluation before making a financial decision.<\/p>\n<p>Understandably, this may seem overwhelming. To start making sense of it all, let’s quickly define these different ways of researching crypto.<\/p>\n<h3>Tokenomics Research<\/h3>\n<p>So, what’s ‘<strong>tokenomics research<\/strong>’?<\/p>\n<p>In this context, the term ‘<em>tokenomics<\/em>’ refers to <strong>inspecting the economic principles and the design of cryptocurrencies<\/strong>. Usually, tokenomics research consists of analyzing the coin's key characteristics. These are: supply, distribution, utility, and, in many cases, governance.<\/p>\n<p><img style=\"display: block; margin-left: auto; margin-right: auto;\" title=\"How to research crypto: Tokenomics research.\" src=https://www.bitdegree.org/"https:////assets.bitdegree.org//crypto//storage//optimized//how-to-research-crypto-02.jpg/" alt=\"How to research crypto: Tokenomics research.\" width=\"1000\" height=\"553\" \/><\/p>\n<p>If you feel like you need to refresh your knowledge about these key indicators, be sure to <a href=https://www.bitdegree.org/"https:////www.bitdegree.org//crypto//learn//how-to-track-new-crypto-coins/">check this section<\/strong><\/a>, where I cover and explain these terms in detail!<\/p>\n<p>OK, back to tokenomics research. Analysis of this kind lets users <strong>estimate the functionality of a crypto coin<\/strong>, and whether it’s well thought-through. In many cases, it’s easy to spot red flags immediately. Let’s consider a well-known example.<\/p>\n<p>Tokenomics behind <strong>the infamous<\/strong> <strong>BitConnect scam<\/strong> made it clear that this project was up to no good from its very inception. The project promised high returns to investors, yet they did not disclose how these returns were generated. In addition, the only utility for the token was… Investing in the Bitconnect lending platform.<\/p>\n<p>Quite obviously, such an ordeal sounds dubious, to say the least. And, conducting tokenomics research was enough to avoid falling victim to this scam.<\/p>\n<h3>Airdrop Research<\/h3>\n<p>Moving on, let’s talk about researching <strong>airdrops<\/strong>. Let’s say you stumble upon a promising project, and airdrops are what they’re talking about.<\/p>\n<p>The term itself refers to the <strong>distribution of crypto<\/strong>. The crypto that’s issued by the project you’re interested in. Once again, there is an <a href=https://www.bitdegree.org/"https:////www.bitdegree.org//crypto//learn//what-is-an-airdrop/">entire section about this topic<\/strong><\/a>, be sure to check it out!<\/p>\n<p><img style=\"display: block; margin-left: auto; margin-right: auto;\" title=\"How to research crypto: Airdrop.\" src=https://www.bitdegree.org/"https:////assets.bitdegree.org//crypto//storage//optimized//how-to-research-crypto-03.jpg/" alt=\"How to research crypto: Airdrop.\" width=\"1000\" height=\"563\" \/><\/p>\n<p>So, a project is organizing an airdrop. In order to understand whether it’s a viable move, and not just a cheap PR trick to attract attention, experienced users go and take a look at <strong>how this may affect the coin’s tokenomics, and its role in the DeFi ecosystem<\/strong>.<\/p>\n<p>This means analyzing how the airdrop will affect the coin’s supply, demand, and whether it will not cause a massive drop in its value. Imagine if an airdrop quadrupled the coin’s circulating supply. The particular cryptocurrency would experience major <a href=https://www.bitdegree.org/"https:////www.bitdegree.org//crypto//learn//crypto-terms//what-is-inflation/">inflation in the blink of an eye.<\/p>\n<h3>DeFi Research<\/h3>\n<p>I’ve mentioned that experienced traders take into account the project’s role in the entire DeFi ecosystem. But how do they measure such a criterion? By conducting <strong>DeFi research<\/strong>.<\/p>\n<p>In its very essence, this means <strong>asking the big questions<\/strong>. It means evaluating the role of a particular project in the entire DeFi space. <em>Does the project promise a solution to a problem that hasn’t been solved yet? Does the project offer a real use case?<\/em><\/p>\n<p><em><img style=\"display: block; margin-left: auto; margin-right: auto;\" title=\"How to research crypto: Coinye.\" src=https://www.bitdegree.org/"https:////assets.bitdegree.org//crypto//storage//optimized//how-to-research-crypto-04.jpg/" alt=\"How to research crypto: Coinye.\" width=\"1000\" height=\"578\" \/><\/em><\/p>\n<p>Evaluating crypto projects based on their utility sounds like a no-brainer. Yet, you’d be surprised how <strong>many projects have been created just for the sake of attracting investors' money<\/strong>. And they succeeded just because the creators knew how to cover the uselessness of their project in hip, glittery buzzwords.<\/p>\n<p>Let’s take a look at an example. Back in 2014, a new crypto was being introduced to the market. It was called <strong>Coinye<\/strong>. <em>And yes, it was named after Kanye West<\/em>. Quite obviously, this coin had literally zero utility, and was built entirely to capitalize on the pun. West’s legal team brought this project down very quickly, and the only losers were those who actually invested in it.<\/p>\n<h3>NFT Research<\/h3>\n<p>Many projects attract the public's attention by releasing <a href=https://www.bitdegree.org/"https:////www.bitdegree.org//crypto//learn//crypto-terms//what-is-non-fungible-token-nft/">NFT collections. If you think you’d like to learn more about NFTs, <a href=https://www.bitdegree.org/"https:////www.bitdegree.org//crypto//learn//what-are-nfts/">check this section out<\/strong><\/a>. But today, we’re here to learn <strong>how to research crypto projects<\/strong>, and, in this case, their NFT collections.<\/p>\n<p>So, when you find out about a project and its NFT collection, in order to conduct a proper inspection of it, these are the aspects that require attention.<\/p>\n<p>First of all, take a look at <strong>what is the blockchain network that the NFT collection is released on<\/strong>. A well-established, and trustworthy blockchain is the first green flag. It also allows you to evaluate whether the project will potentially face scaling, security, and similar issues.<\/p>\n<p><img style=\"display: block; margin-left: auto; margin-right: auto;\" title=\"How to research crypto: NFT research.\" src=https://www.bitdegree.org/"https:////assets.bitdegree.org//crypto//storage//optimized//how-to-research-crypto-05.jpg/" alt=\"How to research crypto: NFT research.\" width=\"1000\" height=\"551\" \/><\/p>\n<p>Other aspects include <strong>the people behind the project<\/strong>, whether they are industry-insiders, and not some inexperienced strangers. Then, evaluating <strong>the strength of the community<\/strong> is important. <em>How many people engage with the project’s communication? How buzzing the atmosphere is?<\/em> The more people, the more accountability the project developers hold.<\/p>\n<p>Besides that, just like with crypto projects in general, it’s important to <strong>evaluate the collection’s market potential<\/strong>. <em>Does it have any perks and benefits that other collections don’t offer? Is it a unique project or just a cheap attempt at cashing out at the expense of the uninformed beginners?<\/em><\/p>\n<h2>How to Research Crypto?<\/h2>\n<p>As you can see, there are many different approaches and angles to researching crypto. But, separately, they present only a partial look at a particular crypto project and how solid it really is.<\/p>\n<p>Therefore, let’s see <strong>how to conduct proper research that allows you to evaluate the crypto project as a whole<\/strong>. Because it’s easy to tell people to <em>DYOR - Do Your Own Research<\/em>, and it’s way more difficult to present a coherent system of how that’s actually done. But, that’s what I’m here for.<\/p>\n<p><img style=\"display: block; margin-left: auto; margin-right: auto;\" title=\"How to research crypto: DYOR.\" src=https://www.bitdegree.org/"https:////assets.bitdegree.org//crypto//storage//optimized//how-to-research-crypto-06.jpg/" alt=\"How to research crypto: DYOR.\" width=\"1000\" height=\"544\" \/><\/p>\n<p>So, let’s say a new crypto project pops up in your newsfeed. It looks promising, revolutionary even. The temptation to invest in it is real. <em>But… Is it legit?<\/em> Time to do some research.<\/p>\n<p><em>What’s the first step? Going on the project’s website, seeing if it looks reliable, well thought-through and not shady?<\/em> <strong>Wrong<\/strong>. That’s what many users do, and scammers are very much aware of that. Sometimes they create websites that look more legit and trustworthy than those of real, value-creation-oriented companies.<\/p>\n<h3>Step 1: Check Out Telegram and Reddit<\/h3>\n<p>The first step, instead of going on the company’s website, is to go and <strong>check out Telegram and Reddit<\/strong>. These places play the role of crypto research sites, since this is where the under-the-hood talk takes place.<\/p>\n<p>Whether it’s the official project’s Telegram channel, or just people discussing it on a tech-related forum, this is precisely where you could find the first signals that the project is, indeed, legit.<\/p>\n<p><img style=\"display: block; margin-left: auto; margin-right: auto;\" title=\"How to research crypto: Social signals.\" src=https://www.bitdegree.org/"https:////assets.bitdegree.org//crypto//storage//optimized//how-to-research-crypto-07.jpg/" alt=\"How to research crypto: Social signals.\" width=\"1000\" height=\"558\" \/><\/p>\n<p>The term “<strong>social signals<\/strong>” is something that’s important to keep in mind while researching crypto. It refers to various indicators that let people know whether a project is actually talked about. Social signals represent the <strong>prevailing market sentiment, public opinion and feelings surrounding the particular crypto project<\/strong>.<\/p>\n<p>If you can’t find any social signals regarding a crypto project, it’s an indicator that you shouldn’t act in haste when it comes to making a financial decision. <em>But, how does social signal tracking look like?<\/em><\/p>\n<p>The good news is that there are platforms, designed specifically for this purpose. One of them is the <a href=https://www.bitdegree.org/"https:////www.bitdegree.org///">BitDegree Social Signals & Traffic Tracker<\/strong><\/a>. Once you’re on it, you select a crypto project of your choice, and all the most recent social signals-related data is presented to you. You’ll see stuff like stats from Twitter, Reddit, Telegram, trending posts and such data as their website’s traffic.<\/p>\n<p>Keep in mind that <strong>many fresh projects may not yet have enough data to be presented by the social signal tracker<\/strong>. But, taking a look at the well-established projects through the tracker can give you an idea of what a healthy and trustworthy crypto project looks like.<\/p>\n<p>Okay, so, what do we do when a project is so young and fresh that the social signal tracker is not enough for us to evaluate its potential? We get ready to embark on the research journey. And the first stop is <strong>checking their social media<\/strong>.<\/p>\n<h3>Step 2: Check Out Twitter<\/h3>\n<p>I’ve already mentioned the importance of checking out Telegram and Reddit, as the primary sources of critically-evaluated information regarding particular crypto projects.<\/p>\n<p><img style=\"display: block; margin-left: auto; margin-right: auto;\" title=\"How to research crypto: Twitter.\" src=https://www.bitdegree.org/"https:////assets.bitdegree.org//crypto//storage//optimized//how-to-research-crypto-08.jpg/" alt=\"How to research crypto: Twitter.\" width=\"1000\" height=\"574\" \/><\/p>\n<p><strong>Then, it’s time for Twitter<\/strong>. After all, this is where everything happens. Yet, if you only take Twitter into consideration, you could easily miss out on serious, technical projects. Many of them don’t have a huge following, or overly-active social media presence.<\/p>\n<p>On the flip side, many new low-volume projects overemphasize the importance of their Twitter performance, and their self-promo content may flood your newsfeed. Therefore, it’s important to keep in mind that <strong>just because a project knows how to build a Twitter following by posting nice pieces of content, doesn’t necessarily mean that this project is a valid one<\/strong>.<\/p>\n<h3>Step 3: Analyze the Whitepaper and Funding<\/h3>\n<p>Now, having established that a project is being discussed in various forums, and has a valid Twitter presence, it’s less risky to go to their website.<\/p>\n<p>And that’s where you’ll most likely find two key ingredients that will allow you to continue with your research. The first one is the company’s whitepaper.<\/p>\n<p><strong>A whitepaper is a<\/strong> <strong>document that emphasizes the technical side of the project, its features, goals, and potential<\/strong>. These documents are usually written by the core members of the project’s team, and they can reveal a lot about how serious it is. In this context, whitepapers are like some kind of crypto research reports.<\/p>\n<p><img style=\"display: block; margin-left: auto; margin-right: auto;\" title=\"How to research crypto: Whitepaper.\" src=https://www.bitdegree.org/"https:////assets.bitdegree.org//crypto//storage//optimized//how-to-research-crypto-09.jpg/" alt=\"How to research crypto: Whitepaper.\" width=\"1000\" height=\"541\" \/><\/p>\n<p>A great example is the famous <strong>Bitcoin whitepaper<\/strong>. Written in 2008 by the enigmatic Satoshi Nakamoto, and titled “<em>Bitcoin: A Peer-to-Peer Electronic Cash System<\/em>”, this document presented an idea which, eventually, became the foundation for the entire DeFi system.<\/p>\n<p>Those who’ve read it, and realized its potential, were the ones who didn’t hesitate to get themselves enough <a href=https://www.bitdegree.org/"//crypto//buy-bitcoin-btc/">Bitcoin when its price was still in the cents.<\/p>\n<p>Apart from the technical details, whitepapers allow users to <strong>accurately evaluate the product’s use case<\/strong>, and how realistic it is to expect a demand for it. This allows users to get the answers to the previously mentioned big questions of “<em>why?<\/em>” and “<em>how?<\/em>” is this project being developed? If the answers don’t satisfy you, it’s a clear indicator that the project is probably not worth your attention.<\/p>\n<p>The second ingredient is <strong>funding<\/strong>.<\/p>\n<p>Usually, you’ll be able to find this information on the project’s website, in the “<em>funding<\/em>” section. There, you’ll be able to see <strong>what investors and financial backers have already shown their belief in the project<\/strong>. And, of course, if you find prominent names among them, it’s a green flag.<\/p>\n<h2>Wrapping Up<\/h2>\n<p>This brings us to the end of this section. I hope that, by now, it has become clearer how to research crypto. It’s a vital part of being successful in this field. Therefore, it’s essential that traders, especially beginners, know where to start, and avoid falling victim to scammers & zero-value projects.<\/p>","youtube_video":{"id":84,"channel_id":1,"sort":28,"video_title":"Crypto Research Fundamentals: How to DYOR (Animated Explainer)","description":"How to research crypto?\n\nIt\u2019s important to know what to research when buying crypto. It\u2019s the best way to optimize your gains, and prevent unnecessary losses.\n\nIn this video, I will answer how to research crypto, what are the most trusted, and applied, crypto research techniques, and, finally, what crypto indexes and concepts are important, in order to level up your crypto trading and researching skills.\n\nDo you use any of these crypto research techniques, methods and tricks? Do you have any suggestions, ideas, or advice? Make sure to let everyone in the comment section below!\n\nVideo Time Table:\n\n0:00 Introduction to Crypto Research Fundamentals\n1:29 Tokenomics Research\n2:34 Airdrop Research\n3:21 DeFi Research\n4:23 NFT Research\n5:29 How to Research Crypto\n6:28 Social Signals Tracker\n7:57 Twitter Research\n8:37 Whitepaper Research\n9:49 Funding Information\n10:05 Wrap-up: Crypto Research Fundamentals: How to DYOR?\n\nGet Quick Crypto Tips on Twitter - Follow:\nhttps:\/\/twitter.com\/crypto_xplained \n\n#CryptoResearch #SocialSignals #DYOR","video_id":"dA0lEcFViDc","duration":639,"view_count":216,"thumbnail_url":"https:\/\/assets.bitdegree.org\/youtube\/crypto-finally-explained\/crypto-research-fundamentals-how-to-dyor-animated-explainer.jpg","thumbnail_width":1280,"thumbnail_height":720,"published_at":"2023-06-14T14:04:28.000000Z","created_at":"2023-06-14T23:00:11.000000Z","updated_at":"2024-01-09T23:00:04.000000Z","channel":{"id":1,"title":"CryptoFinallyExplained","channel_id":"UCOryUY0yxC08eJtK23mNgiA","main_playlist_id":"UUOryUY0yxC08eJtK23mNgiA"}}}" :model="{"id":604,"chapter_id":8,"order":46,"featured_image_id":3160,"youtube_video_id":86,"author_id":1,"created_at":"2023-06-01T08:37:41.000000Z","updated_at":"2023-12-29T10:43:51.000000Z","slug":"portfolio-diversification-definition","title":"Portfolio Diversification: The Whats, the Whys, and the Hows","content":"<p>In this section, we’re going to look into the <strong>portfolio diversification definition and why is diversification important in an investment portfolio<\/strong>!<\/p>\n<p>Portfolio diversification and its techniques are among the most important skills that every trader should aim to acquire. Crypto trading is almost synonymous with “risky”, and it’s exactly why portfolio diversification is so important. <strong>It reduces the risk<\/strong>.<\/p>\n<p>Despite its obvious importance, portfolio diversification often gets overlooked, especially by beginners. You see, acting cautiously and calculating your moves is not something that goes viral. Therefore, after having spent some time online in crypto spaces, a beginner may reach a conclusion that it’s not that important. And that would be a big mistake!<\/p>\n<p>In this section, we’re going to outline the portfolio diversification definition, take a look at 5 portfolio diversification techniques, and answer the questions of why diversification is important in an investment portfolio. After all, the primary purpose of portfolio diversification is to <strong>make safer, more thoughtful investments, and step up your trading game<\/strong>!<\/p>\n<p><em>Let’s get to it!<\/em><\/p>\n<h2>Portfolio Diversification Definition<\/h2>\n<p>Let’s kick this section off by taking a look at the portfolio diversification definition.<\/p>\n<p>At its very core, portfolio diversification is a <strong>risk management strategy<\/strong>. Those who practice this strategy spread investments across a variety of assets, and, by doing so, they reduce the overall risk that comes with investing.<\/p>\n<p>The risk is reduced by <strong>investing in different types of assets<\/strong> <strong>that are not closely related<\/strong>. If one of the investments flop, the others still have the chance to remain afloat, or, even better - generate gains that would counterbalance the losses from the previous, failed investment.<\/p>\n<p>The wisdom of the proverbial saying of \"<em>not putting all your eggs in one basket<\/em>,\" represents the idea behind portfolio diversification perfectly. But here, let’s consider a more contemporary, yet precise example.<\/p>\n<p>Imagine traveling to a foreign country. Now, would you keep all of your essential belongings, such as your passport, credit cards, and cash in one place, like your backpack? In case of it being stolen, you’re about to have a really bad time.<\/p>\n<p>Therefore, the right thing to do here would be to <strong>diversify your traveling portfolio<\/strong>, and spread your valuable belongings across a variety of different places. Such as, your wallet, a fanny pack, or even the safe back at the hotel.<\/p>\n<p><img style=\"display: block; margin-left: auto; margin-right: auto;\" title=\"Portfolio diversification definition: What is it?\" src=https://www.bitdegree.org/"https:////assets.bitdegree.org//images//portfolio-diversification-01.jpg/" alt=\"Portfolio diversification definition: What is it?\" width=\"1000\" height=\"557\"><\/p>\n<p>Of course, crypto is a relatively new industry, and portfolio diversification in this space looks a little bit different than it does in the traditional sense. Typically, this strategy means <strong>spreading your investments across various asset types<\/strong> such as stocks, bonds, real estate, and cash.<\/p>\n<p>Now, when it comes to crypto, the same principles apply, they just take up a different form. In the crypto space, portfolio diversification is applied by not ignoring the fact that there are many different cryptocurrencies.<\/p>\n<p>Therefore, investing in various coins, such as <a href=https://www.bitdegree.org/"//crypto//buy-bitcoin-btc/">Bitcoin, <a href=https://www.bitdegree.org/"//crypto//buy-ethereum-eth/">Ethereum, and many others, mitigates the risk that comes from tying your financial well-being to one, single cryptocurrency.<\/p>\n<p>Consider a real-life example. Back in 2022, those who had invested the majority of their savings into the <a href=https://www.bitdegree.org/"https:////www.bitdegree.org//cryptocurrency-prices//ftx-token-ftt-price/">FTX token<\/strong><\/a> went through a rather harsh life lesson. As the <a href=https://www.bitdegree.org/"https:////www.bitdegree.org//crypto//news//sam-bankman-frieds-ftx-files-for-chapter-11-bankruptcy/">news broke out about FTX<\/strong><\/a>, the crypto exchange platform, having financial problems, <strong>the exchange’s native token took a nosedive, and never recovered<\/strong>.<\/p>\n<p>On November 8, 2022, the FTX Token was still being sold for over $22. Two days later, its price was just a little bit over $2.<\/p>\n<p>So, people who had unreasonable amounts of money invested in this one particular token, saw a tenfold reduction in their portfolio’s size. However, those who had invested in the FTX Token, but it was only a part of their diversified portfolio, didn’t face the end of their careers as crypto investors.<\/p>\n<p>This story perfectly encapsulates that the primary purpose of portfolio diversification is to mitigate risks that, unfortunately, are all over the place when it comes to crypto.<\/p>\n<p>So, having said that, I could safely state that the <strong>portfolio diversification definition includes neutralizing the threats<\/strong> that come from the fact that the cryptocurrency market is so volatile and unpredictable.<\/p>\n<p>Of course, portfolio diversification is not a solution to all the crypto world’s problems. Sometimes, even the most sophisticated diversification solutions couldn’t help the investors avoid losses.<\/p>\n<p>Sometimes, the entire industry will just take a hit, and every coin will turn red. But, even in cases like this, a <strong>diversified portfolio provides more stability and less risk<\/strong> than going all in on a single cryptocurrency.<\/p>\n<p>Okay, having said that, we can move on from the theory, and get more practical. Let’s take a look at actual ways of how portfolio diversification can be done. Let’s consider <strong>5 portfolio diversification techniques<\/strong>.<\/p>\n<h2>Crypto Portfolio Diversification Techniques<\/h2>\n<p>When it comes to \"<em>not putting all your eggs in one basket<\/em>,\" there are numerous ways of doing that. The same applies to crypto portfolio diversification techniques. Despite their differences, these techniques help traders achieve a balanced allocation of their assets, and reduce the risk that’s inherent in crypto.<\/p>\n<h3>Crypto Asset Allocation<\/h3>\n<p>The first one is the most self-explanatory. It’s a technique of allocating assets by simply doing exactly that - <strong>allocating your crypto assets<\/strong>. Instead of one cryptocurrency, you choose several. You select the coins of your choice, based on their <a href=https://www.bitdegree.org/"https:////www.bitdegree.org//crypto//learn//crypto-terms//what-is-market-capitalization-market-cap-mcap/">market capitalization<\/strong><\/a>, price, community, the coin’s potential, and other similar, equally- important factors.<\/p>\n<p><img style=\"display: block; margin-left: auto; margin-right: auto;\" title=\"Portfolio diversification definition: Crypto asset allocation.\" src=https://www.bitdegree.org/"https:////assets.bitdegree.org//images//portfolio-diversification-02.jpg/" alt=\"Portfolio diversification definition: Crypto asset allocation.\" width=\"1000\" height=\"1090\"><\/p>\n<p>Of course, many would agree that the safest way is to invest in the industry’s most-established cryptos, such as <a href=https://www.bitdegree.org/"https:////www.bitdegree.org//crypto//learn//what-is-a-bitcoin/">Bitcoin or <a href=https://www.bitdegree.org/"https:////www.bitdegree.org//crypto//learn//what-is-ethereum/">Ethereum. Investing in both of them, instead of a single one, would be a step toward the direction of portfolio diversification.<\/p>\n<p>Yet, in addition to that, <strong>traders consider investing in other, less-established coins<\/strong>. These coins are cheaper, probably more volatile, and they have a smaller market cap.<\/p>\n<p>Yet they’ve got something else - <strong>growth potential<\/strong>. By diversifying your portfolio and allocating a portion of your funds to coins like this, you expect higher returns, and, while having part of your money invested in the industry’s giants, you’d end up balancing the risk that comes from investing in smaller coins.<\/p>\n<p>This technique is often followed by <strong>the 80\/20 rule<\/strong>. It simply means that 80% of your investments should be aimed at large-cap coins, while the remaining 20% at mid & low-cap coins. By allocating such percentages, traders minimize the risk, but continue taking chances to see those smaller coins shoot into the sky.<\/p>\n<h3>Sector Diversification<\/h3>\n<p>The second technique is known as <strong>Sector Diversification<\/strong>. As its name suggests, it involves investing your crypto in different sectors. So, instead of simply investing into coins, based on their price and market cap, you get more specific.<\/p>\n<p><img style=\"display: block; margin-left: auto; margin-right: auto;\" title=\"Portfolio diversification definition: Sector diversification.\" src=https://www.bitdegree.org/"https:////assets.bitdegree.org//images//portfolio-diversification-03.jpg/" alt=\"Portfolio diversification definition: Sector diversification.\" width=\"1000\" height=\"507\"><\/p>\n<p>For example, in addition to the large-cap coins, you invest into <strong>stablecoins, privacy coins, exchange tokens, <a href=https://www.bitdegree.org/"https:////www.bitdegree.org//crypto//learn//crypto-terms//what-is-non-fungible-token-nft/">NFTs, or in the DeFi sector<\/strong> <strong>as such<\/strong>, by, for example, becoming a staker.<\/p>\n<p>Such a technique allows investors to further reduce the risk that comes with crypto investing. For example, if the NFT market would suddenly freeze, and people would lose interest in acquiring new NFTs, those traders who diversified their portfolios among different sectors would avoid a crisis.<\/p>\n<h3>Geographical Diversification<\/h3>\n<p>Up next, we’ve got <strong>Geographical Diversification<\/strong>.  Once again, the name says it all. This technique is all about taking into account one more factor: <em>which region does the coin or token originate from<\/em>. Despite crypto’s global nature, <strong>each coin is issued in a different country<\/strong>, which means that the coin’s issuer is subject to their country’s national legislation.<\/p>\n<p><img style=\"display: block; margin-left: auto; margin-right: auto;\" title=\"Portfolio diversification definition: Geographical diversification.\" src=https://www.bitdegree.org/"https:////assets.bitdegree.org//images//portfolio-diversification-04.jpg/" alt=\"Portfolio diversification definition: Geographical diversification.\" width=\"1000\" height=\"605\"><\/p>\n<p>So, imagine you invest into a crypto of your choice. It looks promising, with high potential, and it seems that there’s not much to worry about. And then, out of nowhere, news broke out that the government has banned crypto in a particular country, and so it happened that this coin of your choice was issued exactly there.<\/p>\n<p>Suddenly, regulatory challenges become a strong obstacle that messes up the seemingly apolitical market dynamics. Therefore, a considerate approach, and the evaluation of the geographical aspect while choosing where to invest are what make the geographical diversification technique useful.<\/p>\n<h3>Investment Style Diversification<\/h3>\n<p>Moving on, let’s talk about the <strong>Investment Style Diversification<\/strong>. This technique is a bit more advanced, since it requires traders to understand the differences between different investment styles.<\/p>\n<p><img style=\"display: block; margin-left: auto; margin-right: auto;\" title=\"Portfolio diversification definition: Investment style diversification.\" src=https://www.bitdegree.org/"https:////assets.bitdegree.org//images//portfolio-diversification-05.jpg/" alt=\"Portfolio diversification definition: Investment style diversification.\" width=\"1000\" height=\"734\"><\/p>\n<p>For example, traders can allocate part of their investments into assets based on their current value, and the other part into assets based on their growth potential, while always actively participating in the so-called <strong>Momentum Investing<\/strong>. This means that they have to constantly be <strong>on the hunt for signals<\/strong> that could help identify which assets may go through a sudden <strong>upward price momentum<\/strong>.<\/p>\n<p>Others may simply not have time for this. Therefore, they could include <a href=https://www.bitdegree.org/"https:////www.bitdegree.org//crypto//learn//crypto-terms//what-is-hodl/">HODLing in their investment style mix. Simply obtaining and holding particular assets with the hopes that it will pay off in the long run, while continuously obtaining other assets based on their value, growth, and so on.<\/p>\n<h3>Asset Allocation into Stablecoins<\/h3>\n<p>Last, but not least, we’ve got the most traditional technique of portfolio diversification. This means that it involves the <strong>active allocation of your assets into coins that are connected to traditional fiat currencies<\/strong>. I’m talking about stablecoins. This technique allows traders to keep a distance from the volatility storms that are always present in the crypto market.<\/p>\n<p><img style=\"display: block; margin-left: auto; margin-right: auto;\" title=\"Portfolio diversification definition: Stablecoins.\" src=https://www.bitdegree.org/"https:////assets.bitdegree.org//images//portfolio-diversification-06.jpg/" alt=\"Portfolio diversification definition: Stablecoins.\" width=\"1000\" height=\"556\"><\/p>\n<p>A trader that invests in stablecoins does not expect them to generate a return, because, obviously, <strong>stablecoins have a fixed price<\/strong>. Yet, owning stablecoins creates an opportunity to quickly jump into the crypto market whenever a great opportunity presents itself.<\/p>\n<p>This technique allows traders to <strong>save time<\/strong>, since swapping stablecoins for other cryptocurrencies is a faster process than going through the entire procedure of buying them with fiat money.<\/p>\n<p><em>By the way, if you feel like your knowledge about stablecoins could need some upgrading, make sure to check out my channel - there's <a href=https://www.bitdegree.org/"https:////www.bitdegree.org//crypto//learn//what-are-stablecoins/">a section about this topic<\/strong><\/a>, specifically!<\/em><\/p>\n<h2>Wrapping Up<\/h2>\n<p>Having said that, we arrive at the end of this section. I hope that, by now, you’ve got a better understanding of the portfolio diversification definition, and <strong>why is diversification important in an investment portfolio<\/strong>, to begin with.<\/p>\n<p>As the crypto industry evolves, the ways and techniques of diversifying your assets will, eventually, change as well, but until then, these methods that I’ve presented today, are among the most popular, trusted and practiced in the industry.<\/p>","definition":"Did you know that portfolio diversification is one of the most prominent risk management strategies?","status":"published","meta_title":"Portfolio Diversification Definition: Why is It Important?","meta_description":"Here, you'll find out the portfolio diversification definition, why is diversification important in an investment portfolio, and much more!","meta_keywords":"portfolio diversification definition, 5 portfolio diversification definition, why is diversification important in an investment portfolio, the primary purpose of portfolio diversification is to","modified_content":"<p>In this section, we’re going to look into the <strong>portfolio diversification definition and why is diversification important in an investment portfolio<\/strong>!<\/p>\n<p>Portfolio diversification and its techniques are among the most important skills that every trader should aim to acquire. Crypto trading is almost synonymous with “risky”, and it’s exactly why portfolio diversification is so important. <strong>It reduces the risk<\/strong>.<\/p>\n<p>Despite its obvious importance, portfolio diversification often gets overlooked, especially by beginners. You see, acting cautiously and calculating your moves is not something that goes viral. Therefore, after having spent some time online in crypto spaces, a beginner may reach a conclusion that it’s not that important. And that would be a big mistake!<\/p>\n<p>In this section, we’re going to outline the portfolio diversification definition, take a look at 5 portfolio diversification techniques, and answer the questions of why diversification is important in an investment portfolio. After all, the primary purpose of portfolio diversification is to <strong>make safer, more thoughtful investments, and step up your trading game<\/strong>!<\/p>\n<p><em>Let’s get to it!<\/em><\/p>\n<div class=\"container\">\n <div class=\"row justify-content-center\">\n <div class=\"col-md-10 suggested-comparisons pb-3 mb-4\">\n <div class=\"d-flex flex-row\">\n <div class=\"text-center\">\n <div class=\"img-block-yt\">\n <img src=https://www.bitdegree.org/"https:////assets.bitdegree.org//crypto//assets//images//compare-crypto-exchanges.gif/"/n alt=\"5 Best Crypto Portfolio Diversification Strategies (Animated Explanation)\"\n title=\"5 Best Crypto Portfolio Diversification Strategies (Animated Explanation)\" class=\"border-0\">\n <p>Video Explainer<\/p>\n <\/div>\n <\/div>\n <div class=\"col-xs-10 col-sm-10 col-md-10 text-left py-3 yt-info\">\n <h4 class=\"mb-1\">Video Explainer: Portfolio Diversification: The Whats, the Whys, and the Hows<\/h4>\n <p class=\"py-1 mb-0 youtube-video-subtitle\">Reading is not your thing? Watch the \"Portfolio Diversification: The Whats, the Whys, and the Hows\" video explainer<\/p>\n <\/div>\n <\/div>\n <div class=\"row justify-content-center text-center\">\n <div class=\"col-12 col-md-11 px-3\">\n <div class=\"wrapper mb-0\">\n <div class=\"position-relative youtube mb-4 bg-transparent p-0 video-modal-popup\" data-toggle=\"modal\"\n data-target=\"#video-modal\" data-id=\"JdG2mC7uHHQ\" data-title=\"CryptoFinallyExplained\">\n <div class=\"video-gradient-top\"><\/div>\n <p class=\"text-left dyk-video-title\">5 Best Crypto Portfolio Diversification Strategies (Animated Explanation)<\/p>\n <img data-srcset=\"https:\/\/assets.bitdegree.org\/youtube\/crypto-finally-explained\/5-best-crypto-portfolio-diversification-strategies-animated-explanation.jpg?tr=w-420 500w,\n https:\/\/assets.bitdegree.org\/youtube\/crypto-finally-explained\/5-best-crypto-portfolio-diversification-strategies-animated-explanation.jpg?tr=w-760 1000w\"\n alt=\"5 Best Crypto Portfolio Diversification Strategies (Animated Explanation)\"\n title=\"5 Best Crypto Portfolio Diversification Strategies (Animated Explanation)\"\n class=\"p-0 lazyload\">\n <img class=\"play-button lazyload\" data-target=\"#video-modal\"\n data-src=\"https:\/\/assets.bitdegree.org\/crypto\/assets\/video-button.png?tr=w-85\"\n alt=\"5 Best Crypto Portfolio Diversification Strategies (Animated Explanation)\">\n <\/div>\n <\/div>\n <\/div>\n <\/div>\n <div class=\"row justify-content-center text-center\">\n <div>\n <a href=https://www.bitdegree.org/"https:////www.youtube.com//c//CryptoFinallyExplained?sub_confirmation=1\%22\n class=\"btn yt-promo mb-2\" target=\"_blank\" rel=\"nofollow noopener noindex\">\n <div class=\"row justify-content-center align-items-center mx-0 text-center\">\n <div class=\"col-4 col-md-4\">\n <i class=\"fab fa-youtube yt-dyk-btn\"><\/i>\n <\/div>\n <div class=\"col-8 col-md-8 text-center yt-promo-text\">\n <h4 class=\"m-0 text-white\">SUBSCRIBE<\/h4>\n <span>ON YOUTUBE<\/span>\n <\/div>\n <\/div>\n <\/a>\n <\/div>\n <\/div>\n <\/div>\n <\/div>\n<\/div>\n<div class=\"modal fade\" id=\"video-modal\" tabindex=\"-1\" role=\"dialog\">\n <div class=\"modal-dialog modal-dialog-centered modal-lg\" role=\"document\">\n <div class=\"modal-content\">\n <div class=\"modal-body p-0\">\n <button type=\"button\" class=\"video-modal-close close\" data-dismiss=\"modal\" aria-label=\"Close\">\n <i aria-hidden=\"true\" class=\"fas fa-times\"><\/i>\n <\/button>\n <div id=\"iframe\"><\/div>\n <\/div>\n <a class=\"text-decoration-none\"\n href=https://www.bitdegree.org/"https:////www.youtube.com//c//CryptoFinallyExplained?sub_confirmation=1\%22\n rel=\"nofollow noopener noindex\" target=\"_blank\">\n <div class=\"modal-footer p-0 d-block bg-white\">\n <div class=\"row justify-content-center m-0\">\n <div class=\"col-3 col-md-4 col-lg-2 p-0\">\n <img class=\"w-100 h-100\" src=https://www.bitdegree.org/"https:////assets.bitdegree.org//crypto//assets//crypto-subscribe.jpg/" alt=\"Subscribe\">\n <\/div>\n <div class=\"col-9 col-md-8 col-lg-2 px-0 d-flex\">\n <div class=\"modal-subscribe w-100\">\n <p class=\"m-0 mt-1 mr-3\">SUBSCRIBE<br>\n <span class=\"m-0\">ON YOUTUBE<\/span>\n <\/p>\n <\/div>\n <\/div>\n <div class=\"col-12 col-md-12 col-lg-8 p-0 text-center d-flex justify-content-center align-items-center\">\n <div class=\"modal-subscribe-text\">\n <h4 class=\"m-0\">Understand crypto with ease<\/h4>\n <span>New explainer videos every week!<\/span>\n <\/div>\n <\/div>\n <\/div>\n <\/div>\n <\/a>\n <\/div>\n <\/div>\n<\/div>\n<h2>Portfolio Diversification Definition<\/h2>\n<p>Let’s kick this section off by taking a look at the portfolio diversification definition.<\/p>\n<p>At its very core, portfolio diversification is a <strong>risk management strategy<\/strong>. Those who practice this strategy spread investments across a variety of assets, and, by doing so, they reduce the overall risk that comes with investing.<\/p>\n<p>The risk is reduced by <strong>investing in different types of assets<\/strong> <strong>that are not closely related<\/strong>. If one of the investments flop, the others still have the chance to remain afloat, or, even better - generate gains that would counterbalance the losses from the previous, failed investment.<\/p>\n<p>The wisdom of the proverbial saying of \"<em>not putting all your eggs in one basket<\/em>,\" represents the idea behind portfolio diversification perfectly. But here, let’s consider a more contemporary, yet precise example.<\/p>\n<p>Imagine traveling to a foreign country. Now, would you keep all of your essential belongings, such as your passport, credit cards, and cash in one place, like your backpack? In case of it being stolen, you’re about to have a really bad time.<\/p>\n<p>Therefore, the right thing to do here would be to <strong>diversify your traveling portfolio<\/strong>, and spread your valuable belongings across a variety of different places. Such as, your wallet, a fanny pack, or even the safe back at the hotel.<\/p>\n<p><img style=\"display: block; margin-left: auto; margin-right: auto;\" title=\"Portfolio diversification definition: What is it?\" src=https://www.bitdegree.org/"https:////assets.bitdegree.org//images//portfolio-diversification-01.jpg/" alt=\"Portfolio diversification definition: What is it?\" width=\"1000\" height=\"557\"><\/p>\n<p>Of course, crypto is a relatively new industry, and portfolio diversification in this space looks a little bit different than it does in the traditional sense. Typically, this strategy means <strong>spreading your investments across various asset types<\/strong> such as stocks, bonds, real estate, and cash.<\/p>\n<p>Now, when it comes to crypto, the same principles apply, they just take up a different form. In the crypto space, portfolio diversification is applied by not ignoring the fact that there are many different cryptocurrencies.<\/p>\n<p>Therefore, investing in various coins, such as <a href=https://www.bitdegree.org/"//crypto//buy-bitcoin-btc/">Bitcoin, <a href=https://www.bitdegree.org/"//crypto//buy-ethereum-eth/">Ethereum, and many others, mitigates the risk that comes from tying your financial well-being to one, single cryptocurrency.<\/p>\n<p>Consider a real-life example. Back in 2022, those who had invested the majority of their savings into the <a href=https://www.bitdegree.org/"https:////www.bitdegree.org//cryptocurrency-prices//ftx-token-ftt-price/">FTX token<\/strong><\/a> went through a rather harsh life lesson. As the <a href=https://www.bitdegree.org/"https:////www.bitdegree.org//crypto//news//sam-bankman-frieds-ftx-files-for-chapter-11-bankruptcy/">news broke out about FTX<\/strong><\/a>, the crypto exchange platform, having financial problems, <strong>the exchange’s native token took a nosedive, and never recovered<\/strong>.<\/p>\n<p>On November 8, 2022, the FTX Token was still being sold for over $22. Two days later, its price was just a little bit over $2.<\/p>\n<p>So, people who had unreasonable amounts of money invested in this one particular token, saw a tenfold reduction in their portfolio’s size. However, those who had invested in the FTX Token, but it was only a part of their diversified portfolio, didn’t face the end of their careers as crypto investors.<\/p>\n<p>This story perfectly encapsulates that the primary purpose of portfolio diversification is to mitigate risks that, unfortunately, are all over the place when it comes to crypto.<\/p>\n<p>So, having said that, I could safely state that the <strong>portfolio diversification definition includes neutralizing the threats<\/strong> that come from the fact that the cryptocurrency market is so volatile and unpredictable.<\/p>\n<p>Of course, portfolio diversification is not a solution to all the crypto world’s problems. Sometimes, even the most sophisticated diversification solutions couldn’t help the investors avoid losses.<\/p>\n<p>Sometimes, the entire industry will just take a hit, and every coin will turn red. But, even in cases like this, a <strong>diversified portfolio provides more stability and less risk<\/strong> than going all in on a single cryptocurrency.<\/p>\n<p>Okay, having said that, we can move on from the theory, and get more practical. Let’s take a look at actual ways of how portfolio diversification can be done. Let’s consider <strong>5 portfolio diversification techniques<\/strong>.<\/p>\n<h2>Crypto Portfolio Diversification Techniques<\/h2>\n<p>When it comes to \"<em>not putting all your eggs in one basket<\/em>,\" there are numerous ways of doing that. The same applies to crypto portfolio diversification techniques. Despite their differences, these techniques help traders achieve a balanced allocation of their assets, and reduce the risk that’s inherent in crypto.<\/p>\n<h3>Crypto Asset Allocation<\/h3>\n<p>The first one is the most self-explanatory. It’s a technique of allocating assets by simply doing exactly that - <strong>allocating your crypto assets<\/strong>. Instead of one cryptocurrency, you choose several. You select the coins of your choice, based on their <a href=https://www.bitdegree.org/"https:////www.bitdegree.org//crypto//learn//crypto-terms//what-is-market-capitalization-market-cap-mcap/">market capitalization<\/strong><\/a>, price, community, the coin’s potential, and other similar, equally- important factors.<\/p>\n<p><img style=\"display: block; margin-left: auto; margin-right: auto;\" title=\"Portfolio diversification definition: Crypto asset allocation.\" src=https://www.bitdegree.org/"https:////assets.bitdegree.org//images//portfolio-diversification-02.jpg/" alt=\"Portfolio diversification definition: Crypto asset allocation.\" width=\"1000\" height=\"1090\"><\/p>\n<p>Of course, many would agree that the safest way is to invest in the industry’s most-established cryptos, such as <a href=https://www.bitdegree.org/"https:////www.bitdegree.org//crypto//learn//what-is-a-bitcoin/">Bitcoin or <a href=https://www.bitdegree.org/"https:////www.bitdegree.org//crypto//learn//what-is-ethereum/">Ethereum. Investing in both of them, instead of a single one, would be a step toward the direction of portfolio diversification.<\/p>\n<p>Yet, in addition to that, <strong>traders consider investing in other, less-established coins<\/strong>. These coins are cheaper, probably more volatile, and they have a smaller market cap.<\/p>\n<p>Yet they’ve got something else - <strong>growth potential<\/strong>. By diversifying your portfolio and allocating a portion of your funds to coins like this, you expect higher returns, and, while having part of your money invested in the industry’s giants, you’d end up balancing the risk that comes from investing in smaller coins.<\/p>\n<p>This technique is often followed by <strong>the 80\/20 rule<\/strong>. It simply means that 80% of your investments should be aimed at large-cap coins, while the remaining 20% at mid & low-cap coins. By allocating such percentages, traders minimize the risk, but continue taking chances to see those smaller coins shoot into the sky.<\/p>\n<h3>Sector Diversification<\/h3>\n<p>The second technique is known as <strong>Sector Diversification<\/strong>. As its name suggests, it involves investing your crypto in different sectors. So, instead of simply investing into coins, based on their price and market cap, you get more specific.<\/p>\n<p><img style=\"display: block; margin-left: auto; margin-right: auto;\" title=\"Portfolio diversification definition: Sector diversification.\" src=https://www.bitdegree.org/"https:////assets.bitdegree.org//images//portfolio-diversification-03.jpg/" alt=\"Portfolio diversification definition: Sector diversification.\" width=\"1000\" height=\"507\"><\/p>\n<p>For example, in addition to the large-cap coins, you invest into <strong>stablecoins, privacy coins, exchange tokens, <a href=https://www.bitdegree.org/"https:////www.bitdegree.org//crypto//learn//crypto-terms//what-is-non-fungible-token-nft/">NFTs, or in the DeFi sector<\/strong> <strong>as such<\/strong>, by, for example, becoming a staker.<\/p>\n<p>Such a technique allows investors to further reduce the risk that comes with crypto investing. For example, if the NFT market would suddenly freeze, and people would lose interest in acquiring new NFTs, those traders who diversified their portfolios among different sectors would avoid a crisis.<\/p>\n<h3>Geographical Diversification<\/h3>\n<p>Up next, we’ve got <strong>Geographical Diversification<\/strong>.  Once again, the name says it all. This technique is all about taking into account one more factor: <em>which region does the coin or token originate from<\/em>. Despite crypto’s global nature, <strong>each coin is issued in a different country<\/strong>, which means that the coin’s issuer is subject to their country’s national legislation.<\/p>\n<p><img style=\"display: block; margin-left: auto; margin-right: auto;\" title=\"Portfolio diversification definition: Geographical diversification.\" src=https://www.bitdegree.org/"https:////assets.bitdegree.org//images//portfolio-diversification-04.jpg/" alt=\"Portfolio diversification definition: Geographical diversification.\" width=\"1000\" height=\"605\"><\/p>\n<p>So, imagine you invest into a crypto of your choice. It looks promising, with high potential, and it seems that there’s not much to worry about. And then, out of nowhere, news broke out that the government has banned crypto in a particular country, and so it happened that this coin of your choice was issued exactly there.<\/p>\n<p>Suddenly, regulatory challenges become a strong obstacle that messes up the seemingly apolitical market dynamics. Therefore, a considerate approach, and the evaluation of the geographical aspect while choosing where to invest are what make the geographical diversification technique useful.<\/p>\n<h3>Investment Style Diversification<\/h3>\n<p>Moving on, let’s talk about the <strong>Investment Style Diversification<\/strong>. This technique is a bit more advanced, since it requires traders to understand the differences between different investment styles.<\/p>\n<p><img style=\"display: block; margin-left: auto; margin-right: auto;\" title=\"Portfolio diversification definition: Investment style diversification.\" src=https://www.bitdegree.org/"https:////assets.bitdegree.org//images//portfolio-diversification-05.jpg/" alt=\"Portfolio diversification definition: Investment style diversification.\" width=\"1000\" height=\"734\"><\/p>\n<p>For example, traders can allocate part of their investments into assets based on their current value, and the other part into assets based on their growth potential, while always actively participating in the so-called <strong>Momentum Investing<\/strong>. This means that they have to constantly be <strong>on the hunt for signals<\/strong> that could help identify which assets may go through a sudden <strong>upward price momentum<\/strong>.<\/p>\n<p>Others may simply not have time for this. Therefore, they could include <a href=https://www.bitdegree.org/"https:////www.bitdegree.org//crypto//learn//crypto-terms//what-is-hodl/">HODLing in their investment style mix. Simply obtaining and holding particular assets with the hopes that it will pay off in the long run, while continuously obtaining other assets based on their value, growth, and so on.<\/p>\n<h3>Asset Allocation into Stablecoins<\/h3>\n<p>Last, but not least, we’ve got the most traditional technique of portfolio diversification. This means that it involves the <strong>active allocation of your assets into coins that are connected to traditional fiat currencies<\/strong>. I’m talking about stablecoins. This technique allows traders to keep a distance from the volatility storms that are always present in the crypto market.<\/p>\n<p><img style=\"display: block; margin-left: auto; margin-right: auto;\" title=\"Portfolio diversification definition: Stablecoins.\" src=https://www.bitdegree.org/"https:////assets.bitdegree.org//images//portfolio-diversification-06.jpg/" alt=\"Portfolio diversification definition: Stablecoins.\" width=\"1000\" height=\"556\"><\/p>\n<p>A trader that invests in stablecoins does not expect them to generate a return, because, obviously, <strong>stablecoins have a fixed price<\/strong>. Yet, owning stablecoins creates an opportunity to quickly jump into the crypto market whenever a great opportunity presents itself.<\/p>\n<p>This technique allows traders to <strong>save time<\/strong>, since swapping stablecoins for other cryptocurrencies is a faster process than going through the entire procedure of buying them with fiat money.<\/p>\n<p><em>By the way, if you feel like your knowledge about stablecoins could need some upgrading, make sure to check out my channel - there's <a href=https://www.bitdegree.org/"https:////www.bitdegree.org//crypto//learn//what-are-stablecoins/">a section about this topic<\/strong><\/a>, specifically!<\/em><\/p>\n<h2>Wrapping Up<\/h2>\n<p>Having said that, we arrive at the end of this section. I hope that, by now, you’ve got a better understanding of the portfolio diversification definition, and <strong>why is diversification important in an investment portfolio<\/strong>, to begin with.<\/p>\n<p>As the crypto industry evolves, the ways and techniques of diversifying your assets will, eventually, change as well, but until then, these methods that I’ve presented today, are among the most popular, trusted and practiced in the industry.<\/p>","youtube_video":{"id":86,"channel_id":1,"sort":26,"video_title":"5 Best Crypto Portfolio Diversification Strategies (Animated Explanation)","description":"What\u2019s the crypto portfolio diversification definition? Why is diversification important in an investment portfolio? What are the top 5 portfolio diversification techniques? These are the questions that I answer in this video.\n\nThe wisdom of the proverbial saying of \"not putting all your eggs in one basket,\" represents the idea behind portfolio diversification perfectly. But, it\u2019s easier said than done.\n\nUnderstanding the core principles of crypto portfolio diversification leads to significant reductions in risks that are associated with crypto trading. Therefore it makes sense to learn it.\n\nDo you have any suggestions, additions or requests? Be sure to let us know in the comment section below!\n\nVideo Time Table:\n\n0:00 Introduction to 5 Best Crypto Portfolio Diversification Strategies\n1:12 Portfolio Diversification Definition\n4:26 Crypto Portfolio Diversification Techniques\n4:44 Crypto Asset Allocation\n5:58 Sector Diversification\n6:35 Geographical Diversification\n7:23 Investment Style Diversification\n8:06 Stablecoins\n8:53 Wrap-up: 5 Best Crypto Portfolio Diversification Strategies\n\nGet Quick Crypto Tips on Twitter - Follow:\nhttps:\/\/twitter.com\/crypto_xplained \n\n#PortfolioDiversification #CryptoPortfolio #Stablecoin","video_id":"JdG2mC7uHHQ","duration":584,"view_count":160,"thumbnail_url":"https:\/\/assets.bitdegree.org\/youtube\/crypto-finally-explained\/5-best-crypto-portfolio-diversification-strategies-animated-explanation.jpg","thumbnail_width":1280,"thumbnail_height":720,"published_at":"2023-06-20T15:07:24.000000Z","created_at":"2023-06-20T23:00:12.000000Z","updated_at":"2024-01-09T23:00:04.000000Z","channel":{"id":1,"title":"CryptoFinallyExplained","channel_id":"UCOryUY0yxC08eJtK23mNgiA","main_playlist_id":"UUOryUY0yxC08eJtK23mNgiA"}},"featured_image":{"id":3160,"uuid":"c839a293-d474-49c6-b399-f0e34e8c65d8","name":"portfolio-diversification-definition-featured-image.jpg","url":"https:\/\/assets.bitdegree.org\/images\/portfolio-diversification-definition-featured-image.jpg","path":"images\/portfolio-diversification-definition-featured-image.jpg","mime_type":"image\/jpeg","disk":"digitalOceanSpaces","size":90613,"width":1024,"height":576,"custom_properties":null,"created_at":"2023-06-21T06:24:28.000000Z","updated_at":"2023-06-21T06:24:28.000000Z"}}" :chapter-list="[{"id":1,"title":"Blockchain","slug":"blockchain","updated":null,"chapter":"crypto\/assets\/crypto-book\/chapters\/learn-blockchain.jpg","chapter_simple":"crypto\/assets\/crypto-book\/chapters-simple\/blockchain-101.jpg","rating":100,"sections":[{"chapter_id":1,"order":1,"slug":"what-is-blockchain","title":"What is the Blockchain?","status":"published","modified_content":null},{"chapter_id":1,"order":2,"slug":"decentralized-blockchain","title":"Anonymous & Decentralized Blockchains: The Cornerstone of Crypto","status":"published","modified_content":null},{"chapter_id":1,"order":3,"slug":"blockchain-transaction","title":"What is a Blockchain Transaction in Crypto?","status":"published","modified_content":null},{"chapter_id":1,"order":4,"slug":"crypto-fees","title":"The Different Types of Crypto Fees Explained","status":"published","modified_content":null},{"chapter_id":1,"order":5,"slug":"what-is-bridging-in-crypto","title":"The Key Notion Behind the Concept of Bridging in Crypto","status":"published","modified_content":null},{"chapter_id":1,"order":6,"slug":"types-of-blockchains","title":"Different Types of Blockchains: What to Look Out For?","status":"published","modified_content":null}]},{"id":2,"title":"Cryptocurrencies","slug":"cryptocurrencies","updated":null,"chapter":"crypto\/assets\/crypto-book\/chapters\/learn-cryptocurrencies.jpg","chapter_simple":"crypto\/assets\/crypto-book\/chapters-simple\/cryptocurrencies-101.jpg","rating":100,"sections":[{"chapter_id":2,"order":1,"slug":"what-is-a-cryptocurrency","title":"What is a Cryptocurrency?","status":"published","modified_content":null},{"chapter_id":2,"order":2,"slug":"how-does-cryptocurrency-work","title":"How Does Cryptocurrency Work?","status":"published","modified_content":null},{"chapter_id":2,"order":3,"slug":"is-cryptocurrency-a-good-investment","title":"Is Cryptocurrency a Good Investment? The Pros & Cons","status":"published","modified_content":null},{"chapter_id":2,"order":4,"slug":"coin-vs-token","title":"Coin VS Token: How Do They Differ?","status":"published","modified_content":null},{"chapter_id":2,"order":5,"slug":"what-are-stablecoins","title":"What are Stablecoins, Altcoins & Wrapped Coins?","status":"published","modified_content":null},{"chapter_id":2,"order":6,"slug":"what-is-a-bitcoin","title":"Bitcoin: the Pioneer of the Crypto World","status":"published","modified_content":null},{"chapter_id":2,"order":7,"slug":"what-is-ethereum","title":"The Ultimate Blockchain for dApp Creation: Ethereum","status":"published","modified_content":null},{"chapter_id":2,"order":8,"slug":"what-is-cardano-in-crypto","title":"What is Cardano and What is It Used For?","status":"published","modified_content":null},{"chapter_id":2,"order":9,"slug":"what-is-shiba-inu-coin","title":"Shiba Inu: the Dogecoin Killer","status":"published","modified_content":null},{"chapter_id":2,"order":10,"slug":"what-is-solana-in-crypto","title":"Is Solana an Improved Version of Ethereum?","status":"published","modified_content":null},{"chapter_id":2,"order":11,"slug":"what-is-polkadot-in-crypto","title":"The Bridge Between Blockchains: Polkadot","status":"published","modified_content":null},{"chapter_id":2,"order":12,"slug":"what-is-polygon-in-crypto","title":"Polygon: the Essential Scaling Solution for Ethereum","status":"published","modified_content":null},{"chapter_id":2,"order":13,"slug":"what-is-luna-crypto","title":"The Bumpy Road of Terra (LUNA)","status":"published","modified_content":null},{"chapter_id":2,"order":14,"slug":"what-is-fantom-crypto","title":"Is Fantom (FTM) Yet Another Ethereum Killer?","status":"published","modified_content":null},{"chapter_id":2,"order":15,"slug":"what-is-aave-crypto","title":"Aave: Crypto Lending Trailblazer","status":"published","modified_content":null},{"chapter_id":2,"order":16,"slug":"what-is-algorand-crypto","title":"Did Algorand Truly Solve the Blockchain Trilemma?","status":"published","modified_content":null},{"chapter_id":2,"order":17,"slug":"what-is-olympus-dao","title":"Does Olympus DAO Have Anything to Do With Mythology?","status":"published","modified_content":null},{"chapter_id":2,"order":18,"slug":"what-is-avax","title":"Is Avalanche Network (AVAX) Rightfully Called the Future of DeFi?","status":"published","modified_content":null},{"chapter_id":2,"order":19,"slug":"what-is-monero-coin","title":"Monero: Where Cryptocurrency Meets Cryptography","status":"published","modified_content":null},{"chapter_id":2,"order":20,"slug":"what-is-ripple-xrp","title":"Is Ripple \"it\" When it Comes to Cross-Border Transactions?","status":"published","modified_content":null},{"chapter_id":2,"order":21,"slug":"practical-use-of-cryptocurrencies","title":"The Practical Use of Crypto","status":"published","modified_content":null}]},{"id":3,"title":"Crypto Exchanges","slug":"crypto-exchanges","updated":null,"chapter":"crypto\/assets\/crypto-book\/chapters\/learn-crypto-exchanges.jpg","chapter_simple":"crypto\/assets\/crypto-book\/chapters-simple\/crypto-exchanges-101.jpg","rating":80,"sections":[{"chapter_id":3,"order":1,"slug":"how-do-cryptocurrency-exchanges-work","title":"How do Cryptocurrency Exchanges Work?","status":"published","modified_content":null},{"chapter_id":3,"order":2,"slug":"dex-vs-cex","title":"DEX VS CEX: Two Sides of the Crypto Exchange Industry","status":"published","modified_content":null},{"chapter_id":3,"order":3,"slug":"crypto-day-trading","title":"Crypto Day Trading: The Difference Between Buying, Trading, and Swapping","status":"published","modified_content":null},{"chapter_id":3,"order":4,"slug":"kyc-crypto","title":"KYC & AML: The Key to Complying With Legal Industry Standards","status":"published","modified_content":null},{"chapter_id":3,"order":5,"slug":"how-to-buy-crypto","title":"From Fiat to Crypto: How to Buy Crypto for the First Time","status":"published","modified_content":null},{"chapter_id":3,"order":6,"slug":"fiat-to-crypto","title":"Taking Profits: Turning Crypto Into Fiat","status":"published","modified_content":null},{"chapter_id":3,"order":7,"slug":"how-to-use-crypto","title":"You\u2019ve Got Crypto: What Can You Do With It?","status":"published","modified_content":null}]},{"id":4,"title":"Crypto Wallets","slug":"crypto-wallets","updated":false,"chapter":"crypto\/assets\/crypto-book\/chapters\/learn-crypto-wallets.jpg","chapter_simple":"crypto\/assets\/crypto-book\/chapters-simple\/crypto-wallets-101.jpg","rating":80,"sections":[{"chapter_id":4,"order":1,"slug":"what-is-a-crypto-wallet","title":"What is a Crypto Wallet?","status":"published","modified_content":null},{"chapter_id":4,"order":2,"slug":"hot-wallet-vs-cold-wallet","title":"Hot Wallet VS Cold Wallet: Which One to Pick?","status":"published","modified_content":null},{"chapter_id":4,"order":3,"slug":"non-custodial-wallet","title":"What are Non-Custodial Crypto Wallets?","status":"published","modified_content":null},{"chapter_id":4,"order":4,"slug":"what-is-metamask","title":"Metamask: The Leading Non-Custodial Wallet","status":"published","modified_content":null},{"chapter_id":4,"order":37,"slug":"how-safe-is-cryptocurrency","title":"The Key Crypto Wallet Safety Practices: How Safe Can Crypto Be?","status":"published","modified_content":null}]},{"id":5,"title":"NFTs","slug":"nfts","updated":null,"chapter":"crypto\/assets\/crypto-book\/chapters\/learn-nfts.jpg","chapter_simple":"crypto\/assets\/crypto-book\/chapters-simple\/nfts-101.jpg","rating":100,"sections":[{"chapter_id":5,"order":2,"slug":"how-to-trade-nfts","title":"NFT Trading: The Ins and Outs","status":"published","modified_content":null},{"chapter_id":5,"order":3,"slug":"buying-nft","title":"Tips and Tricks of Choosing the Right NFTs","status":"published","modified_content":null},{"chapter_id":5,"order":4,"slug":"how-to-store-nft","title":"How to Store NFTs: Best Practices","status":"published","modified_content":null},{"chapter_id":5,"order":5,"slug":"how-to-create-an-nft","title":"How to Create Your Own NFTs?","status":"published","modified_content":null},{"chapter_id":5,"order":6,"slug":"how-to-make-passive-money-with-nft","title":"Making Passive Money with NFTs","status":"published","modified_content":null}]},{"id":6,"title":"dApps & Defi","slug":"dapps-and-defi","updated":true,"chapter":"crypto\/assets\/crypto-book\/chapters\/learn-dapps.jpg","chapter_simple":"crypto\/assets\/crypto-book\/chapters-simple\/dapps-defi-101.jpg","rating":80,"sections":[{"chapter_id":6,"order":1,"slug":"what-are-nfts","title":"What are Non-Fungible Tokens (NFTs)?","status":"published","modified_content":null},{"chapter_id":6,"order":1,"slug":"what-is-defi","title":"What is Decentralized Finance (DeFi)?","status":"published","modified_content":null},{"chapter_id":6,"order":2,"slug":"what-is-defi-2-0","title":"DeFi 2.0: The New Version of Decentralized Finance","status":"published","modified_content":null},{"chapter_id":6,"order":3,"slug":"what-are-dapps-in-crypto","title":"What Are dApps and How Do They Work?","status":"published","modified_content":null},{"chapter_id":6,"order":4,"slug":"defi-dapps","title":"Picking the Right dApps: Dos and Don'ts","status":"published","modified_content":null},{"chapter_id":6,"order":5,"slug":"what-is-web-3-0","title":"Web 3.0: The Future of the Internet","status":"published","modified_content":null},{"chapter_id":6,"order":6,"slug":"what-are-smart-contracts","title":"What is the Core Purpose of Smart Contracts?","status":"published","modified_content":null},{"chapter_id":6,"order":7,"slug":"what-is-a-dao-in-crypto","title":"The Notion of a Decentralized Autonomous Ogranization (DAO)","status":"published","modified_content":null},{"chapter_id":6,"order":8,"slug":"what-is-staking-in-crypto","title":"What is the Goal of Staking Crypto Assets?","status":"published","modified_content":null},{"chapter_id":6,"order":9,"slug":"what-is-liquidity-pool-in-crypto","title":"What is a Liquidity Pool and How Does It Work?","status":"published","modified_content":null},{"chapter_id":6,"order":10,"slug":"what-is-automated-market-maker","title":"Automated Market Maker: the Cornerstone of the Decentralized Crypto Exchange Industry","status":"published","modified_content":null},{"chapter_id":6,"order":11,"slug":"what-is-yield-farming-in-crypto","title":"The Main Yield Farming Techniques","status":"published","modified_content":null},{"chapter_id":6,"order":12,"slug":"what-is-an-oracle-in-crypto","title":"Crypto Oracles: The Link Between Blockchain and Outside World Data","status":"published","modified_content":null},{"chapter_id":6,"order":13,"slug":"crypto-gambling","title":"The Peculiarities of Decentralized Crypto Gambling","status":"published","modified_content":null},{"chapter_id":6,"order":14,"slug":"what-is-the-metaverse","title":"Metaverse: A New Perception of Reality","status":"published","modified_content":null}]},{"id":7,"title":"Trading & Investing","slug":"trading-and-investing","updated":null,"chapter":"crypto\/assets\/crypto-book\/chapters\/learn-crypto-trading.jpg","chapter_simple":"crypto\/assets\/crypto-book\/chapters-simple\/crypto-trading-101.jpg","rating":80,"sections":[{"chapter_id":7,"order":1,"slug":"where-to-trade-crypto","title":"Where Can You Trade Cryptocurrencies?","status":"published","modified_content":null},{"chapter_id":7,"order":2,"slug":"how-to-invest-in-crypto","title":"Investing in Crypto: What Investing Options Do You Have?","status":"published","modified_content":null},{"chapter_id":7,"order":3,"slug":"ico-vs-ido","title":"ICO vs IDO vs IEO: Which One is the One?","status":"published","modified_content":null},{"chapter_id":7,"order":4,"slug":"what-is-an-airdrop","title":"What are Crypto Airdrops and How to Get Them?","status":"published","modified_content":null},{"chapter_id":7,"order":5,"slug":"how-to-get-free-crypto","title":"How to Get Free Crypto Assets?","status":"published","modified_content":null},{"chapter_id":7,"order":6,"slug":"how-to-arbitrage-crypto","title":"What is Crypto Arbitrage: The Main Principles","status":"published","modified_content":null},{"chapter_id":7,"order":7,"slug":"what-is-a-perpetual-contract","title":"Perpetual Contracts: Futures Contracts Without an Expiration Date","status":"published","modified_content":null},{"chapter_id":7,"order":8,"slug":"what-is-fud","title":"What is FUD: How to Use It to Your Advantage While Investing in Crypto?","status":"published","modified_content":null},{"chapter_id":7,"order":9,"slug":"investing-in-cryptocurrency","title":"Investing in Cryptocurrency: How to Manage Your Risks?","status":"published","modified_content":null},{"chapter_id":7,"order":10,"slug":"what-is-a-rug-pull-in-crypto","title":"What is a Rug Pull in Crypto?","status":"published","modified_content":null},{"chapter_id":7,"order":11,"slug":"how-to-avoid-rug-pulls-in-crypto","title":"How to Spot and Avoid Rug Pulls?","status":"published","modified_content":null},{"chapter_id":7,"order":12,"slug":"how-to-avoid-crypto-taxes","title":"The Key Legal Techniques of Avoiding Crypto Taxes","status":"published","modified_content":null}]},{"id":8,"title":"Crypto Analysis","slug":"crypto-analysis","updated":null,"chapter":"crypto\/assets\/crypto-book\/chapters\/learn-crypto-analysis.jpg","chapter_simple":"crypto\/assets\/crypto-book\/chapters-simple\/crypto-analysis-101.jpg","rating":100,"sections":[{"chapter_id":8,"order":1,"slug":"what-is-bullish-and-bearish","title":"Bearish and Bullish Markets: Do They Matter?","status":"published","modified_content":null},{"chapter_id":8,"order":2,"slug":"best-technical-analysis-indicators-for-crypto","title":"5 Best Crypto Technical Analysis Indicators You Must Know About","status":"published","modified_content":null},{"chapter_id":8,"order":3,"slug":"what-is-candlesticks","title":"Technical Analysis: What are Candlesticks, Trendlines, and Patterns?","status":"published","modified_content":null},{"chapter_id":8,"order":4,"slug":"how-to-track-new-crypto-coins","title":"Crypto Tracking: How to Track Your Favorite Coins & Tokens?","status":"published","modified_content":null},{"chapter_id":8,"order":5,"slug":"how-to-research-crypto","title":"Crypto Research Fundamentals & Social Signals: Your Daily Trading Strategy","status":"published","modified_content":null},{"chapter_id":8,"order":46,"slug":"portfolio-diversification-definition","title":"Portfolio Diversification: The Whats, the Whys, and the Hows","status":"published","modified_content":null}]},{"id":9,"title":"Mining","slug":"mining","updated":false,"chapter":"crypto\/assets\/crypto-book\/chapters\/learn-crypto-mining.jpg","chapter_simple":"crypto\/assets\/crypto-book\/chapters-simple\/crypto-mining-101.jpg","rating":80,"sections":[{"chapter_id":9,"order":1,"slug":"what-is-crypto-mining","title":"Crypto Mining: What It is and How Does It Work?","status":"published","modified_content":null},{"chapter_id":9,"order":2,"slug":"what-is-a-mining-pool","title":"Mining Pools: Is Collective Mining Better Than Solo Mining?","status":"published","modified_content":null},{"chapter_id":9,"order":3,"slug":"what-is-staking-crypto","title":"An Advanced Look into What is Staking Crypto","status":"published","modified_content":null},{"chapter_id":9,"order":4,"slug":"what-is-proof-of-stake-vs-proof-of-work","title":"Proof-of-Work VS Proof-of-Stake: The Differences That Matter","status":"published","modified_content":null},{"chapter_id":9,"order":5,"slug":"what-is-crypto-mining-rig","title":"Crypto Mining Rig: What It is and How to Build One?","status":"published","modified_content":null}]},{"id":10,"title":"Crypto Terms","updated":false,"chapter":"crypto\/assets\/crypto-book\/chapters\/crypto-101-glossary.jpg","chapter_simple":"crypto\/assets\/crypto-book\/chapters-simple\/crypto-glossary-101.jpg","rating":100,"sections":["A","B","C","D","E","F","G","H","I","J","K","L","M","N","O","P","Q","R","S","T","U","V","W","X","Y","Z"]}]" current-chapter="crypto-analysis" current-section="portfolio-diversification-definition">

Learn to gain real rewards

New Courses Announced

Most Secure Wallets To Start With

Exclusive Crypto Deal List of 2023

Learn to gain real rewards

New Courses Announced

Most Secure Wallets To Start With

Exclusive Crypto Deal List of 2023

Collect Your Rewards

Unlocked: Crypto Handbook!

Grab Binance $600 Bonus

My Learnlist: Coming Soon!

Web3 Exam: Starter

Web3 Exam: Explorer

Web3 Exam: Evangelist

All Crypto From

Scratch!

Crypto 101 Handbook

Portfolio Diversification: The Whats, the Whys, and the Hows

Video Explainer: Portfolio Diversification: The Whats, the Whys, and the Hows

Portfolio Diversification Definition

Crypto Portfolio Diversification Techniques

Crypto Asset Allocation

Sector Diversification

Geographical Diversification

Investment Style Diversification

Asset Allocation into Stablecoins

Wrapping Up

Top Cryptocurrencies

Top Spot Exchanges

Buy Crypto

Top Reviews

Crypto Guides

Project