Posts Tagged ‘Exchange’

altcoin, Pros and Cons, Types, and Future

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Pros and Cons, Types, and Future

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Investopedia / Michela Buttignol


What Is Altcoin?

Altcoins are generally defined as all cryptocurrencies other than Bitcoin (BTC). However, some people consider altcoins to be all crytocurrencies other than Bitcoin and Ethereum (ETH) because most cryptocurrencies are forked from one of the two. Some altcoins use different consensus mechanisms to validate transactions and open new blocks, or attempt to distinguish themselves from Bitcoin and Ethereum by providing new or additional capabilities or purposes.

Most altcoins are designed and released by developers who have a different vision or use for their tokens or cryptocurrency. Learn more about altcoins and what makes them different from Bitcoin.

Key Takeaways

  • The term altcoin refers to all cryptocurrencies other than Bitcoin (and for some people, Ethereum).
  • There are tens of thousands of altcoins on the market.
  • Altcoins come in several types based on what they were designed for.
  • The future value of altcoins is impossible to predict, but if the blockchain they were designed for continues to be used and developed, the altcoins will continue to exist.

Click Play to Learn All About Altcoins

Understanding Altcoins

“Altcoin” is a combination of the two words “alternative” and “coin.” It is generally used to include all cryptocurrencies and tokens that are not Bitcoin. Altcoins belong to the blockchains they were explicitly designed for. Many are forks—a splitting of a blockchain that is not compatible with the original chain—from Bitcoin and Ethereum. These forks generally have more than one reason for occurring. Most of the time, a group of developers disagree with others and leave to make their own coin.

Many altcoins are used within their respective blockchains to accomplish something, such as ether, which is used in Ethereum to pay transaction fees. Some developers have created forks of Bitcoin and re-emerged as an attempt to compete with Bitcoin as a payment method, such as Bitcoin Cash.

Others fork and advertise themselves as a way to raise funds for specific projects. For example, the token Bananacoin forked from Ethereum and emerged in 2017 as a way to raise funds for a banana plantation in Laos that claimed to grow organic bananas.

Dogecoin, the popular meme coin, was apparently created as somewhat of a joke. It forked from Litecoin, which itself forked from Bitcoin in 2011. Whatever the intent behind its creation, it was still designed to be a digital payment method.

Altcoins attempt to improve upon the perceived limitations of whichever cryptocurrency and blockchain they are forked from or competing with. The first altcoin was Litecoin, forked from the Bitcoin blockchain in 2011. Litecoin uses a different proof-of-work (PoW) consensus mechanism than Bitcoin, called Scrypt (pronounced es-crypt), which is less energy-intensive and quicker than Bitcoin’s SHA-256 PoW consensus mechanism.

Ether is another altcoin. However, it did not fork from Bitcoin. It was designed by Vitalik Buterin, Dr. Gavin Wood, and a few others to support Ethereum, the world’s largest blockchain-based scalable virtual machine. Ether (ETH) is used to pay network participants for the transaction validation work their machines do.

Types of Altcoins

Altcoins come in various flavors and categories. Here’s a brief summary of some of the types of altcoins and what they are intended to be used for.

It is possible for an altcoin to fall into more than one category, such as TerraUSD, which is a stablecoin and utility token.

Payment Token

As the name implies, payment tokens are designed to be used as currency—to exchange value between parties. Bitcoin is the prime example of a payment token.

Stablecoins

Cryptocurrency trading and use have been marked by volatility since launch. Stablecoins aim to reduce this overall volatility by pegging their value to a basket of goods, such as fiat currencies, precious metals, or other cryptocurrencies. The basket is meant to act as a reserve to redeem holders if the cryptocurrency fails or faces problems. Price fluctuations for stablecoins are not meant to exceed a narrow range.

Notable stablecoins include Tether’s USDT, MakerDAO’s DAI, and the USD Coin (USDC). In March 2021, payment processing giant Visa Inc. (V) announced that it would begin settling some transactions on its network in USDC over the Ethereum blockchain, with plans to roll out further stablecoin settlement capacity later in 2021.

Security Tokens

Security tokens are tokenized assets offered on stock markets. Tokenization is the transfer of value from an asset to a token, which is then made available to investors. Any asset can be tokenized, such as real estate or stocks. For this to work, the asset must be secured and held. Otherwise, the tokens are worthless because they wouldn’t represent anything. Security tokens are regulated by the Securities and Exchange Commission because they are designed to act as securities.

In 2021, the Bitcoin wallet firm Exodus successfully completed a Securities and Exchange Commission-qualified Reg A+ token offering, allowing for $75 million shares of common stock to be converted to tokens on the Algorand blockchain. This was a historic event because it was the first digital asset security to offer equity in a United States-based issuer.

Utility Tokens

Utility tokens are used to provide services within a network. For example, they might be used to purchase services, pay network fees, or redeem rewards. Filecoin, which is used to buy storage space on a network and secure the information, is an example of a utility token.

Ether (ETH) is also a utility token. It is designed to be used in the Ethereum blockchain and virtual machine to pay for transactions. The stable coin USTerra uses utility tokens to attempt to maintain its peg to the dollar—which it lost on May 11, 2022—by minting and burning two utility tokens to create downward or upward pressure on its price.

Utility tokens can be purchased on exchanges and held, but they are meant to be used in the blockchain network to keep it functioning.

Meme Coins

As their name suggests, meme coins are inspired by a joke or a silly take on other well-known cryptocurrencies. They typically gain popularity in a short period of time, often hyped online by prominent influencers or investors attempting to exploit short-term gains.

Many refer to the sharp run-up in this type of altcoins during April and May 2021 as “meme coin season,” with hundreds of these cryptocurrencies posting enormous percentage gains based on pure speculation.

An initial coin offering (ICO) is the cryptocurrency industry’s equivalent of an initial public offering (IPO). A company looking to raise money to create a new coin, app, or service launches an ICO to raise funds.

Governance Tokens

Governance tokens allow holders certain rights within a blockchain, such as voting for changes to protocols or having a say in decisions of a decentralized autonomous organization (DAO). Because they are generally native to a private blockchain and used for blockchain purposes, they are utility tokens but have come to be accepted as a separate type because of their purpose.

Pros and Cons of Altcoins

Cons

  • Lower popularity and smaller market cap

  • Less liquid than Bitcoin

  • Difficult to determine use cases

  • Many altcoins are scams or lost developer and community interest

Pros of Altcoins Explained

  • Altcoins are “improved versions” of the cryptocurrency they derived from because they aim to plug perceived shortcomings.
  • Altcoins with more utility have a better chance of surviving because they have uses, such as Ethereum’s ether.
  • Investors can choose from a wide variety of altcoins that perform different functions in the crypto economy.

Cons of Altcoin Explained

  • Altcoins have a smaller investment market compared to Bitcoin. Bitcoin has generally hovered around 40% of the global cryptocurrency market since May of 2021.
  • The altcoin market is characterized by fewer investors and less activity, resulting in thin liquidity.
  • It is not always easy to distinguish between different altcoins and their respective use cases, making investment decisions even more complicated and confusing.
  • There are several “dead” altcoins that ended up sinking investor dollars.

Future of Altcoins

Discussions about the future for altcoins and cryptocurrencies have a precedent in the circumstances that led to a federally issued dollar in the 19th century. Various forms of local currencies circulated in the United States. Each had unique characteristics and was backed by a different instrument.

Local banks were also issuing currency, in some cases backed by fictitious reserves. That diversity of currencies and financial instruments parallels the current situation in altcoin markets. There are thousands of altcoins available in the markets today, each one claiming to serve a different purpose and market.

The current state of affairs in the altcoin markets is unlikely to consolidate into a single cryptocurrency. But it is also likely that a majority of the thousands of altcoins listed in crypto markets will not survive. The altcoin market will likely coalesce around a bunch of altcoins—those with strong utility, use cases, and a solid blockchain purpose—which will dominate the markets.

If you’re looking to diversify within the cryptocurrency market, altcoins can be less expensive than Bitcoin. However, the cryptocurrency market, regardless of the type of coin, is young and volatile. Cryptocurrency is still finding its role in the global economy, so it’s best to approach all cryptocurrencies cautiously.

What Is the Best Altcoin to Invest in?

The best altcoin to invest in depends on your financial situation, goals, risk tolerance, and the market’s circumstances. It’s best to speak to a financial advisor to help you decide which one is best for you.

What Are the Top 3 Altcoins?

By market cpacity, the top three altcoins are Ethereum, USD Coin, Tether (USDT).

Is It Better to Invest in Bitcoin or Altcoins?

Which cryptocurrency is better is a subjective argument based on an investor’s financial circumstances, investing goals, risk tolerance, and beliefs. You should talk to a professional financial advisor about investing in cryptocurrency before buying any.

Investing in cryptocurrencies and other Initial Coin Offerings (“ICOs”) is highly risky and speculative, and this article is not a recommendation by Investopedia or the writer to invest in cryptocurrencies or other ICOs. Since each individual’s situation is unique, a qualified professional should always be consulted before making any financial decisions.

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500 Shareholder Threshold

Written by admin. Posted in #, Financial Terms Dictionary

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What Was the 500 Shareholder Threshold?

The 500 shareholder threshold for investors is an outdated rule required by the Securities and Exchange Commission (SEC) that triggered public reporting requirements of a company when it reached that many or more distinct shareholders. Section 12(g) of the Securities Exchange Act of 1934 calls for issuers of securities to register with the SEC and begin public dissemination of financial information within 120 days of the end of a fiscal year.

New regulations now require a 2,000 shareholder threshold.

Key Takeaways

  • The 500 shareholder threshold was a rule mandated by the SEC that required companies to publicly disclose financial statements and other information if they achieved 500 or more distinct shareholders.
  • The rule, in place from 1964-2012, was meant to discourage fraud, opacity, and misinformation alleged in the over-the-counter market.
  • Today, the shareholder threshold is now 2,000, largely in response to the rapid growth of investment in tech start-ups that caused the 500 limit to be reached too quickly.

Understanding the 500 Shareholder Threshold

The 500 shareholder threshold was originally introduced in 1964 to address complaints of fraudulent activity appearing in the over-the-counter (OTC) market. Since firms with fewer than the threshold number of investors were not required to disclose their financial information, outside buyers were not able to make fully informed decisions regarding their investments due to a lack of transparency and allegations of stock fraud.

The 500 shareholder threshold forced companies that had more than 499 investors to provide adequate disclosure for the protection of investors and for oversight by regulators. Although the company could remain privately-held, it would have to file public documents in similar fashion to those of publicly traded companies. If the number of investors fell back below 500, then the disclosures would no longer be required.

Private companies generally avoid public reporting as long as possible by keeping the number of individual shareholders low, which is helpful because mandatory reporting can consume a great deal time and money and also places confidential financial data in the hands of competitors.

The 2,000 Shareholder Threshold

With the ascendancy of startup firms in the technology sector in the 1990s and 2000s, the 500 shareholder threshold rule became an issue for swiftly growing companies like Google and Amazon that desired to remain private even as it attracted more private investors. While other factors were supposedly in play in the decision of these well-known giants to go public, the 500 rule was a key consideration, according to market observers.

The threshold was thus increased to 2,000 shareholders in 2012 with the passage of the Jumpstart Our Business Startups (JOBS) Act. Now, a private company is allowed to have up to 1,999 holders of record without the registration requirement of the Exchange Act. The current 2,000-shareholder threshold gives the new generation of super-growth companies a bit more privacy and breathing room before they decide to file for an initial public offering (IPO).

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Amsterdam Stock Exchange (AEX) .AS Definition

Written by admin. Posted in A, Financial Terms Dictionary

Amsterdam Stock Exchange (AEX) .AS Definition

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What Is the Amsterdam Stock Exchange (AEX) .AS?

Founded in 1602, along with the creation of the Dutch East India Company (VOC), the Amsterdam Stock Exchange is considered the oldest, still-functioning stock exchange in the world.

The need for a bank grew with the prevalence of European trade and with the need to offer financiers a way to profit in this commerce. The Dutch East India Company was one of the earliest businesses to compete for the exports from the spice and slave trade. It was a joint-stock company and would offer shares to investors who would bankroll the voyages. Financiers required a safe and regulated place where buy and sell shares of these early global enterprises.

Before the AEX, many regions and towns had independent systems of asset valuation and trade regulation which operated much like stock exchanges, but the AEX was the first official stock exchange as we know it.

24

The number of companies listed on the AEX as of May 7, 2019.

The Basics of the Amsterdam Stock Exchange (AEX) .AS

Over its centuries-long history, the Amsterdam Stock Exchange has gone through several ownership changes and governance structures.

Looking to recent history, in 1997 the Amsterdam Stock Exchange and the European Options Exchange (EOE) merged, and its blue-chip index was renamed AEX for “Amsterdam Exchange.”

In September 2000, the Amsterdam Stock Exchange merged with the Brussels Stock Exchange and the Paris Stock Exchange to form Euronext Amsterdam. Euronext is Europe’s largest cash equities market. For some time fell under the umbrella of NYSE Euronext, which operated several exchanges, including the New York Stock Exchange, the Liffe in London, and NYSE Arca Options. In 2014, Euronext was spun off to become an independent entity once again. As of 2017, Euronext was the sixth largest combined stock exchange by market cap.

The AEX is one of Euronext’s main indexes.

Equity Indexes of the AEX

Euronext Amsterdam’s three broad equity indexes are the blue-chip AEX, mid-cap AMX, and small-cap AScX. By far, the most traded and influential index is the AEX, which began in 1983 and is composed of more than 20 of the most frequently traded Dutch companies which trade on Euronext Amsterdam. These companies include international businesses such as Unilever, ING Group, Philips, and Royal Dutch Shell. It is one of the leading national indices of the stock exchange group Euronext alongside Brussels’ BEL 20, Paris’s CAC 40, and Germany’s DAX.

Key Takeaways

  • The Amsterdam Stock Exchange, founded in 1602, is considered one of the world’s oldest stock exchanges.
  • AEX merged with the Brussels Stock Exchange and the Paris Stock Exchange to form Euronext Amsterdam in 2000.
  • Its three broad equity indexes are the blue-chip AEX, mid-cap AMX, and small-cap AScX.
  • More than 20 of the most frequently traded Dutch companies trade on the exchange.

Real World Example

Review of the composition of the AEX index is done each quarter, with a comprehensive review conducted in March and interim reviews in June, September, and December. Any changes made to the index as a result of these examinations take effect on the third Friday of the month. Before 2008, index changes were made only once annually in March.

The AEX is a market capitalization-weighted index, with initial index weightings of any one company capped at 15%. The index weights are calculated concerning the closing prices of the relevant companies on March 1. During quarterly reviews, weightings after adjustment are left as close as possible to those of the previous day and are not re-capped.

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Auditor: What It Is, 4 Types, and Qualifications

Written by admin. Posted in A, Financial Terms Dictionary

Auditor: What It Is, 4 Types, and Qualifications

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What Is an Auditor?

An auditor is a person authorized to review and verify the accuracy of financial records and ensure that companies comply with tax laws. They protect businesses from fraud, point out discrepancies in accounting methods and, on occasion, work on a consultancy basis, helping organizations to spot ways to boost operational efficiency. Auditors work in various capacities within different industries.

Key Takeaways

  • The main duty of an auditor is to determine whether financial statements follow generally accepted accounting principles (GAAP).
  • The Securities and Exchange Commission (SEC) requires all public companies to conduct regular reviews by external auditors, in compliance with official auditing procedures.
  • There are several different types of auditors, including those hired to work in-house for companies and those who work for an outside audit firm.
  • The final judgment of an audit report can be either qualified or unqualified.

Understanding an Auditor

Auditors assess financial operations and ensure that organizations are run efficiently. They are tasked with tracking cash flow from beginning to end and verifying that an organization’s funds are properly accounted for.

In the case of public companies, the main duty of an auditor is to determine whether financial statements follow generally accepted accounting principles (GAAP). To meet this requirement, auditors inspect accounting data, financial records, and operational aspects of a business and take detailed notes on each step of the process, known as an audit trail.

Once complete, the auditor’s findings are presented in a report that appears as a preface in financial statements. Separate, private reports may also be issued to company management and regulatory authorities as well.

The Securities and Exchange Commission (SEC) demands that the books of all public companies are regularly examined by external, independent auditors, in compliance with official auditing procedures. Official procedures are established by the International Auditing and Assurance Standards Board (IAASB), a committee of the International Federation of Accountants (IFAC).

Unqualified Opinion vs. Qualified Opinion

Auditor reports are usually accompanied by an unqualified opinion. These statements confirm that the company’s financial statements conform to GAAP, without providing judgment or an interpretation.

When an auditor is unable to give an unqualified opinion, they will issue a qualified opinion, a statement suggesting that the information provided is limited in scope and/or the company being audited has not maintained GAAP accounting principles.

Auditors assure potential investors that a company’s finances are in order and accurate, as well as provide a clear picture of a company’s worth to help investors make informed decisions.

Types of Auditors

  • Internal auditors are hired by organizations to provide in-house, independent, and objective evaluations of financial and operational business activities, including corporate governance. They report their findings, including tips on how to better run the business, back to senior management.
  • External auditors usually work in conjunction with government agencies. They are tasked with providing an objective, public opinion concerning the organization’s financial statements and whether they fairly and accurately represent the organization’s financial position.
  • Government auditors maintain and examine records of government agencies and of private businesses or individuals performing activities subject to government regulations or taxation. Auditors employed through the government ensure revenues are received and spent according to laws and regulations. They detect embezzlement and fraud, analyze agency accounting controls, and evaluate risk management.
  • Forensic auditors specialize in crime and are used by law enforcement organizations.

Auditor Qualifications

External auditors working for public accounting firms require a Certified Public Accountant (CPA) license, a professional certification awarded by the American Institute of Certified Public Accountants. In addition to this certification, these auditors also need to obtain state CPA certification. Requirements vary, although most states do demand a CPA designation and two years of professional work experience in public accounting.

Qualifications for internal auditors are less rigorous. Internal auditors are encouraged to get CPA accreditation, although it is not always mandatory. Instead, a bachelor’s degree in subjects such as finance and other business disciplines, together with appropriate experience and skills, are often acceptable.

Special Considerations

Auditors are not responsible for transactions that occur after the date of their reports. Moreover, they are not necessarily required to detect all instances of fraud or financial misrepresentation; that responsibility primarily lies with an organization’s management team.

Audits are mainly designed to determine whether a company’s financial statements are “reasonably stated.” In other words, this means that audits do not always cover enough ground to identify cases of fraud. In short, a clean audit offers no guarantee that an organization’s accounting is completely above board.

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