Which crypto should I buy? Cryptocurrencies compared
Cryptocurrencies are virtual currencies which can be exchanged, speculated on and spent in pretty much the same was as physical currencies. The first ever decentralised cryptocurrency is Bitcoin (BTC), which launched in 2009 and since then, thousands of cryptocurrencies have launched.
Some of the newer cryptos sank without making much of an impression, but others have stood the test of time. Before you get into investing, however, you need to compare cryptocurrencies to see which one you feel most comfortable with. Bitcoin is the market leader, but it has potential challengers that you need to look at.
What is Bitcoin, or BTC?
Bitcoin is the biggest crypto in terms of market capitalisation. It was created by a still – unidentified person or group known only as Satoshi Nakamoto.
BTC aimed to get rid of the need for a trusted third–party for anonymous and secure peer–to–peer transactions.
The advantages of Bitcoin are that it’s the best–known and more trusted crypto.
The disadvantages are that it has slow transaction speeds – a maximum of seven per second – and miners need specialist equipment.
What is Bitcoin cash, or BCH?
BCH is a standalone currency that came about from Bitcoin’s “hard fork” in August 2017. The slowdown in BTC transaction speeds and problems with upgrades led to this movement.
BCH’s maximum block size is 8mb, compared to BTC’s 1mb, which means it can process more transactions that BTC – 60 per second.
While BCH has the advantage of faster transactions, you’ll still need specialist equipment to mine it.
What is Ripple, or XRP?
Ripple is a slightly different animal to other cryptos. It underpins a network known as RippleNet which is used by worldwide financial institutions and banks like American Express and Santander. It works in a different way to the others, and some people believe it’s not a truly decentralised crypto as a result.
Ripple has the benefit of very fast transactions – 1,500 per second – but there have been serious concerns over its security.
What is Ether, or ETH?
This currency is on the Ethereum network and users can code and release their own decentralised applications, or dapps, with smart contracts that enforce their clauses. As transactions are processed, small amounts of ether get destroyed, which prevents hackers from entering and spamming the network.
Ether has fast transaction speeds (20 per second), but its supply is uncapped, meaning it could be prone to inflation. Bitcoin and Bitcoin Lite, for example, are capped at 21 million coins each.
What is Litecoin, or LTC?
Litecoin has four times the number of coins as Bitcoin – 84 million – and there are also some big technological differences between the two currencies.
LTC has fast transaction speeds – 56 per second – but it hasn’t cornered much of the market, especially when compared to BTC.
What is NEO?
NEO is the name of both the cryptocurrency and the network it runs on. This network is like Ethereum in that it enables users to create decentralised apps and smart contracts. However, what sets NEO apart is that its network is currently tightly controlled by ‘NEO Team’, who require users to have a verifiable identity on the network.
These features give NEO the big advantage of being compliant with regulations in many jurisdictions, but in some people’s eyes it’s not really decentralised.
Do the differences between all the cryptocurrencies actually matter to traders?
Yes, the various differences do matter to traders because each crypto’s features offer important clues as to the changes in supply and demand in the short and long term. This in turn has an effect of crypto prices and on how they’re traded.
What about the circulating supply and upper limit?
The supply of coins also has an important effect on the setting of market prices. In general, the scarcer the coin, the higher the value.
Bitcoin has an upper limit of 21 million coins, whereas Lite coin and Ripple have upper limits of 84 million and 100 billion. Once all the coins are mined, their value will be deflationary. Coins with no upper limits, like Ether, can become inflationary if enough is lost or “burned”.
Cryptocurrency mining and release rates
Another factor in the crypto outlook is the way the supply of coins changes as either more are mined or more are released. Mining is the process, or series of calculations, which verifies blocks of transactions, which in turn releases more coins.
At the moment, Bitcoin is mined at the rate of 12.5 coins for each verified block, and this payout, or reward, halves every four years or so. It’s believed that the final Bitcoins will be mined in 2140 or thereabouts. Alternatively, Ripple coins were pre-mined by the currency founders and are released by a billion a month.
Cryptocurrency demand and reputation
Bitcoin isn’t as flexible as some of the newer kids on the block(chain), but its value just carries on soaring and it’s the biggest crypto by market share by far. This tells us that stability, trustworthiness and reputation counts for a lot when it comes to valuation.
The news on this crypto also has a big effect, with any negative events being reported in the press having a dampening effect on prices.
Decentralised applications for cryptocurrencies
Bitcoin, Litecoin and Bitcoin Cash are all standalone cryptos, whereas Ether and Ripple are connected to wider networks with more real – world applications and uses. If these networks gain popularity and a mainstream market foothold, then the demand for them will rocket.
The transaction speeds and scalability of cryptos
As cryptocurrencies become more mainstream, people are going to be more concerned about transaction speeds and volumes. Traders and users are also going to want to know about scalability, which is influenced by the security of the network and also the blockchain size. Slower transactions and less security are going to dampen uptake, whereas faster transactions and high security will encourage people to invest.
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