Bitcoin’s rise since it was created in 2009 has been meteoric. It has ushered in a wave of other cryptocurrencies, inspiring an ever-growing legion of followers and spin-offs, all built on decentralised peer-to-peer networks.
But the vast array of cryptocurrencies can be dizzying for a first-time investor. Planner Bee breaks down the ones you need to know.
So what’s a cryptocurrency?
A cryptocurrency is virtual or digital money that takes the form of tokens or “coins”. While some have ventured into the physical world in credit cards or other forms, the majority remain entirely intangible. Cryptocurrencies are almost always designed to be free from government manipulation and control, relying on peer-to-peer transactions that can be traced on a public ledger.
As of August 2021, there are at least 6,000 cryptocurrencies out there.. That’s an overwhelming number, especially if you’re looking to enter the world of crypto trading.
Coins vs tokens
There are two broad categories of cryptocurrencies – coins and tokens.
Coins are cryptocurrencies that are primarily used as money, and exist to be a store of value. These include Bitcoin, Ethereum, Cardano and Ripple.
Tokens, on the other hand, are smart contracts that make use of blockchain, mainly the Ethereum blockchain. Tokens have a wider range of functionalities than coins, giving access to future products and services such as farming and staking. They are usually created, distributed, sold and circulated through a crowdfunding exercise known as an Initial Coin Offering, or ICO.
Top 10 cryptocurrencies (based on market capitalisation)
To help you get your bearings in a crowded marketplace, here are the top 10 cryptocurrencies based on their market capitalisation, or the total value of all the coins currently in circulation:
|1||Bitcoin (BTC)||Over US$856 billion||How can a list of top cryptocurrencies to invest in not start with Bitcoin? Developed by pseudonymous creator Satoshi Nakamoto in 2009, Bitcoin (BTC) was the first cryptocurrency. It remains the most versatile cryptocurrency around, and can be used to purchase goods, exchanged peer-to-peer and swapped for other currencies.|
|2||Ethereum (ETH)||Over US$390 billion||Both a cryptocurrency and a blockchain platform, Ethereum is a decentralised software platform that enables smart contracts and decentralised applications (dApps) to be built and run without any downtime, fraud, control, or interference from a third party. Ethereum is also leading the way in the rising trend of non-fungible token, or NFT, creation.|
|3||Cardano (ADA)||Over US$75 billion||Scalability, interoperability, speed, flexibility, sustainability – Cardano excels at all of these. A recent update that added the ability to build smart contracts has opened doors for developers to work on dApps and decentralised finance (DeFi) uses. With low transaction fees and huge potential to grow in the days ahead, Cardano is one cryptocurrency you shouldn’t miss out on.|
|4||Binance Coin (BNB)||Over US$69 billion||Binance Coin is a utility cryptocurrency that operates as a payment method for the fees associated with trading on the Binance Exchange. People using the token as a means of payment on the exchange can trade at a discount.|
|5||Tether (USDT)||Over US$68 billion||Tether was one of the first and most popular of a group of so-called stablecoins, cryptocurrencies that aim to peg their market value to a currency or other external reference point to reduce volatility. Because most digital currencies, even major ones like Bitcoin, have experienced dramatic ups and downs, Tether and other stablecoins attempt to smooth out price fluctuations to attract users who may otherwise be cautious. Tether’s price is tied directly to the price of the US dollar.|
|6||Ripple (XRP)||Over US$49 billion||Created by some of the same founders as Ripple, a digital technology and payment processing company, XRP can be used on that network to facilitate exchanges of different currency types, including fiat currencies and other major cryptocurrencies. Global banking corporations have chosen it as their preferred currency, making it a silently used method of sending and receiving payments.|
|7||Solana (SOL)||Over US$48 billion||Developed to help power DeFi uses, dApps and smart contracts, Solana runs on a unique hybrid of proof-of-stake and proof-of-history mechanisms that help it process transactions quickly and securely. SOL, Solana’s native token, powers the platform. It looks to be a potential long-term rival for Ethereum.|
|8||Polkadot (DOT)||Over US$33 billion||Polkadot is that one cryptocurrency that has a clear-cut objective – delivering interoperability among other blockchains. Yet there’s also something else that sets this cryptocurrency apart from the rest. In addition to creating dApps, developers can create their own blockchain while also using the security that Polkadot’s chain already has. Polkadot allows users to send more than just tokens across blockchains. It allows these networks to communicate actual data.|
|9||Dogecoin (DOGE)||Over US$31 billion||This cryptocurrency has enjoyed huge prominence over the last few months – thanks to Elon Musk. Dogecoin has become one of the most viable investment options.|
|10||USD Coin (USDC)||Over US$29 billion||Like Tether, USD Coin (USDC) is a stablecoin, meaning it’s backed by the US dollar and aims for a US$1 to 1 USDC ratio. It’s powered by Ethereum, and you can use USD Coin to complete global transactions. The system allows users to make transfers from other cryptocurrencies back to US dollars than more easily than converting to normal currency.|
Differences in trading cryptocurrencies and stocks
Store of value vs ownership
Cryptocurrencies function as a store of value, and investors tend to hold them in the hope that they will increase in value over time, allowing investors to sell for a profit. In contrast, stocks represent ownership of a company which you believe will increase in value in the future. Some companies also pay out dividends to stockholders.
Traditional stock exchanges are open on weekdays in their local time zones, while cryptocurrency exchanges are open for trading 24/7.
Stocks have been traded for centuries, while the first cryptocurrency, Bitcoin, first came onto the scene in 2009. Being relatively young, the crypto market is very attractive for investors, as there is a lot of potential for profit in a largely unregulated space.
Cryptocurrencies are gaining in popularity among retail investors and institutions, but while the future of the sector seems promising, high volatility and the negative environmental impact of mining might be factors to consider before diving in to invest. Manage your risk appetite and always do your own research.