Bitcoin was the forerunner of all the cryptocurrencies, and remains the most popular option for those looking to invest in this alternative form of currency. Bitcoin has almost reached its market limit of coins (set at 21 million) and it is the hardest to mine – with arrays of computers and a huge amount of processing needed. It has recently come under fire for the negative impact on the environment through energy use. Bitcoin has rocketed in value – coins that were given away for small actions online are now worth tens of thousands of dollars – and it remains the biggest cryptocurrency in terms of market share available.
Bitcoin Cash was created following a hard fork from Bitcoin in 2017. Although almost everything about the structure and format of Bitcoin Cash is the same as Bitcoin, the difference (and the reason for the hard fork) is the block size. Bitcoin has a 1MB block, where Bitcoin Cash has 5MB – enabling it to manage more transactions.
Ethereum is a very important blockchain for app developers and those who are interested in a completely decentralized world – featuring smart contracts and special decentralized apps. Ether is the name of the token created for use on the Ethereum blockchain, and it started as a token just for use within Ethereum. However, the unlimited number of tokens and the application of ether for use in smart contracts and as a tradable commodity has made it a popular option. The ether source code is freely available, and in fact it is the basis for a large number of new altcoins and initial coin offerings (ICOs).
With a total number of tokens set at 200 million, the Binance Coin was originally designed in 2017 as a payment token to be used for discounted trading fees when using the Binance platform. As an established altcoin, Binance Coin has a high market value and is relatively steady in comparison to the volatility of some other cryptocurrencies. Every quarter, Binance buys back coins and ‘burns’ them, destroying a portion so the value (and scarcity) grows, driving demand.
Litecoin is based on the Bitcoin source code and was created in 2011 by Charlie Lee, a former Google employee and MIT graduate. Litecoin was specifically designed to be less bulky than Bitcoin, so that transactions can be completed faster.
Cardano was founded by Charles Hoskinson, one of the Ethereum founders, as a complete financial operating system. It has been described as the ‘Ethereum Killer’ because it is based on the same blockchain, but with loftier values. Cardano relies on a Proof of Stake (PoS) consensus, which is a newer way for transactions to be validated than the usual Proof of Work (PoW).
Tether is what is known as a stablecoin. These cryptocurrencies have a value that is tied to a physical asset – and in this case, it is ‘tethered’ to the US dollar. It was launched in 2014, and one Tether coin is worth $1. This connection makes Tether much less volatile than other cryptocurrencies, and with no cap on the amount of Tether coins available, it could be considered a ‘safer’ option for investors.
Ripple is the creator of the XRP coin. This coin is mainly used to facilitate the scaling of digital payments worldwide using the RippleNet digital payment platform. XRP is different from other cryptocurrencies because it cannot be mined, and the transactions are not verified through the blockchain, but they are faster and cheaper than using Bitcoin when put through the RippleNet platform.
Using the Bitcoin source code, Dogecoin was created as a joke mocking the principles of cryptocurrency in 2013 by Billy Markus and Jackson Palmer. Known as the first ‘memecoin’, Dogecoin is recognizable by the Shiba Inu mascot that was a popular theme in the memes of the time. Dogecoin has had a very volatile pricing history, but thanks to the seeming support of big-time entrepreneur Elon Musk, Dogecoin is one of the biggest cryptocurrencies in the market.
Created in 2014 by Jed McCaleb (one of the founders of Ripple), Stellar is a start-up financial services platform that was created to make fast, cheap transactions the norm. It uses a cryptocurrency called Lumens to fund it and also support the blockchain that makes the transactions possible. Stellar and Lumens were created in collaboration with other financial businesses like Stripe.
The Polkadot cryptocurrency was co-founded by a man named Gavin Wood, who was also a co-founder of Ethereum. Although Polkadot was only founded in 2020, it has become popular thanks to the technology and vision of the business. Polkadot runs two blockchains – a ‘relay’ chain that makes all the transactions permanent and a user-created ‘parachain’ that can be customized to create decentralized apps, for example. This tech, alongside an aim to reduce problems with interoperability between blockchains, is something that investors are interested in.
Designed to be an alternative form of currency, with no government oversight, no ties to any physical asset and security based on cryptography provided by blockchain technology, Bitcoin was the only option until 2011, when other alternative coins started to become available. In the spirit of competition – and often to improve on the original Bitcoin technology – different cryptocurrencies have sprung up in the last 10 years. The very nature of the decentralized digital currencies and the blockchains they are based on means that all the details needed to create another altcoin is freely available as open-source code. The number of available cryptocurrencies is therefore constantly growing – but deciding which to buy can be a difficult decision. Cryptocurrencies are often described as an alternative form of currency that does not rely on tangible assets for value. As a virtual currency, it can work across borders without government manipulation or concerns about fluctuating prices of things like gold (unlike fiat currency). With the availability of source code for existing altcoins, as well as different blockchain options, it is straightforward for a developer to use one altcoin as a basis for creating another – like Litecoin. However, new cryptocurrencies can also be made during what is known as a hard fork – where disagreements between developers lead to a new currency being created, often using the same technology but with some important distinctions, like Bitcoin and Bitcoin Cash.
What Do People Use Cryptocurrencies For?
Although the original cryptocurrency was designed as a digital, decentralized replacement for traditional (fiat) currency, people use altcoins and tokens for any number of reasons.
Investment
As an exciting and relatively new way to invest, cryptocurrency offers traders opportunities to create both long- and short-term investments. A large number of cryptocurrencies are available to trade on many markets, and with high volatility as one of the main features of this digital money, crypto is perfect for day traders and those with a long-term plan. Investing in cryptocurrency is not really any riskier than investing in other assets. As part of a varied portfolio, it can be a lucrative way to make profits.
Currency
As the world opens up to the idea of digital currency, using altcoins to complete everyday transactions just got a whole lot easier. Following the Bitcoin promise of currency without governance, more and more businesses are accepting cryptocurrency as payment, for products as diverse as luxury vehicles, watches, yachts, home furnishings, clothes and even charitable donations. This is not just limited to online retailers; some popular brick-and-mortar stores are also accepting digital currency.
Infrastructure/Service
Some cryptocurrencies are described as ’tokens’, rather than coins. This relates to their role in ensuring that the blockchain structure and systems work efficiently. Tokens refer to cryptocurrency that is designed to be used on a specific blockchain or application to help support the infrastructure by providing a method of payment. These tokens can be used to buy smart contracts, pay for decentralized apps or even buy storage in the cloud.
Financial
As part of the drive to a completely decentralized currency, some cryptocurrency has been devised to replace some standard banking services such as loans. These can also be used to manage and exchange other cryptocurrency assets in the same way that an exchange does.
Media and Entertainment
Some tokens, like BATs (basic attention tokens) are received by users as a reward for consuming content, playing games, gambling or using social media. These can be used to pay for advertising or trade for other digital currencies. The list above includes some of the more popular altcoins available, but when it comes to making your investment decisions, there are a few things you should consider. The list below serves as a brief checklist of things to look for and think about when researching where you want to put your fiat currency, whether you are looking for cryptocurrency to make payments with or for a way to diversify your investment portfolio.
Popularity
Investment shouldn’t be a popularity contest, but when it comes to cryptocurrency, you want to know which altcoins are popular because they are more likely to increase in value. The more people interested in investing, the higher the price can rise – which is great for investors. You will have heard of certain coins, even in mainstream news, thanks to mentions by public figures (notably Elon Musk, who initially supported Bitcoin before withdrawing that support due to environmental concerns and has seemingly backed Dogecoin). Platforms wuch as Reddit can help demonstrate the popularity of alternative currency options. On Reddit there are several threads discussing the virtues and pitfalls of various crypto offerings.
Tech
Blockchain is not going anywhere, and choosing an altcoin based on what the blockchain can do might be a way for you to decide. Not all blockchains are created equal, and while Ethereum is known for disruptive decentralization, the original Bitcoin blockchain remains the most secure. You might also want to look at the way that transactions are verified. Proof of work (PoW) is fast becoming outdated and replaced with the less energy-intensive Proof of stake (PoS). The tech element might influence the coin or token that you choose, too. If you want to be able to work on the Ethereum blockchain, you will need ether. If you are looking for a cryptocurrency that you can use instead of fiat cash, there are more options available.
Fundamental Analysis
This is not as advanced as it might sound, and can be a really good way to learn more about a company and the coin they are offering. Fundamental analysis is really just learning about the coin, its history and who created it, so you know more about what you are investing in. There are a few things to think about:
Who founded it, and when? What are the strengths (and weaknesses) of the offering? What are the plans for development? Does the business have a strong vision and values that you agree with?
You can often find this information in a white paper, although there will often be more information than you need.
Price History
Judging an altcoin by previous history and performance is an inexact science but is often a good way to gauge how it might perform in the future, and whether interest in it is increasing. You can find this information on the cryptocurrency exchanges quite easily.
Level of Risk
This is a personal decision, based on what you want your portfolio to consist of. Cryptocurrency is still seen as a riskier type of investment than stocks, shares or even forex. However, when managed alongside less risky instruments, it can be a great tool. Even within cryptocurrency, you can take steps to reduce your risk, such as choosing a stablecoin or one that is tied to a physical asset instead of the famously volatile big names like Bitcoin and Dogecoin. Only you can decide on the level of risk you are willing to take with your investments.
Final Thoughts
With so many altcoins available – and more coming almost every day – choosing the right coin or token to invest in can be a difficult choice, but asking the right questions and doing your research will help you make a more informed decision. Whatever coins you invest in, for whatever reason, always make sure that you treat cryptocurrency like any other type of investment. Only spend what you can afford to lose and remain rational and unemotional if and when you decide to trade. WikiJob does not provide tax, investment or financial services and advice. The information is being presented without consideration of the investment objectives, risk tolerance or financial circumstances of any specific investor and might not be suitable for all investors. Past performance is not indicative of future results. Investing involves risk including the possible loss of principal.
