There are three terms that you have most probably heard of, and have doubtless seen them used interchangeably.
Digital Currencies
Digital currency is the umbrella term describing digital money used on the internet, unlimited by political or geographical borders. They may not have a physical equivalent like banknotes and coins but possess all the characteristics of money. You can own, transfer and exchange them like fiat currency and use them to pay for goods and services.
Virtual Currency
Virtual currency refers to any money that isn’t stamped into metal or printed on paper; they only exist in the virtual world but can potentially represent fiat currency. They are accepted and used within a specific virtual community. Every virtual currency is digital, but some digital currencies aren’t virtual. Virtual currency represents a monetary value that’s distributed, managed and controlled by private issuers for peer-to-peer transactions. They exist as tokens, but unlike fiat currency, they’re almost always unregulated and are not issued by banks. Bitcoin and Ethereum are the best examples of virtual currencies.
Cryptocurrency
Cryptocurrencies like Bitcoin and Ethereum are a form of digital currencies. Unlike fiat currencies, they operate without central banks or intermediaries between the parties. Cryptocurrencies are a reliable, secure and authentic means of exchange based on cryptography. The technology creates and analyzes protocols and algorithms so that the information can neither be changed nor interrupted by third parties. By using blockchain and a decentralized ledger, cryptocurrencies are not controlled by third parties.
You have heard about Bitcoin, its technology, utility, and people’s interest in it, but it’s not the only cryptocurrency. Several other cryptocurrencies use different technologies, having different approaches as digital currencies. Our guide will describe the most popular cryptocurrencies and pinpoint their unique characteristics.
Cryptocurrencies didn’t just emerge to become a formidable force in the realm of personal finance and technology. Significant events and signposts surround this invention with the potential to shake the world.
The dream for developing digital money started in the 1980s, with ideas such as bit-gold and e-cash. The early innovators didn’t go far, but they laid the foundation for the creation of cryptocurrencies as we know them. The pioneer forms of cryptocurrencies were meant to create verifiable anonymous payment systems over an extensive network through a cryptographic process. The one that caught the public eye the most was issued in 2008.
Satoshi Nakamoto, whose identity remains mysterious, wrote a white paper titled “Bitcoin: A Peer-to-Peer Electronic Cash System” in 2008. Nakamoto’s identity remains top secret material. All investigative efforts to uncover this person or group of people have failed. Nakamoto sent a friend an amount of Bitcoin in 2009, heralding the birth of the world’s first cryptocurrency.
Cryptocurrency transactions happen between peers through software called cryptocurrency wallets. You use the wallet software to transfer the required amount from one account (a public address) to another. You must have the password (private key) of the account to facilitate a transfer. The P2P transactions are encrypted and broadcast on the cryptocurrency’s network before they are queued up and added to their public ledger, known as the blockchain.
Cryptocurrency transactions are recorded on the public ledger through a process called cryptocurrency mining. All transaction amounts are public, but the sender’s identity is encrypted.
All transactions lead to a unique set of keys. Similar to a bank account owner, the person who owns the set of keys owns all the cryptocurrencies associated with those keys. Several transactions get added to the ledger at once. Cryptocurrency miners add these blocks of transactions sequentially. This is the reason the ledger and the technology that it is built on are called “block” “chain” – referring to a chain of transactions.
Bitcoin
Often referred to as the ‘Coca Cola’ or ‘Kleenex’ of the crypto world, Bitcoin is the oldest, most reliable and most recognizable cryptocurrency. It is the topic of mainstream media and almost synonymous with crypto.
Pros
Bitcoin enables you to send or receive cash anywhere 24/7, without fees limitations. There’s no controlling authority so you’re in charge of your money. Bitcoin is easily convertible into cash and acceptable by merchants.
Cons
Bitcoin and cryptocurrencies are still in their infancy, meaning there’s still little knowledge about them. The limited amount of Bitcoin and the increasing daily demand contribute to Bitcoin’s volatility. Some people still associate it with the underworld and cybercrime.
Altcoins
Alternative coins (Altcoins) are any cryptocurrency coins that are not Bitcoin. Some of them were created with the intention to replace Bitcoin, but others have completely different scopes from Bitcoin.
Pros
They are an alternative to Bitcoin with some performing unique functions. For instance, Po.et (POE) enables content creators and publishers to manage to license easily. Others like ETH or XRP introduce a larger scope than Bitcoin and are widely adopted for use in many industries
Cons
Apart from XRP, Ethereum and Bitcoin Cash, altcoins lack exposure and acceptance. Only a few outlets accept them.
Ethereum
Ethereum is the go-to blockchain for smart contracts and distributed applications (Dapps) developers. Its crypto token ETH may be low in value, but Ethereum’s reputation remains mostly intact as it operates without downtime, third-party interference, or fraud.
Pros
Ethereum leads in tokenization and functionalities, making it useful in areas like gaming and prediction. The United States’ SEC doesn’t consider its security, meaning it doesn’t respond to regulatory obligations. It has excellent potential and is faster than Bitcoin.
Cons
Emerging competition, like NEO, which is referred to as the Ethereum Killer, is negatively affecting Ethereum by taking advantage of its flaws.
Ripple
Comparable to SWIFT, Ripple provides real-time and instant cross-border payments and transfers at low costs. The “banker’s coin,” doesn’t require mining like the other cryptocurrencies. This reduces the use of computing power and minimizing network latency.
Pros
Ripple’s xRapid protocol facilitates fast transactions that are 40 to 70 per cent cheaper than the competition. Central banks are incorporating XRP into their systems proving its utility. It’s not subject to multiple checks like other cryptos and can be converted to many currencies.
Cons
Ripple is centralized, therefore going against the very thing cryptocurrencies were created to avoid. Ripple’s developers choose when to release or not release tokens.
Litecoin
Litecoin, the first altcoin, was part of Bitcoin until it split. Litecoin was created to improve on some failings of Bitcoin. It was the first cryptocurrency to pioneer the Lightning Network, which strives to solve challenges like scalability. Litecoin processes a block in 2.5 minutes compared to Bitcoin’s 10 minutes.
Pros
Using the Lightning Network makes Litecoin is faster, facilitating cheaper transactions between parties. Users can transact directly without broadcasting their business to all and sundry. The low transaction costs make the currency works better for micropayments.
Cons
Litecoin’s primary advantage that was a faster block time has become arbitrary over time. Newer cryptocurrencies could emerge with faster block times.
Tether
Tether is pegged 1:1 to EUR and USD and aims to have an exact digital cryptographic value of fiat currency. The Tether token’s features include a decentralized way of storing and processing data. By being pegged to real-world fiat currencies, Tether has remained more stable than other cryptos.
Pros
Traders and investors consider Tether more reliable due to its being tied to fiat currencies. You can use it to transfer cash at almost zero transaction fees. The token is easily integrated with other cryptocurrencies, and you can withdraw in fiat currency.
Cons
The Tether wallet has a cumbersome identity verification process. Unlike other cryptocurrencies, Tether lacks anonymity, an essential feature for cryptocurrencies. The price of the US dollar affects the price of Tether.
Security
The value of cryptocurrency is secured by encryption. No one can change the particular code without fulfilling specific conditions. A sender of a crypto-asset possesses a private key that miners must work out like a puzzle before a transaction is confirmed.
Legitimacy
Cryptocurrency trade draws its authenticity from the harmonious agreement between participants. Several leading banks have endorsed the use of Bitcoin as a form of payment and given up tight controls on cryptocurrency-based transactions. As world trade becomes mostly online, there are higher chances that Bitcoin investors will soon start seeing huge profits.
Lower Transaction Fees
Crypto transactions don’t attract any fees. The miners who solve the sender’s private keys get rewarded from the network. This makes crypto-based transactions cheaper for the investor.
Individual Ownership
Credit card systems, bank accounts, deposits, and transfers all mean that you are handing over your hard-earned money to a third-party service. With cryptocurrency, you are the one and only owner of your digital assets, and unless you hand over your wallet keys to someone else, no one can exercise control over your savings.
Cybersecurity
The rate of technological development is so high that there’s always the possibility of compromise. Hackers are always lurking online to try and breach the security afforded by encryption of cryptocurrencies. While cyber attacks are not very common, they’re not as rare as you might think.
Virtual
Cryptocurrencies exist in the virtual world; there is no central place you can deposit them like coins and banknotes for safekeeping. This can become disastrous as the system can crash, and you lose everything. The lack of inherent value is a factor in crypto price unpredictability. This also ties in with the problem of cyber-hacking.
Lack of Regulation
Lack of regulation by central banks is a double-edged sword. Its absence means it exists without any supervision or control. This could attract hordes of traders who show interest in the technology. Such massive traffic can slow down the network.
Speed
The amount of time it takes to complete a crypto-based transaction is slightly longer than conventional methods like VISA. Many participants within the network cause this. Other parties must acknowledge the payment, making the process a little bit longer.
Bitcoin and cryptocurrency have transformed the financial world since their inception in 2010. Initially, crypto-assets developed a covert following of investors keen on taking advantage of a potential replacement of the fiat monetary system. All this time, traditional institutional players curiously adopted a wait-and-see policy.
There was a spike in the ascension and adoption of cryptocurrencies before the 2017 price surge that saw Bitcoin swell to nearly $20,000. The value steadily declined to $3,500 in 2018 before rising to over $10,000 in 2019. Bitcoin’s value is still being reasonably volatile; the value at the time of writing is $5,900.
We may still be many years away from a complete transition. The meteoric rise and subsequent fall have seen potential investors shy away from investing in cryptocurrencies. However, institutional interest and seeming stability in Bitcoin’s value has again caught the interest of many would-be investors.
The crypto market previously matured minus regulatory and oversight controls. Government and institutional interest have seen more institutional dollars pouring into the crypto sphere as people seek ways to reduce potential risks and enhancing their ROI. It is the perfect time to get in and avoid being left behind the curve.
There no simple or straightforward answer to the question of whether you should invest in cryptocurrency. The problem goes beyond whether you should invest to include how you should invest. As far as cryptocurrency is concerned, if you can’t beat them, consider joining them.
Cryptocurrency and the blockchain underlying technology are in their infancy. All indications are they are here to stay. Both are likely to play a role in investors’ lives. The secret is in educating yourself; use our guides to learn more about crypto-assets, their effect, advantages, and disadvantages.
Once you have acquired sufficient knowledge, you must make the final decision. Remember to start small and continue learning as you go. Don’t get discouraged if you make some mistakes since everyone does. Consult widely, read a lot, but don’t follow advice blindly. Only invest as much as you don’t mind losing.
Binance Coin (BNB)
Bitcoin (BTC)
Bitcoin Cash (BCH)
Cardano (ADA)
EOS (EOS)
Ethereum (ETH)