Brought to you by the Liquid team to help you make sense of crypto.
There are more than 1,500 different cryptocurrencies today. Just a quick look at coinmarketcap.com shows a huge variety of different coins we can buy.
With so many different coins, we can’t expect all of them to be legitimate and successful investments. The most legitimate cryptocurrencies tend to be the most popular ones, as they have gained acceptance from the wider crypto community.
The best metric to determine the popularity of a cryptocurrency coin is to look at the market capitalization, or market cap for short. This is a term used with both cryptocurrencies and traditional businesses listed on stock exchanges. In the cryptocurrency space, market cap measures the total amount of money invested in a specific coin. As more people buy a particular coin, the more that coin’s market cap will increase. Thus, as market cap goes up, the more popular that coin becomes. In this article we're going to take a look at some of the most popular cryptocurrencies today. All of these cryptocurrencies can be traded on Liquid.
Bitcoin has existed since 2008 and it is by far the most popular cryptocurrency. It currently accounts for almost 50% of the entire value of the cryptocurrency market, although this value has become more volatile since 2017.
Bitcoin’s original purpose was to act as a digital currency for online payments. However, the growing demand for Bitcoin has left the network unable to handle the large number of transactions quickly enough to act as a viable payment solution. As other cryptocurrencies can offer much more efficient transaction speeds, Bitcoin is beginning to play the role of a digital form of gold.
In this position, Bitcoin provides storage of value and acts as the standard coin for trading with other cryptocurrencies.
The Ethereum network is built around the use of smart contracts. In general, contracts are agreements between parties that are enforceable in some way. A contract between an employer and an employee, for example, is enforced by laws. Smart contracts, however, are enforced through cryptographic code. This code executes certain actions when predefined conditions are fulfilled. There is a seemingly endless list of use-cases for smart contracts on Ethereum’s network. For example, a smart contract can be set up so that funds for a project are only spent when a specified number of participants agree with how those funds will be used. It is worth noting that Bitcoin supports a limited version of smart contracts where the contracts limit support to only processing transactions.
With Ethereum’s smart contracts, it is possible to code a contract to fulfil any purpose. The ability to create custom code on the Ethereum network is why we see so many ICOs launching through it. Ethereum also enables the ability to create decentralized applications (DApps) such as CryptoKitties on the network.
To understand XRP, we have to take a look at two different entities: Ripple Labs and the XRP Ledger. Ripple Labs is a privately held company that created the XRP Ledger to facilitate international payments through faster payment settlements and lower transaction fees. Their core business is focused on providing value for financial institutions rather than for individuals. The XRP Ledger is the public blockchain where the XRP token is used. Ripple Labs is utilizing the XRP token as a source of liquidity for its network called RippleNet. RippleNet provides financial institutions access to currency exchange services and the ability to move currency between different partners on the network.
While the XRP Ledger is decentralized, Ripple Labs owns more than half of the total supply of XRP. To reduce the uncertainty of a centralized company controlling such a large share of a decentralized cryptocurrency, Ripple Labs has locked up most of their supply in escrows. But the success of Ripple Labs does not rely completely on the adoption of the XRP token. RippleNet allows movement and exchange of any currency, so banks can still take advantage of Ripple’s technology without using XRP. With that said, MoneyGram and Santander have both partnered with Ripple to use XRP on RippleNet.
Bitcoin Cash (BCH)
As we mentioned previously, Bitcoin was originally intended to be an electronic payment solution before the network became too slow to handle rising demand. Bitcoin Cash aimed to restore this functionality through a hard fork of the Bitcoin network in 2017. Thus, Bitcoin Cash is said by some to be closer to the original vision for Bitcoin. While Bitcoin can only process 7 transactions per second (tps), Bitcoin Cash handles up to 61 tps. The result is a network that is faster and cheaper to use than the Bitcoin network.
Stellar is a hard fork of Ripple, so both cryptocurrencies are targeting international payments. While Ripple is only targeting financial institutions, Stellar is looking at how everyday people and organizations can transfer money internationally in a cheap and efficient way. Stellar is aiming to provide banking services without need for a bank. Other than this, Stellar and Ripple are very similar as both tokens act as intermediary currencies to facilitate cross-border transactions.
Litecoin was founded in 2011 as a decentralized digital payment coin. It’s able to process 56 tps, offering a significant increase in network capacity over Bitcoin. This translates to lower transaction fees on the network. Litecoin mainly competed with Bitcoin until 2017, when Bitcoin Cash was created. Now Litecoin is competing with Bitcoin Cash, focusing only on peer-to-peer payments. Litecoin processes fewer transactions per second than Bitcoin Cash. But it does hold the first-mover advantage over BCH, keeping it as a well-established and popular cryptocurrency.
Many cryptocurrencies are not private, meaning anyone can see what transactions are associated with a specific address. If someone knows your address, they know how much money is in your wallet and what transactions you have been doing. Monero is designed to prevent this from happening. There are several other privacy coins, but Monero is the most advanced and thus most popular one. Monero works by protecting your real address any time you conduct transactions, essentially keeping your public address hidden. When you generate or receive a transaction, the XMR wallet creates a stealth address for one-time use. This is the address that is shown publicly for the transaction to occur. A second transaction from the same wallet generates a completely different stealth address, thus keeping the wallet address hidden from the network.
VeChain is designing a blockchain for supply chain logistics and verification of goods using IoT devices. By placing IoT sensors to monitor the quality of goods throughout the supply chain, data can be collected about the conditions those goods are exposed to. The data is stored securely on the blockchain, so logistics companies cannot hide any information about the mishandling of goods. Around the world there are also issues with fake goods. Luxury goods such as handbags are particularly susceptible to this. By placing small IoT devices in the original goods, VeChain can use its blockchain to verify the authenticity of goods though its mobile app. This can replace the certificate of authenticity, where there is really no way to verify if that paper certificate is legitimate.
Looking at market cap is the best indication to determine the popularity of cryptocurrencies. And coins with higher market cap can generally be expected to be less volatile than coins with lower market cap. There are of course always exceptions to this. Just because a cryptocurrency is popular does not necessarily guarantee that it is a good idea to invest in that coin.
The cryptocurrency space is still very young and has a lot of room to grow. It’s possible that some of the most popular coins today will fall from their podium in the future, so always do your own research before investing.
This content is not financial advice and should not form the basis of any financial investment decisions nor be seen as a recommendation to buy or sell any good or product. Trading cryptocurrency is complex and comes with a high risk of losing money, particularly if you trade on leverage. You should carefully consider whether trading cryptocurrencies is right for you and take the time to learn how trading works and decide how much money you are prepared to lose.
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