When people get onto a roller-coaster, they can expect a few ups and downs, twists and turns, and maybe a spin or two. This is not dissimilar from today’s cryptocurrency market, which has bounced around so much that traders have been left with a queasy stomach of their own. Within the space of three weeks in January, Bitcoin, the world’s largest cryptocurrency lost nearly half of its value, sparking concern of a wider price slump in the crypto-market. The lingering fear among traders however, like the roller-coaster rider, is that it does not end with a crash.
It would take a brave soul to wade into cryptocurrency market at the moment, but for those wishing to chance their hand, KCW Today has compiled a guide to four major cryptocurrencies in circulation today:
By far and away the largest cryptocurrency, Bitcoin accounts for over half the value of all cryptocurrencies in circulation. With a market capitalisation of (at the time of writing) nearly $200 billion, Bitcoin is worth more than double of the next largest cryptocurrency, Ethereum. In August 2017, Bitcoin underwent a split, known as a ‘fork’ and its offshoot, Bitcoin Cash, is technically the second largest cryptocurrency. Bitcoin was the first cryptocurrency to adopt the radical blockchain technology, which is a decentralised database that stores a registry of assets and transactions across a peer-to-peer network. In order to prevent the digital currency’s devaluation, there is a finite supply of 21,000,000 coins in circulation.
- Pros: 1. Low fees: there are very low or zero transaction costs for BTC users.
- 2. Relatively low merchant risk: BTC transactions do not require any personal information and they cannot be reversed, which protects buyers and sellers from potential losses.
- 3. Information transparency: all completed transactions are available for everyone to see and transactions can be verified at any time.
- Cons: 1.Lack of awareness and understanding: perhaps the most significant problem for new users. It is a problem that is especially pertinent to Bitcoin users due to its popularity.
- 2. Volatility: Bitcoin has endured at least seven major crashes (losing more than 40% of its value) since its inception.
Described as the silver to Bitcoin’s gold, Ether is the currency used by the Ethereum platform with a market cap of approximately $70 billion. Although Ethereum coins are distributed on a public blockchain network, it differs from Bitcoin in terms of capability and purpose. All blockchains are able to process code, but Ethereum offers a great deal more freedom for its developers who can build tens of thousands of applications. In mid-2015, Ethereum also underwent a ‘fork’ that created its own offshoot: Ethereum Classic.
Pros: 1. Strong immune system: third parties cannot make any changes to data.
- Hack-proof. The algorithm that coders use to mine Ether token known as ‘proof of work’ has been effective in preventing hacker attacks.
- Short transaction times: BTC transactions can often take days to verify whereas ETH verification can occur in under a minute.
Cons: 1. Constant upgrading: upgrading can disrupt trading.
- It is prone to bugs: Ether only joined the crypto-market in 2015 and in cases of big transactions, bugs can make it risky.
Over the past two months, there have been violent fluctuations in the price of Ripple. On January 4, it lost 78% of its value, dropping from £106 billion to £24 billion. It has since regained nearly a quarter of its value following a £18 billion spike in the space of just twelve hours. Ripple is unique because it is less a currency than a means to back a money transfer. For this reason, it is far more integrated with banks and financial institutions. Ripple tokens are also under the tight control of the company, which owns around 60% of the entire currency.
Pros: 1 Enables cross-border bank transfers: remittances are therefore far cheaper.
2 Low transaction fees.
Cons: 1 Viewed as the ‘anti-cryptocurrency’: for the crypto-puritans, Ripple’s
centralised control and close relationships to banks makes it less appealing.
2 Low anonymity: another consequence of XRP’s centralised nature means that more third parties can access personal information.
Litecoin is touted by market observers as the cryptocurrency with the brightest future. It is considered to be hugely undervalued because it is, in essence, a more efficient and streamlined version of Bitcoin. It is not a classic altcoin per se because it does not provide any new idea or service. It is better to consider it as a fine-tuning of the services essential to Bitcoin. Unlike BTC, Litecoin has nearly quadruple the number of coins as Bitcoin in circulation (84 million), which means that it will be easier for Litecoin to meet increasing demand.
Pros: 1) Faster block generation: it only takes Litecoin 2.5 minutes to generate a block compared to 10 minutes for Bitcoin.
2) Environmentally sustainable. This may seem like a strange advantage, but Bitcoin mining consumes vast amounts of electrical power. Litecoin’s mining algorithms are much simpler than BTC’s and therefore do not require computers that are as powerful. For reference, Bitcoin’s estimated carbon footprint could have powered over 3,000,000 US households last year.
Cons: 1) The user is responsible for the safety of their own purse: if a user’s wallet file is lost, there is no reimbursement. It is like a traditional wallet in this sense 2) Less liquid: unlike BTC, it has not had the same level of adoption by users and businesses.