In the first part of our guide into the world of cryptocurrencies, we discussed what a cryptocurrency actually is, where the concept originates from, and what defines one. Let’s dive a bit deeper into the unique world of digital currencies to get a better understand of what cryptocurrencies really are and what makes them special.
What makes cryptocurrencies revolutionary?
- They are anonymous – Transactions that occur in the crypto-world are not connected to real identities, which means users can send and receive funds without connecting their real name. Instead, users will see a keychain of around 30 characters that represent them. This means that essentially you can analyze transactions, but they can still remain entirely pseudonymous.
- They are secure – since cryptocurrencies following a cryptography system, they are secure from the public. Cryptos utilize a private key that is individual to each user – if you lose this key, you can never access your coins again.
- They are irreversible – unlike in traditional banking, transactions cannot be reversed. Not by the users, not by the miners, not by the government, and not even by the creators of Bitcoin. Once you execute a transaction, it is done.
- They are public – you do need to ask anyone’s permission to use a cryptocurrency. Once you have installed the necessary software, you can use it without anyone’s authorization.
What are the monetary properties of cryptocurrencies?
Cryptocurrencies have a controlled supply, which means there is a limit to how many tokens can exist in total. With Bitcoin, for example, crypto tokens cannot just be created arbitrarily, but instead, they need to be extracted or mined. Bitcoin’s miners have a total of 21 million bitcoins that can be mined in total, and unless the cryptocurrency’s protocol is changed, then there cannot be a larger supply. Based on Satoshi’s schedule code, the total supply of Bitcoins should be released around 2140 – this means that the monetary supply of Bitcoin can be roughly calculated and estimated from now.
Another important aspect is the fact that, unlike fiat currencies, cryptocurrencies to not represent debt. Government-issued currencies, like the USD, for example, are not backed by a physical commodity, but instead, their value is derived from the relationship between supply and demand as well as the stability of issuing government. Bitcoin’s decentralized nature makes sure that you cannot hinder someone from using it or prohibit a transaction from taking place. Nor will it be affected by inflation caused by central government through manipulation.
What are some notable cryptocurrencies out there?
Bitcoin was the first cryptocurrency to ever be created, making it the most popular one out there. It is considered to be the digital gold of cryptocurrencies as it serves as the leader as well as the basis for all other crypto coins. Since its conception, Bitcoin’s value increased by 9,000,000%, and its daily transaction volume is over 200,000 per day. Bitcoin is often associated with cybercrime and darknet markets. However, in reality, most users invest in the token and speculate it for price fluctuations. At the time of writing, 1 BTC is worth $8,734.48, and its current market capitalization is $162,188,075,195.
Ethereum was created by a young Canadian-Russian programmer, Vitalik Buterin, and rests proudly behind Bitcoin in second place in terms of crypto hierarchy. Ethereum itself is a platform that was created to develop decentralized apps and programs, but it also hosts two cryptocurrencies that are used on the platform but also traded on crypto exchanges, called Ether and Ethereum Classic. Ether’s current price is $203.09, while its market capitalization is $22,488,826,392. Ethereum Classic’s price is $6.79, while its market capitalization is $788,374,395.
While Ether does not have a maximum supply, Ethereum Classic’s max supply is 210,700,000 ETC.
Litecoin was amongst the very first cryptocurrencies that followed Bitcoin, which is why it is often nicknamed as digital silver. Litecoin is almost identical to Bitcoin in technical details, but it processes transactions much faster (a block is processed every 2.5 minutes, rather than Bitcoin’s 10 minutes) and has a larger number of tokens in circulation versus Bitcoin. The maximum supply of Litecoin is 84,000,000 LTC.
Litecoin has not seen the best performance in price in recent months. Today one Litecoin is worth $42.89 and its market capitalization is $2,758,180,291.
Ripple is a native cryptocurrency and acts more like a network that processes IOUs versus as a medium to store and exchange value. Unlike Bitcoin and Ethereum, there is no mining in Ripple since all the coins have already been extracted. The maximum supply of Ripple is 100,000,000,000 XRP.
Since Ripple is a network, many banks have joined it in the past, which has immensely increased its value on the market, $0.193347 per coin, while its market cap is $8,529,065,924.
The crypto world is both confusing and enticing for new and old investors alike. While trading cryptocurrencies might be worrisome due to their volatility and tendency to decline unexpectedly, digital currencies cannot be overlooked. Moreover, what is most exciting about cryptocurrencies is the fact that they are essentially the future of finance and are more than likely to replace standard currencies in due time.