UNDERSTANDING THE CRYPTOCURRENCY ECOSYSTEM
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CRYPTOCURRENCY INVESTING
WHAT ARE CRYPTOCURRENCIES?
Cryptocurrencies are digital assets maintained and recorded on a blockchain (a decentralized ledger) which validates every transaction without a trusted intermediary such as a custodian or bank.
All cryptocurrencies make design decisions along four dimensions – decentralization, security, scalability and stability. Taken together, these four dimensions allow investors to classify every cryptocurrency, as each is a unique trade-off between these elements.
10,000
Number of cryptocurrencies and digital tokens spawned by bitcoin.*
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The ingenuity displayed in bringing together distributed ledgers and cryptographic methods represents a real technological breakthrough.”
The crypto ecosystem
Cryptocurrencies are part of a broader ecosystem that extends well beyond digital tokens to the underlying blockchains as well as the necessary infrastructure to support mining and storage. It also includes cryptocurrency exchanges and applications built on blockchains such as non-fungible tokens and cross-border payment networks. Additionally, it encompasses the constellation of compliance, risk management and security tools.
Source: PGIM Thematic Research.
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EXPLORE
BITCOIN: Not quite a currency
OPPORTUNITIES IN the
CRYPTO ECOSYSTEM
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Decentralization
SCALABILITY
STABILITY
SECURITY
DECENTRALIZATION
SCALABILITY
STABILITY
SECURITY
Decentralization refers to creating an immutable ledger that does not rely on a central entity for validation of participants and transactions. This is in stark contrast to conventional finance where a financial intermediary (often a bank) clears, verifies and records transactions on behalf of customers.
Scalability refers to the ability of a blockchain to handle an increasing volume of transactions. Efficiency in transaction speed and the cost of recording and validating transactions are paramount to become a widespread digital payment system.
Stablecoins such as Tether, USD Coin and Dai are digital currencies whose value is explicitly linked to another asset. Many of the most prominent stablecoins are linked to a fiat currency. Regardless of whether a stablecoin is backed by fiat or digital assets, the reserve mechanisms are not regulated or required to be audited.
Security refers to the rigor associated with verifying transactions on the blockchain. The degree of rigor determines the ability of the blockchain to function as expected while defending itself from fraud, cyberattacks, hackers, bugs and other malicious ware.
THE FOUR DIMENSIONS OF CRYPTOCURRENCY
Considering Bitcoin for an Institutional Portfolio
CRYPTOCURRENCY INVESTING
*CoinMarketCap, as of May 9, 2022. < www.coinmarketcap.com >
DECENTRALIZATION
SCALABILITY
STABILITY
SECURITY
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