What are cryptocurrencies and how do they work?
Cryptocurrencies, or crypto for short, are digital currencies that are based on cryptographic techniques and operate in a decentralized network. They enable secure and fast transactions without the need for a central authority such as a bank.
The core of cryptocurrencies is the blockchain, a public database that stores all transactions in chronological order. Each transaction is verified by many computers in the network and stored in a block. This block is then linked to previous blocks, making manipulation virtually impossible.
Ownership of cryptocurrencies is managed through so-called wallets. These are digital wallets that consist of a public and a private key. The public key serves as an address to which cryptocurrencies can be sent, while the private key signs transactions and ensures that only the owner has access to the cryptocurrencies.
Bitcoin was the first cryptocurrency, introduced in 2009, and remains the best known. In addition to Bitcoin, there are many other cryptocurrencies, often referred to as altcoins.
Cryptocurrencies offer numerous advantages such as low transaction costs and increased security, but they are also associated with risks such as high volatility and regulatory uncertainty.
The most well-known cryptocurrencies on the market
The cryptocurrency market is diverse and dynamic, with many different digital currencies offering different applications and technologies. The most well-known cryptocurrencies are Bitcoin, Ethereum, and Ripple, all of which have significant market capitalization and broad acceptance.
Bitcoin was the first cryptocurrency and remains the best known and most valuable digital currency. Ethereum is known for its smart contract functionality, which allows developers to create decentralized applications on its blockchain. Ripple, on the other hand, aims to enable fast and cost-effective international transfers and has built strong partnerships with financial institutions.
In addition to these major names, there are many other cryptocurrencies that also deserve attention. Litecoin is often referred to as the “silver” to Bitcoin’s “gold” and offers faster transaction times. Altcoins such as Cardano and Polkadot introduce innovative concepts and technologies into the crypto world.
Tether is a stable cryptocurrency pegged to the US dollar and is known as a “stablecoin.” Binance Coin is used on the popular crypto exchange Binance and offers users benefits such as reduced trading fees.
The diversity of cryptocurrencies allows investors and users to choose the digital currency best suited to them, whether for investment, trading, or daily use.
Cryptocurrency overview
- Bitcoin (BTC): First cryptocurrency, highest market capitalization, most well-known digital currency
- Ethereum (ETH): Smart contract functionality, platform for decentralized applications (dApps)
- Ripple (XRP): Fast and cost-effective international transfers, partnerships with financial institutions
- Litecoin (LTC): Faster transaction times than Bitcoin, often referred to as the “silver” to Bitcoin’s “gold”
- Cardano (ADA): Innovative blockchain technology, focus on security and scalability
- Polkadot (DOT): Interoperability between different blockchains, promotes decentralized applications
- Tether (USDT): Stable cryptocurrency (stablecoin), pegged to the US dollar
- Binance Coin (BNB): Used on the Binance exchange, reduced trading fees for users
Where can cryptocurrencies be bought and traded?
Cryptocurrencies can be bought and traded on various platforms, with cryptocurrency exchanges being the most popular destinations. These exchanges offer a wide range of digital currencies such as Bitcoin, Ethereum, Ripple, and many altcoins.
Among the best-known and most trustworthy crypto exchanges are Binance, Coinbase, and Kraken. Binance is particularly popular for trading Binance Coin and offers reduced trading fees. Coinbase is known for its user-friendly interface. Kraken offers a robust security architecture and a wide selection of cryptocurrencies.
In addition to crypto exchanges, there are also peer-to-peer platforms such as LocalBitcoins and brokers such as eToro. The security and reliability of platforms are crucial, which is why many offer additional security measures such as two-factor authentication and cold storage.
Cryptocurrency prices and how they work
Cryptocurrency prices are dynamic and subject to constant fluctuations. Bitcoin often shows strong price movements that can influence the entire market. Ethereum and other altcoins often follow these trends.
Platforms such as CoinMarketCap and CoinGecko provide real-time information on prices, market capitalizations, and trading volumes. Crypto exchanges also offer integrated price tracking tools.
Factors influencing prices
Supply and demand, market capitalization, market news, regulatory developments, and legal frameworks significantly influence the price development of cryptocurrencies.
Opportunities and risks of cryptocurrencies
Cryptocurrencies offer opportunities such as high returns, decentralization, access to new markets, technological innovation, and portfolio diversification.
At the same time, there are risks such as high volatility, regulatory uncertainty, security risks, technological complexity, market manipulation, and environmental impact due to energy-intensive mining.
Cryptocurrencies and accountants
In Switzerland, cryptocurrencies are treated as assets. Profits from trading must be taxed. Accountants assist with the proper documentation of purchases, sales, exchanges, and mining.
Tax advisors ensure that cryptocurrencies are correctly declared in the tax return. Profits from trading Bitcoin, Ethereum, and other cryptocurrencies are subject to income tax. Professional support helps optimize the tax burden while complying with legal requirements.
