Compound is an Ethereum-based project that attempts to provide peer-to-peer lending solutions through decentralized finance applications. An emerging project in the decentralized finance sphere, investing in Compound’s token, COMP, can grant investors early access to governance rights on the network. Learn more about Compound and how it’s used with our guide for beginners.
Brief History of Compound
When most people think of cryptocurrencies like Bitcoin, their minds immediately go to anonymous payment methods. For example, you can send Bitcoin to your friend using the Bitcoin network instead of a centralized payment system. However, financial institutions do much more than only facilitate payments between 2 parties — they also provide checking and savings account services, loans and more.
The decentralized finance (DiFi) sphere intends to use blockchain technology and the Ethereum network to provide a full range of decentralized services that would typically be provided by a bank or other central service. Compound is a lending platform built on the Ethereum network that provides peer-to-peer cryptocurrency loan services. Compound users can lock in collateral and provide loans to other users in exchange for a predetermined interest rate based on market demand. The Compound token (COMP) acts as a governance token that provides owners with voting rights. COMP is an ERC-20 token, and is currently the 42nd largest cryptocurrency project when measured by total market capitalization.
Step 1: Open an Online Account.
Before you can invest in Compound, you’ll typically want to open an account with a cryptocurrency broker. A cryptocurrency broker is a financial service provider that allows you to buy and sell cryptocurrencies using a convenient online trading platform.
The broker that you choose to open an account with will determine the types of cryptocurrencies you can invest in, the order types available to you, any fees you’ll pay for your account maintenance or per trade and more. This makes it important to take some time and compare brokers before you open your account. Browse a few of our top-rated cryptocurrency brokers for beginners below.
Step 2: Buy a Wallet.
After you complete your first cryptocurrency purchase, it’s a good idea to transfer your coins or tokens to a wallet. A crypto wallet is a device or program that provides you with a private address that you can use to store your investments off-exchange. This helps limit your liability in the event of a hack or security breach.
There are 2 types of cryptocurrency wallets that you can choose from: hardware wallets and software wallets. Let’s take a look at some of the advantages and disadvantages that come with both options.
A hardware wallet is a device that connects directly to your phone or desktop computer and allows you to transfer your investments to offline storage. If you’ve ever used a USB drive to transfer files from your computer or an online file storage system to a portable device, you’re likely already familiar with how hardware wallets operate. Hardware wallets are sometimes referred to as “cold storage” options.
Some of the advantages that come with choosing a hardware wallet for your cryptocurrency include:
- Maximum security: Cold storage wallets keep your coins safe offline and don’t need to be connected to the internet. This provides you with the highest possible level of security for your coins and tokens.
- Managing holdings on-the-go: Most hardware wallets include a touch screen that allows you to view and track your cryptocurrencies without connecting to Bluetooth or public Wi-Fi. This means that you can safely manage your holdings securely no matter where you are.
Some of the downsides of hardware wallets include:
- Higher price points: Some hardware wallets can cost nearly $100. If you’re a new investor or you only need to store a small amount of crypto, hardware wallets might present too high of an initial expense.
- Fewer token holdings: Hardware wallets usually hold fewer tokens and coins when compared to software wallets. This can create a problem if you have a diverse portfolio that you want to store on a single device.
Software wallets are desktop or mobile platforms that provide you with a private set of online keys that you can use to store your crypto investments. Unlike hardware wallets, software wallets must always be connected to the internet to access your investments and they are unable to store your cryptocurrency offline. They do, however, provide a flexible and accommodating option for almost every project currently on the market. Some investors refer to software wallets as “hot storage” or “hot wallets.”
Some of the advantages that come with choosing a software wallet include:
- Free storage: Software wallets are free to use, and there are plenty of options available. No matter if you’re looking for an Apple-compatible desktop wallet or a mobile wallet for a Windows phone, there’s a software wallet for you.
- More customization options: Many software wallet projects are open source, which means that developers are constantly updating them to fit the changing needs of the market. This means that software wallets are more likely to provide you with more features, access to decentralized applications and support for more investments.
One of the drawbacks that come with choosing a software wallet includes:
- Less security: While software wallets are less likely to be hacked than exchange wallets, they still cannot provide as much security as a hardware wallet because they must be connected to the internet to access your holdings. If security is your highest priority or you’re a large value crypto investor, you might want to choose a hardware wallet.
Still hunting for the perfect wallet? Consider our top choices below.
Best Hardware Wallet: SecuX W20 Hardware Wallet
The SecuX W20 hardware wallet is an all-inclusive, secure option that you can use to store a wide range of cryptocurrencies. From Bitcoin to Litecoin and from Ethereum to any ERC-20 token, the wallet supports all major investments with military grade security elements. The W20’s full touch screen allows you to view your cryptocurrency investments anywhere without connecting to an unsecure internet connection, and a beginner-friendly setup means that it’s ideal for those investing in their first wallet.
Best Software Wallet: MyEtherWallet
The original wallet created for Ethereum, MyEtherWallet has expanded to support all ERC-20 tokens. MyEtherWallet is a desktop and mobile application that’s compatible with almost any device. To connect to the desktop version, use its app to scan a custom QR code. This creates a local connection that allows you to access your tokens securely. If you move too far away from the desktop, MyEtherWallet will automatically disconnect from your wallet to ensure that no one else can access or view your tokens when you aren’t nearby. With a quick setup and a wealth of unique tech features, MyEtherWallet is the ideal software wallet for new investors and professionals alike.
Step 3: Make your Purchase.
After your account has been set up and you know how you want to store your tokens, open your brokerage platform and place a buy order for Compound. Depending on your broker, you may be able to purchase cryptocurrency using a bank transfer, credit card or through a payment service like PayPal. After placing your order, you can sit back and relax — your broker will finish filling your order according to your specification as soon as possible.
Buying and selling Compound isn’t the only way to use the Compound network to earn a return on your investment. The protocol currently offers lending and interest services across 9 cryptocurrency projects. There are currently more than $14 billion worth of crypto assets on the Compound network earning interest, with development plans in place to roll out additional options. These developments could cause the value of the Compound token to increase in the coming years.
Trade or Sell Your Cryptocurrency
If you do decide to hold onto your Compound governance tokens in the long-term, you’ll want to transfer your investment to your wallet as soon as possible to prevent the possibility of a hack. Both software and hardware options will allow you to track the value of your Compound investment over time, and you can transfer your tokens back to your exchange wallet when you decide to take profits.
You can also earn a return on your investment by capitalizing on short-term price movements within the crypto market. Cryptocurrencies like Compound show a higher level of volatility when compared to assets like blue cap stocks and bonds, which means that you can buy and sell your investment when it’s advantageous to you. If you decide to actively trade your Compound tokens, consider creating a brokerage account with a few of our favorite low-cost selections below.
Current Crypto Prices
The cryptocurrency market is fast-paced, and the value of your Compound tokens can change on a minute-to-minute basis. Understanding how the cryptocurrency market is changing today can help you plan your trading strategy. Browse a few of the market’s biggest movers today using the chart below.
Adding COMP to Your Crypto Portfolio
Compound can make an excellent addition to any cryptocurrency portfolio, especially if you intend to hold the governance token for a long period and use your voting rights. Before you invest in Compound, you might want to stake another cryptocurrency using the application to get a feel for current interest rates and compatible tokens. This will allow you to learn more about Compound while also earning interest on your cryptocurrency investment.
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