The Bitcoin white paper published in 2008 by Satoshi Nakamoto, revolutionised the global payments industry and people around the world are rethinking the meaning of their money thanks to blockchain. Blockchain technology allows two parties transact directly with each other. This new method, introduced to the world by Bitcoin, features the following:
- Peer-to-peer payments over an online network.
- The elimination of third parties and replacing trust with verification.
- Transactions would be irreversible and irreversibility would protect sellers from fraud. Escrow mechanisms implemented will protect buyers.
- A peer-to-peer distributed timestamp server would generate mathematical proof of the chronological order of transactions. The system is secure so long as honest participants collectively control more computing power than attackers/hackers.
Bitcoin, Ethereum, USDT…..
Let’s first understand the difference of Bitcoin and altcoins. The success of Bitcoin as the first peer-to-peer digital currency paved the way to other cryptocurrencies trying to target the perceived limitations of Bitcoin. Hence all alternative coins and tokens other than Bitcoin got tagged with this name. Many of the altcoins are built upon the basic framework provided by Bitcoin and blockchain. Thus, most altcoins are peer-to-peer and try to offer efficient and inexpensive ways to carry out transactions on the Internet. At present there are over 2,000 coins and tokens in the market and I would advise you to stick to the top 10 when investing. Learn about the currency you are trading and get familiar with it. Be bold to play around with trading tools with 2 to 3% of your investment to understand the market impacts. If you want to just keep it and forget about the purchase I would recommend you transferring the asset to a COLD wallet to ensure it is stores safely. The key is to remember, that you are your own bank and if you lose your cryptocurrency there is no getting it back or a central authority you can complain to.
Top 10 coins by market cap – source CoinGecko
- Bitcoin (BTC)
- Ethereum (ETH)
- Tether (USDT)
- XRP (XRP)
- Litecoin (LTC)
- Bitcoin Cash (BCH)
- Cardano (ADA)
- Polkadot (DOT)
- Binance Coin (BNB)
- Chainlink (LINK)
Below is a brief explanation of some alt coins which are of interest to me.
Founded by Vitalik Buterin the key differentiator of ETH is the smart contract functionality. Ether (ETH) is the native cryptocurrency of the platform and is the second-largest cryptocurrency by market capitalisation, after Bitcoin. However due to the smart contract functionality ETH is widely used for other applications by many industries. ETH also allows the development of other cryptocurrencies using the platform which are Tokens.
Tether (USDT) was specifically designed to build a bridge between fiat currencies and cryptocurrencies and offer stability, transparency and minimal transaction charges to users. USDT is pegged against the U.S. dollar and maintains a 1-to-1 ratio with the U.S. dollar, in terms of value it far less volatile compared to Bitcoin and Ethereum.
Ripple is a for-profit technology platform and also a cryptocurrency (XRP), developed by Ripple Labs. At present they are in some hot water with the SEC in the US which saw the coin price drop drastically late 2020. Ripple focuses on providing real-time payment settlements and currency exchange services to financial institutions such as banks and payment processors. As a result of this strong financial industry adoption, Ripple is currently the third most valuable cryptocurrency by market cap, after Bitcoin. While you can invest in XRP, it’s not intended for consumer use. Instead, it’s a token that provides liquidity for banks for cross-border transfers.
Introduced in October 2011, Litecoin was branded as the “silver to Bitcoin’s gold.” While fundamentally similar in code and functionality to Bitcoin, Litecoin differs from Bitcoin in several essential ways. It allows mining transactions to be approved more frequently. It also provides for a total of 84 million coins to be created which is four times Bitcoin’s 21 million coin limit.
BCH was created due to a hard fork occurred, because there was a disagreement around how best to increase the block size limit of Bitcoin. One group of influential miners, developers and investors favoured a protocol called SegWit2x, which was due to be implemented to the bitcoin network in August 2017. Those who disagreed with this protocol were involved in the creation of bitcoin cash. Advocates of bitcoin cash believed it more closely resembled the original vision of Satoshi Nakamoto. Since its launch, bitcoin cash has become one of the most successful bitcoin offshoots.
I hope the above answers some basic questions you have with regards to Bitcoins and Alt coins. Which one to invest will be your choice, as in any investment spreading your risk by investing in multiple coins can give you a long term advantage.
Two primary reasons for the price stability of fiat currencies are the reserves that back them and the timely market actions by the controlling authorities, they are also pegged to an asset, such as gold or forex reserves which act as collateral, which protects their valuations from wild swings. If fiat currency’s valuations move drastically, the controlling authorities manage the demand and supply of currency to maintain price stability. The bulk of cryptocurrencies lacks both these key features—they don’t have a reserve backing their valuations and they don’t have a central authority to control prices when required. Stablecoins attempt to bridge this gap between fiat currencies and cryptocurrencies.