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Top 50 Cryptocurrency Coin Ratings User Guide +
One Sentence on Each of 100 Best Crypto Assets
[Updated May 2020]
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There are, quite literally, thousands of cryptocurrencies ‘available’ today but the most simplest way to understand ‘crypto coins’ is to know this:
“Units of cryptocurrency (called “coins”) are nothing more than entries in a database.”
Moving on, sure, most have heard of Bitcoin, the godfather coin; and on the fray a few have uttered Ethereum (ETH), Bitcoin Cash (BCH), Litecoin (LTC) and even Ripple (XRP). But how many have heard of other trending coins like Stellar (XLM), Monero (XRM) or Cardano (ADA)? Add in the unofficial blockchain news announcer Justin Sun of Tron (TRX), or the likes of DASH, ETC, NEO, BNB, ZRX (thanks Coinbase) and even the controversial EOS, BSV, IOTA and Tether (USDT) stablecoin tokens – and you are staring down quite a bit of research and understanding before ever even considering investing and getting involved with.
This “cryptocurrency guide” is meant to give you the highlights of each of the Top 50 Cryptocurrencies in the world by market cap, complete with a brief breakdown of how each crypto asset works, the history behind the coin and what the token’s team is looking to accomplish in the future. Much like our top cryptocurrency exchanges and what is bitcoin guide, we have assembled the following information to the best of our ability in helping spread crypto asset awareness and adoption.
Let’s jump right into it, click any logo to review the coin’s background and after cruising through these fifty make sure to read our part two of this ‘non bitcoin blockchain crypto asset user guide’ below:
Top 100 Digital Currencies In A Nutshell
Quite literally thousands of cryptocurrency projects populate the cryptosphere these days, and it seems every new day comes with an assortment of ICOs and altcoin offers. The blockchain arena is dynamic, exciting and a massive growth space right now. How is it possible to keep track of every new altcoin out there? Sites like CryptoCompare and others help, but are often limited in their listings.
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In terms of ranking popular, current coins, below follows a list of the top 100, with a short depiction of each. Our list sorts coins by market cap, ideal for investment decisions, while the accompanying intel should help to determine personal preferences.
Starting with the number one, Bitcoin, every ten entries have a listed market cap, to give an idea of the difference between the top and bottom of the market.
The Top 100 Cryptocurrencies In One Sentence or Less
Note the order of these are subject to change as the innovation and advancements and ultimately investors tip the scales – however this should give you a great snapshot of which coins are cemented in the top 100 cryptocurrencies according to CoinMarketCap.
- Bitcoin [BTC] – The original and most celebrated digital asset and a true cryptocurrency, currently mostly an investment tool. MC = $127,782,276,799.
- Ethereum [ETH] – Famous for its smart contracts and widespread facilitation of dapps, the number two has massive business application.
- Ripple [XRP] – Enterprise-focused crypto targeting speed and security of business transactions.
- Bitcoin Cash [BCH] – A fork of Bitcoin, here fees are lower and blocks are bigger.
- EOS [EOS] – Another smart contract-focused project with a user-friendly fee structure.
- Stellar [XLM] – Extremely fast transacting and comparatively tiny fees.
- Litecoin [LTC] – Kind of like Bitcoin Lite (if it existed), designed as a true daily currency.
- Cardano [ADA] – Decidedly egalitarian smart contract project aiming at becoming a global platform.
- IOTA [MIOTA] – A marriage of the IoT and blockchain technology, and zero fees.
- Tether [USDT] – A backed crypto, one Tether is equal to one USD.
- Tron [TRX] – A decentralized web content platform.
- Monero [XMR] – The most private and anonymous crypto.
- NEO [NEO] – platform trading on smart contracts, known as the “Chinese Ethereum.”
- Dash [DASH] – An improvement in scaling and ease of use, all with immediate payments.
- Ethereum Classic [ETC] – A 2020 fork, almost identical to Ethereum.
- NEM [XEM] – Starter-pack blockchain solutions for business.
- VeChain [VEN] – A logistics and supply chain token, bringing blockchain to business.
- Binance Coin [BNB] – The native token of San Franciscan Binance Exchange.
- Tezos [XTZ] – on-chain blockchain governance innovator for stakeholders
- Zcash [ZEC] – Reminiscent of Bitcoin, but featuring wholly anonymous transacting.
- OmiseGO [OMG] – A token with improved banking ambitions, hoping to replace legacy payment protocols.
- Qtum [QTUM] – A smart contracts and PoS platform token. MC = $1,134,933,080.
- 0x [ZRX] – Rapid payments employing faster smart contracts on a DEX.
- Zilliqa [ZIL] – A blockchain platform that emulates and allows for database sharding.
- Bitcoin Gold [BTG] – 1 CPU 1 vote, basically bitcoin without so much mining hassle.
- Bytecoin [BCN] – privacy focused coin that allows for immediate, untraceable payments.
- Decred [DCR] – A hybrid currency that takes egalitarian community management to the nth degree.
- BitShares [BTS] – A P2P digital token exchange.
- ICON [ICX] – A generic blockchain enabler, making it possible interoperability.
- Ontology [ONT] – A business blockchain ecosystem focused on global transactions.
- Aeternity [AE] – A payment platform with enhanced scalability and efficiencies.
- DigiByte [DGB] – A secure payment platform.
- Maker [MKR] – A “stablecoin” that acts as a volatility hedge.
- Dogecoin [DOGE] – A fun coin yet to find its ultimate purpose. MC = $425,004,268.
- Steem [STEEM] – The Steemit social media incentive.
- Siacoin [SC] – A cost-effective P2P cloud storage facility.
- Bytom [BTM] – A platform that enables real-world assets to be rendered as crypto.
- Verge [XVG] – Enhanced privacy employing 12P and Tor.
- Augur [REP] – A marketplace for gamers – essentially a blockchain bookie.
- Mithril [MITH] – An incentivized social media platform.
- Basic Attention Token [BAT] – blockchain model for matching content & paying consumers.
- Bitcoin Diamond [BCD] – Bitcoin, but with privacy tweaks that make it a dubious coin.
- Stratis [STRAT] – An enterprise solution that enables smart contracts in .Net and C#.
- Golem [GNT] – A decentralized super-computing platform for all.
- Nano [XRB] – One of the most scalable virtual currencies.
- Pundi X [NPXS] – Buy and Sell Point of Sale Cryptocurrency Devices.
- RChain [RHOC] – A quick and eminently scalable content platform.
- Waves [WAVES] – A platform enabling blockchain token minting.
- KuCoin Shares [KCS] – The KuCoin exchange incentive token that allows users to glean some passive income.
- Waltonchain [WTC] – A blockchain token looking at building a massive IoT network.
- Status [SNT] – A messaging interface focused on dapp interaction.
- IOStoken [IOST] – A scaling solution enabling online service providers.
- HShare [HSR] – A generic blockchain currency. MC = $425,004,268.
- MaidSafeCoin [MAID] – A digitized file-sharing ecosystem fueled by nano crypto transactions.
- Mixin [XIN] – peer to peer blockchain network for digital asset transactions.
- Populous [PPT] – Another enterprise platform, aimed at facilitating global invoicing and payment.
- Wanchain [WAN] – A cross-chain virtual asset trading enabler.
- aelf [ELF] – A blockchain-based cloud and OS network with incentives.
- DigixDAO [DGD] – Closed community payments backed by actual gold reserves.
- Komodo [KMD] – A suitably anonymous token forked from Zcash.
- Ardor [ARDR] – A side or “child” chain scaling solution that can ease or eliminate chain congestion.
- Huobi Token [HT] – Token of the Huobi exchange that benefits members.
- GXChain [GXS] – Decentralized data platform applying blockchain database management.
- Aion [AION] – A dapp platform that is all about dapp platforms, even others. MC = $211,443,078.
- Kin [KIN] – Digital services ecosystem built for daily life.
- Loopring [LRC] – A digital exchange protocol focused on quick and correct transacting.
- Bitcoin Private [BTCP] – A Zclassic fork, this is a privacy-focused token.
- Nebulas [NAS] – A blockchain project that will always avoid hard forks.
- Decentraland [MANA] – A VR offering employing blockchain to allow participants to engage and earn.
- Cryptonex [CNX] – Anonymous token payments acting as a fiat-crypto intermediary.
- Emercoin [EMC] – Blockchain secure DNS and SSH bridge builder for enterprise.
- Zencash [ZEN] – secure public and private cryptocurrency, messages & media network.
- MonaCoin [MONA] – A very popular Japanese token mostly employed by gamers.
- MOAC [MOAC] – A project focused on scaling issues and core blockchain application.
- Ark [ARK] – The most successful digital bridge across blockchains.
- FunFair [FUN] – Casino and gaming fun on the blockchain.
- Wax [WAX] – Worldwide Crypto Asset Exchange for Trading Virtual Assets Marketplace.
- ReddCoin [RDD] – A P2P payment token focused on small, quick and inexpensive transactions between users.
- PIVX [PIVX] – A privacy-mad token that runs on PoS.
- Kyber Network [KNC] – A platform that enables atomic swaps without a middleman.
- Dropil [DROP] – An automated crypto storage and trading platform, employing relevant analysis and tight security.
- Powder Ledger [POWR] – renewable energy blockchain trading marketplace.
- Bancor [BNT] – A “liquidity network” that allows users to immediately convert virtual currencies.
- Monaco [MCO] – Owner of Crypto.com, a blockchain credit card alternative payment solution.
- Dentacoin [DCN] – A global dental health project using blockchain to enhance dental care.
- TenX [PAY] – blockchain connector network that enables global cryptocurrency payments
- Loom Network [LOOM] – Scalable game and other social app builder with dapp sidechains.
- Paypex [PAYX] – Ethereum blockchain cryptocurrency and wallet platform for payments
- Polymath [POLY] – blockchain-based securities token platform network.
- Gas [GAS] – The NEO token.
- Nxt [NXT] – Launchpad for cryptocurrencies.
- Bibox Token [BIX] – Cryptocurrency Exchange’s native token.
- Nuls [NULS] – Facilitates cost-effective creation of blockchain projects.
- ChainLink [LINK] – Connecting smart contracts for your data and applications.
- Holo [HOT] – blockchain framework for distributed decentralized applications.
- CyberMiles [CMT] – Free enterprise solutions, quick and secure.
- Enigma [ENG] – Another DIY blockchain solutions outfit focused on dapps
- Syscoin [SYS] – The blockchain’s answer to Amazon. MC = $94,243,434.
- Veritaseum [VERI] – P2P trading of assets without the middleman.
- QASH [QASH] – Maintaining liquidity for all cryptocurrencies.
- Elastos [ELA] – A next-gen dapp project.
- Theta Token [THETA] – A decentralized content streamer (TV) focused on sports, education and entertainment content. MC = $106,942,945.
- Centrality [CENZZ] – A P2P blockchain market enabler, focused on apps.
- Ethos [ETHOS] – Management tool for users to collate their coins, wallets and keys
- Cortex [CTXC] – A marriage of AI and smart contracts.
- Factom [FCT] – Enabling trust between businesses on the blockchain
- TrueUSD [TUSD] – Another stablecoin pegged at 1 : 1 to the USD.
- Fusion [FSN] – A decentralized fintech enterprise solution.
- WaykiChain [WICC] – Blockchain gaming token.
As you can see, memorize these cryptocurrency project snapshots and you can hold a conversation anywhere at anytime within the bitcoin ecosystem. We did include the 110 tokens due to the bottom ones always jumping back and forth and by the time we had finished the review of the top 100 cryptocurrency summaries there were many always jumping around so decided to include a few extra coins for your reference points. The industry is dynamic for enthusiasts and volatile to outsiders. Market caps on coins from around the middle of the list onwards will constantly vary and reshuffle the order. The 100 tokens above, however, are today’s leading coins, based on current respective market cap.
Best Cryptocurrency Guide [How To Trade, Invest, Mine & Earn Review]
December 27, 2020
Bitcoin, and the cryptocurrency ecosystem as a whole, is experiencing a rapid increase in mainstream support. With increased media attention comes an increase in adoption rates, but getting started with cryptocurrency can be somewhat confusing. Despite the growing popularity of cryptocurrency, there are few comprehensive guides or resources available to individuals seeking a breakdown of crypto basics.
This guide is is intended to function as a simple, easy to understand primer on the basics of cryptocurrency, introducing new investors and adopters to some of the most common concepts used in the crypto ecosystem.
In this guide, we’ll also provide insight into some of the most visible projects that are competing for investor attention and market dominance, as well as examine the underlying technology, trends, and history behind the cryptocurrency revolution.
Since its inception, Bitcoin has gathered an increasing amount of media attention, especially during significant price spikes. Many casual observers of the cryptocurrency industry have been content to merely watch the movement of Bitcoin, but with the recent price spike of Ethereum, another highly popular cryptocurrency, have decided to take the plunge into the world of crypto.
Most individuals that decide to participate in the crypto industry do so after assessing cryptocurrency from a critical perspective. What typically begins as a cynical examination of what is perceived to be a get-rich-quick scheme often leads to curious investors becoming impressed with the underlying technology that drives cryptocurrency and the astounding potential it offers.
While there is a significant amount of hype surrounding cryptocurrency, it’s not without basis- cryptocurrencies and blockchain technology are poised to inevitably revolutionize virtually every industry, from logistics, finance, insurance, and the stock market, to the concept of ownership. The paradigm-shifting nature of cryptocurrency is set to create entire economies that don’t even exist yet.
While the grandiose claims of cryptocurrency proponents may at first appear quixotic, established power structures around the world are beginning to take notice of cryptocurrency in a very serious manner. Banks, research institutions, and governments around the world are scrambling to keep up with the fast-paced world of crypto, so at this point it’s worth paying attention.
Opponents of the crypto revolution often point out similarities between cryptocurrencies and the dot com bubble, which aren’t entirely unwarranted. The vast amount of speculation surrounding cryptocurrencies and the extreme ease with which uneducated investors are able to access the market have created an environment in which mere ideas can generate hundreds of millions of dollars in capital in hours without even a white paper or a proof of concept.
Table Of Contents
In addition to presenting a simplified breakdown of crypto basics, this guide is also intended to help newer investors avoid dot-com enterprise equivalents and instead identify the future market giants of the cryptocurrency world.
Chapter 1: Overview
What Are Cryptocurrencies?
Understanding the basics of cryptocurrency requires a basic grasp of the issues it attempts to redress. Fiat currency, the monetary system that cryptocurrency is set to supplant, is already primarily digital in nature. Conservative estimates of the total amount of global currency that is already digital place are around 90%, meaning that 90% of all of the money that currently exists does so in the form of binary code on financial institution servers.
Governments around the world have traditionally printed currency, which has historically had extremely damaging effects such as hyperinflation. With the digitization of currency, however, generating more fiat currency is even easier- by simply editing a few values in a database, it’s possible to create another trillion dollars from thin air.
If you maintain an interest in financial or tech news, then you’re already aware of the countless hacks and cybersecurity issues that have targeted major corporations recently, from Sony to HBO. According to some narratives, the US presidential election itself suffered from several cybersecurity issues. If the systems that control the governance of a nation are susceptible to hacking, how long until financial cybersecurity becomes compromised?
Inflation and security are the two primary reasons for the creation of cryptocurrency. Immune to both inflation and hacking, cryptocurrencies eliminate the two biggest issues that plague traditional fiat currency. The benefits of crypto, however, aren’t limited to market cap and security.
Over the last decades, developers working with cryptocurrencies and blockchain technology have begun to realize that the potential applications of these platforms hold many more opportunities than are visible at first glance. If you’re interested in these applications, feel free to jump directly to the Use Cases section of this article.
The precise definition of “cryptocurrency” is as follows:
“A digital currency in which encryption techniques are used to regulate the generation of units of currency and verify the transfer of funds, operating independently of a central bank.”
The term “cryptocurrency” can in some cases be confusing, as some of the platforms and projects referred to in this guide aren’t currencies at all. Some function as platforms or applications, some are business entities, and some are assets. To avoid unnecessary complexity, this guide will refer to these systems collectively as “crypto”.
Before diving into the specifics of how crypto works and what it does, it’s important that we first examine what makes them so important. We’ll proceed to explain the true value of cryptos and why they are one of the biggest technological developments in recent history.
Why Are Cryptocurrencies Important?
The importance of any idea, system, concept, or thing is derived from how valuable it is deemed to be. In some cases, value is derived from a collective belief in the value it represents, such as gold and precious metals, but in most cases value is defined by use and usefulness.
Bitcoin is often referred to as “digital gold”, but the potential applications of crypto are far more diverse, useful, and dynamic than gold, which renders the analogy somewhat redundant.
Most of the cryptos present in the crypto ecosystem today attempt to differentiate themselves by providing a solution to a specific problem either present in the cryptosphere or outside of it. Virtually all crypto systems, however, share a common set of values, which can be broken down as security, transparency, immutability, global accessibility, speed, and price.
The biggest issue with centrally controlled assets such as fiat currencies, securities, bonds, and title deeds is that they are all extremely susceptible to tampering. Central banks that control fiat currency supply are able to disrupt or alter supply rates, governments have the propensity to lose or alter records, and physical documents of ownership can be destroyed.
Cryptos are decentralized by their nature, and instead of holding valuable data in one place, distribute it across thousands of different servers around the world. Bitcoin, for example, could only be compromised if more than 51% of the total computing power that drives the currency is directing a coordinated malicious attack.
Attacking Bitcoin in this manner would be economically unfeasible, especially when considering the massive amount of computing power that is already distributed globally and the limited amount of damage one individual or group could potentially achieve. The individuals that actively participate in the maintenance of the Bitcoin network are provided with economic incentives not to tamper with it, even though it’s virtually impossible to hack.
The same cannot be said, however, for personal security in the crypto ecosystem. For more information, feel free to skip ahead to our section on How to Avoid Getting Scammed.
Almost every crypto present today is open source, which means the source code of the platform is available for anybody to see. It’s possible to individuals that have an understanding of programming the inner workings of cryptos are completely transparent. The open source nature of cryptos makes to possible to trust the system implicitly, as code only obeys logic, not the whims of the individuals in charge of centralized, closed source platforms.
The use of “explorers’ also make it possible for anybody to view every single transaction that has occurred since the creation of a crypto. Some cryptos hold fast to the precept that this element of crypto should also be obfuscated, and differentiate themselves by making it impossible for transactions to be traced, but the vast majority of cryptos are focused on transparency at every level.
Given the extreme security and transparency offered by crypto, transaction history in the blockchain is not only impossible to alter, but also completely verifiable. This unique property makes it possible to verify that transactions have taken place with complete confidence without needing to place trust in a third party. The records of crypto platforms cannot be altered in any event except for the complete collapse of the ecosystem as a whole.
4. Global Accessibility
International wire transfers and other methods of transmitting currency between individuals in different geographic regions through centralized platforms is expensive, slow, and cumbersome. Crypto makes geography irrelevant- as long as a user has access to the internet, the speed and cost of a transaction is the same.
5. Speed & Price
Bank transfers between geographic regions typically take 3-5 business days, while local transfers can take between 1 and 2. As these transfers only involve the exchange of digitized currency, there is essentially no reason for them to take this long, despite what incumbent financial institutions may provide as excuses.
Transactions between centralized financial institutions are also expensive, and offer a poor exchange rate between different fiat currencies. Cryptos solve this problem by delivering near-instantaneous transfers, with the slowest platforms still completing transfers within one hour.
Cryptos also negate the need for currency transfer, which means the amount of currency received is more or less the same as the amount sent. Some cryptos may charge a small transfer fee, but when compared to centralized financial institutions, these fees are negligible.
The Applications of Cryptocurrencies
These common characteristics that are shared between the vast majority of cryptos make it easy to picture the potential applications and benefits they offer. Crypto transactions negate the need to place trust in potentially inefficient, corrupt, or insecure third parties. From a financial perspective, cryptos make it possible to conduct “trustless” transactions with individuals anywhere in the world.
Cryptos not only eliminate the fees associated with global transactions and deliver a dramatic increase in transaction speed, but also open up new markets that have traditionally suffered from poor business practices, unstable currencies, or institutional corruption.
The most promising aspect of cryptos is that these are only the early stages of the nascent crypto ecosystem. Every day new cryptos appear that deliver a range of vastly improved features and capabilities.
In future, cryptos will be used to automatically settle futures trading, completely automate supply chain systems, and even allow AI systems to purchase goods and services from each other utilizing a needs-based approach.
Chapter 2: How Cryptocurrencies Work
In this chapter, we’ll break down the basics of how cryptos work on a fundamental level in the simplest manner possible. If you’re not interested in the technical nitty-gritty of crypto, feel free to skip ahead to Smart Contracts, but it’s probably worthwhile to possess at least a cursory technical understanding of crypto if you’re considering investing.
The Blockchain & Consensus
As mentioned previously in this guide, two of the most important defining characteristics of cryptos are their security and immutability. How are these characteristics achieved, however?
Security is one of the biggest costs for centralized organizations, but despite investing a significant amount of capital on an ongoing basis these organizations are still extremely vulnerable to external attacks. Internal attacks are an even bigger issue for centralized platforms- the inherent structure of centralized systems make it possible for one key individual to destroy the security of the entire organization.
Cryptos remove the threat of compromised internal security entirely, as no one individual possesses the keys to the entire system. Instead of a top-down structure, cryptos distributes the keys to the system throughout the hundreds of thousands of different individuals that compose it. These participants are not only rewarded for maintaining the system, but are also penalized for attempting to interfere with it. We’ll proceed to delineate how this system works with an analogy.
Imagine a traditional bank that provides individuals with the ability to deposit their currency for safekeeping and security. This bank records all deposits, withdrawals, and transactions in a ledger in order to keep track of all currency movement.
If an enterprising thief were to break into the office of the bank and make some changes to the ledger, it would be possible for them to then enter the branch the next day and make a withdrawal in excess of their deposited funds. The bank would check the ledger, and everything would appear to be in order.
To extrapolate this example, imagine now a situation in which we have a bank with 11 different branches. None of the branches trust each other to keep accurate records, so each develops a separate ledger system. Each of the 11 banks not only records and tracks their own transactions, but also frequently sends a dedicated representative to the other ten banks to keep records of the transactions that their colleagues have made.
These 11 banks maintain this system so that if there is a dispute or an irregularity in any of their ledgers they can determine, by majority, which one is correct. While this hypothetical system is far more secure than a single bank operating independently, it still has a weak link- imagine that while traveling between branches in order to collect transaction records, six of the eleven banking representatives are attacked by thieves, resulting in the ledgers of their respective branches becoming compromised or altered.
In order to prevent this eventuality from occurring, the network of banks add an additional security step in their process. At the end of every individual page of the ledger, the banks will incorporate all of the values of the page into a complex equation and record the sum in a separate document for safekeeping.
On each subsequent page, the bank incorporates both the figures from the new page, as well as the answer from the previous page. While this may sound needlessly complex, it makes altering the ledger far more difficult.
With this method in place, the thieves that set out to intercept the banking representatives and alter ledger values would not be able to simply edit the values on one page. These thieves would also need to ensure that the changes that they make would also match the answer of the complex equation at the end of every page. This calculation would take several weeks, which is long enough for the banks to realize that something has gone awry, and consult one of the many different copies of the ledger.
There is another process used by the banks in this hypothetical example to ensure an even higher degree of security. To prevent the banks from working together against the best interests of their customers, each individual branch is provided with a reward every time it agrees with the majority of the other banks in the network. If they are in the minority, they are fined. This process ensures that it’s far more beneficial for the banks in the network to play by the rules instead of colluding to break them.
In the next section of this article, we’ll explain how this analogy relates to the “blockchain”, which is the system of ledgers on which crypto operates, and learn about the difference between the various methods used to achieve consensus.
In the example above, we used the example of a number of different branches working in a network. In the crypto environment, “nodes” or “bookkeepers” can be considered to play the role of these individual bank branches. Every time an individual node updates its ledger, it cross references it with every other ledger in existence. The “blocks” in the blockchain can be considered to be the individual pages.
The complex equation used by the banks in our simple analogy to combine the values of the transactions on each page is called “hashing” in the crypto ecosystem, and is far harder to do in reverse. Crypto users are incentivized into running and maintaining a node for the same reasons a banker might want to operate a bank- every transaction that is performed pays a small fee to the node that is processing it for the service and security it provides.
The fines levied against banks that don’t agree with majority consensus in our example vary in the crypto environment depending on the method of consensus that is used. We’ll proceed to break down and explain the most important and popular consensus methods in use today:
1. Proof of Work (Pow)
The first method of consensus we’ll take a look at is Proof of Work, which is also the first and most widely used method of establishing consensus. Drawing from our banking analogy above, Proof of Work consensus can be likened to each node- or banker- being required to complete an extremely complex equation in order to finish each page, or in the crypto world, block.
The sole purpose of the complexity of this equation is to ensure that each node is forced to exert a significant amount of processing power, and therefore electricity, in order to solve it. In return for solving the block, each node is rewarded with a “block reward” that typically comes in the form of currency in addition to the transaction fees.
This process is referred to as “mining”, and the nodes in Proof of Work platforms that choose to do this are referred to as “miners”. In order to regulate this consensus system, if a miner gets a different answer than the other miners working on the same block, their answer is rejected. Miners don’t want to waste processing power and electricity for nothing, so they are economically incentivised to not provide incorrect answers.
In the Proof of Work system, the only way to “cheat” is to control more than 51% of the total ledgers, which is the same as possessing more than 51% of the total processing power dedicated to the platform. Even with this advantage, it would be extremely difficult to alter past transactions, and functionally impossible to change transactions further than several blocks.
A hypothetical miner that controlled more than 51% of the processing power would potentially have the ability to both prevent transactions from occurring and reverse transactions he makes, but as this level of control would required a vast amount of capital, it doesn’t make any economic sense for a miner to attempt this kind of exploit.
The more processing power a miner has access to, the more likely it is that they will be able to correctly guess the solution to the complex equation first before other miners and win the block reward.
A common practice has developed in which many miners join together and combine their processing power into a conglomerate referred to as a “mining pool”. With this method, miners are able to access a consistent, regular income as opposed to occasional, sporadic, and unpredictable income from mining.
In mining terms, “Block difficulty” refers to how difficult the equation for each block is to solve. If blocks are taking too long to solve in general, then the block difficulty is reduced. If blocks are being solved too rapidly, then block difficulty is increased.
This process, called “Block timing” determines how often a new “page” of the ledger is utilized. If the capacity of these pages remains the same but transaction volume increases, lower block time can optimize the process. There are, however, technical security issues associated with maintaining low block times if there is an insufficient volume of transactions.
- Proof of Work consensus is highly capital intensive, and thus requires node operators to be highly invested in the cryptocurrency that they are mining. This functions as an economic preventative measure against cheating
- The economic incentives that mining offers leads to the establishment of more nodes, which in turn increases total computing power, enhancing the security of the network
- Proof of Work consensus uses a vast amount of energy. For comparison, one transaction using PoS consensus uses the same amount of energy as an average household uses in an entire day
- PoS consensus typically has longer transaction confirmation times than other consensus methods
- Computing power, and thus nodes, tend to centralized in geographic regions in which electricity is cheap.
Examples of PoW Cryptocurrencies:
- Bitcoin Cash
Proof of Work systems use the cost of processing power in the form of electricity as a method of penalizing nodes that attempt to cheat the system.
2. Proof of Stake (PoS)
Proof of Stake is an alternative consensus method in which there is no mining. Instead, nodes are simply selected for the processing of transactions without needing to compute and solve any complex equations. Other nodes in a Proof of Stake system will verify the block. In order to prevent cheating, nodes in a Proof of Stake system must lock a specific amount of currency in a virtual “safe”. This currency is forfeited as a penalty if any irregularities are detected.
This process is known as “Staking”, and can be considered to function in a similar manner to mining in Proof of Work systems without the large energy expenditure. The more currency that is staked by a node, the higher the chance that it will be selected to create the next block. This also means that nodes that attempt to cheat the system have more to lose.
- PoS offers faster confirmation times than PoW
- Proof of Stake also delivers more transactions per second than Proof of Work platforms
- There are still a number of unanswered questions surrounding the security of Proof of Stake systems and how game theory can be applied to nodes.
Examples of PoS Cryptocurrencies:
- Ethereum is currently in the process of rolling out PoS consensus
Proof of Stake consensus penalizes nodes that attempt to cheat the system by confiscating their currency.
3. Proof of Importance (PoI)
In Proof of Importance consensus, users are required to stake a fixed amount of currency in order to become a node. The likelihood that they will be the node chosen to create a block and thus claim the fees depends on their “importance score”.
The importance score of a node in PoI is determined by how heavily they use and contribute to the network. Nodes that send a large amount of currency frequently are ranked with the highest importance scores.
- Proof of Importance consensus encourages the use of a cryptocurrency as a currency
- PoI rewards users that are heavily invested in the currency
- The Proof of Importance method appears to be extremely secure and efficient
- Highly scalable
- The complicated criteria that determines importance score has the propensity to discourage newer investors
Examples of PoI Cryptocurrencies:
Proof of Importance consensus rewards users that perform a high volume of transactions.
4. Delegated Byzantine Fault Tolerance (dBFT)
In Delegated Byzantine Fault Tolerance, nodes are established by delegated shareholders. In order for a node to be elected, they are required to stake some of their currency, which makes dBFT similar in some regards to Proof of Stake. In Delegated Byzantine Fault Tolerance, however, nodes aren’t weighted by the amount of currency they stake, and are instead weighted equally.
A minimum amount of currency must be staked for every node a user wishes to control. This makes it increasingly expensive to control more nodes, and increasingly unlikely that any of these extra nodes will be elected. In dBFT consensus, shareholders are most likely to elect nodes that offer the lowest transaction fees.
This democratic consensus technique both promotes usage of the network and lowers usage fees. The low transaction fees generated by dBFT reduce the overall economic incentive represented by becoming a node, preventing potential attackers from achieving financial gain by establishing node monopolies. There is no mining in the Delegated Byzantine Fault Tolerance method. Financial incentives are provided in the form of transaction fees paid to nodes.
- Extremely fast confirmation times
- dBFT boasts high transaction per second capacity, in the thousands-per-second range
- Delegated Byzantine Fault Tolerance blockchains shut down before they allow a fork, placing a high value on consistency as opposed to liveness, which is critical when trading assets
- Extremely low transaction fees- dBFT is currently transaction fee free.
- The dBFT technique has not, as of yet, been tested at a large scale
Examples of dBFT Cryptocurrencies:
Designated Byzantine Fault Tolerance permits users to elect nodes that have staked a minimum amount of currency. Each node in dBFT has equal importance. The democratic structure of dBFT keeps transaction fees low.
5. Delegated Proof of Stake (dPoS)
Delegated Proof of State splits nodes into two different types. The first, Witness nodes, confirm transactions and collect transaction fees. The second type, Delegates, are nodes that make decisions regarding transaction fees, block size, and block timing. In dPoS, both of these node types are elected via a democratic vote.
- As Witness nodes and Delegate nodes are elected separately, Delegated Proof of Stake solves conflict of interest issues.
- dPoS consensus is adaptable and dynamic. The parameters of dPoS blockchain platforms can be rapidly adjusted to meet the needs of users.
- The democratic nature of dPoS consensus makes it difficult to maintain a high participation rate in the node election process, as users are required to remain constantly informed on the behaviors of witness and delegate nodes, as well as the blockchain as a whole.
- The dynamic nature of dPoS and the frequent parameter changes it conducts may discourage users that value stable platforms.
Examples of dPoS Cryptocurrencies:
Delegated Proof of Stake allows users to democratically elect Witness nodes that process transactions, and Delegate nodes that determine regulations and rules.
The Tangle consensus method is unique and isn’t even technically a blockchain, and likely requires an entire category of its own. The Tangle consensus method utilizes a “swarm” philosophy that relies on every single user of the network functioning as a node. Before a user can confirm a transaction, the user must validate two or more other transactions.
After a user has validated two previous transactions, a second user will validate the first transaction as part of their own transaction process. In this regard, the Tangle consensus method resembles a net of transactions, as opposed to a chain of blocks.
The unique structure of Tangle consensus provides users with completely free and instantaneous transactions, and scales well. There are still a number of questions surrounding security, however, and the entire network still required supernodes called “oracles” that moderate and police the network.
- Instantaneous transactions
- Completely free transactions
- Allows for extremely small-scale micro payments as low as $0.0001
- The low computational power required by Tangle consensus makes it suitable for devices with low processing capacity, such as smartphones and tablets
- Tangle appears to be less secure than other consensus methods
- The Tangle network currently uses a “Coordinator”, which can be considered to function as training wheels that will be used to guide the network until it is large enough to function autonomously. There is a reasonable level of uncertainty regarding how efficiently the Tangle network will operate once the Coordinator is disabled.
Examples of Tangle Cryptocurrencies:
Tangle allows for completely free instantaneous transactions by making every single user a node, apparently at the cost of security.
The next major development to hit the blockchain is commonly espoused as Smart Contracts and the launch of Dapps. If you’re keeping abreast of crypto news you may have already heard of these terms, but it’s important to understand what they actually mean.
In a traditional contract, there are generally a minimum of two parties agreeing to a predefined set of terms. Contracts are typically structured in a format the resembles something like: If party A does X, party B will do Y. If party A fails to do Z, then party B will cancel a transaction. Contracts are legally binding, so if any of the parties that have signed the contract break the terms they will subsequently be taken to court, where they face potential prosecution.
Smart Contracts are designed to make this entire process extremely simple and easy. Instead of enforcing the terms of the contract with legal ramifications, the contract is enforced by the blockchain. This immutable method of enforcement ensures that once all parties have signed a Smart Contract it will be carried out regardless of any other factor.
“Dapps” is a portmanteau of “Decentralized Apps”. Dapps work in synergy with Smart Contracts and perform the role of an automated middleman, eliminating the need for a broker.
Let’s take the example of carrying out an options contract. Traditionally, the process of establishing an options contract required the presence of a broker that matches the ask of the first party with the bid of a second party. When agreement is reached, the broker ensures that the terms of the agreement are honored.
Using a Dapp to perform the same function involves using the blockchain to completely replace the broker in the equation. Smart Contracts are used to enforce the terms of the contract developed through the use of the Dapp. Once agreement is reached and the purchasing party clicks “buy”, the entire process is automated without any need for the costs or trust issues involved with engaging a third party.
Using Dapps and Smart Contracts to facilitate options contracts is just one example of the many different applications they offer. Every day entrepreneurial startups emerge with new and innovative platforms the leverage the flexibility and functionality of Dapps and Smart Contracts, from crowfunding science programs to platforms that allow advertisers to pay content creators directly.
Digital assets are one of the most interesting and exciting applications of crypto. By themselves, both Smart Contracts and Dapps are limited to dealing exclusively with the digital realm, and exert control over only code.
There are a number of projects, however, that are attempting to bridge the gap between the virtual and the physical. These platforms are attempting to take physical elements such as title deeds, commodities, and products, and put them on the blockchain. By assigning verifiable digital certificates to these elements, Digital Asset platforms are creating a legally binding method of managing physical elements in a digital environment.
Buying a house, for example, is an onerous process that requires the presence of lawyers. By creating a legally binding digital title deed that can be transferred between owners with Dapps and Smart Contracts, however, it’s possible to create a platform that makes it as easy to buy a house as it is to order an Uber.
Chapter 3: Use Cases
Now we’ve established the importance of crypto platforms, the value they deliver, and how they function, we’ll now proceed to what is arguably the most important part: how they can be used.
Storage of Value
The most commonly touted use of Bitcoin and other cryptocurrencies is as a method of storing value. Bitcoin has been referred to as “digital gold” by many news and media platforms, which has resulted in most hedge fund analysts relying on this precept as a basis for their valuations.
The principle behind the use of Bitcoin as a method of storing value is that it has a finite supply that is capped at around 21,000,000 individual BTC, which will cause value to to increase as demand rises. In reality, however the circulating amount of Bitcoin is slowly decreasing as investors lose their private keys or cold wallets are lost. These analyses, however, are oversimplified, and fail to take into account the many different factors that drive Bitcoin price movements.
Virtually every currency in existence today is reliant on extremely volatile tenets. The intrinsic worth of currency is a social construct, and is dictated by the faith of a populace in governmental mechanisms such as the Federal Reserve, the economy of a country, or the simple collective perception that others ascribe value to it.
In this regard, Bitcoin and other cryptocurrencies are no different than fiat currencies, with the exception that they are the first truly global decentralized currency, and are therefore independent on the vicissitudes of national economic health or governmental power structures. While it’s true that cryptocurrencies are both extremely volatile in nature and tethered to a fiat currency, it’s clear that the volatility of a cryptocurrency decreases as market cap increases.
The trading volume of a cryptocurrency is less likely to increased proportionally if a large volume of said cryptocurrency is being used as a currency. This relationship creates a feedback loop where reduced volatility stabilizes a volatile cryptocurrency, causing more people to adopt it as a currency, which further reduces volatility.
Crowdfunding & Capital Generation
The use of cryptocurrency as a crowdfunding platforms is the most recent implementation of crypto in the real world. If you’re at all invested in the crypto ecosystem and have been observing trending industry news, then you’re probably aware of the hysteria surrounding ICOs, or initial coin offerings.
There are many completely legitimate ICOs that present investors with real value and could potentially shake up many static industries. Initial coin offerings present innovative entrepreneurs with a platform that can help generate the startup capital they need to bootstrap paradigm-shifting projects where traditional venture capital has failed.
Unfortunately, there are currently just as many misleading or poorly composed ICOs saturating the crypto ecosystem as there are promising, disruptive offerings. There have already been several high-profile ICOs that have generated hundreds of millions of dollars, only to fall short and fail to deliver on the promises they make.
ICOs are an attractive method of raising capital, but providing new entrepreneurs with massive amounts of funds without oversight can often lead to catastrophic failure. The primary issue with the ICO environment at the moment is a lack of regulation.
Many regulatory bodies around the world are scrambling to establish governance and guidelines for ICOs, sometimes with far-reaching consequences. The Chinese government placed a temporary moratorium on ICOs within China in September 2020, which caused a temporary but dramatic drop in the value of Bitcoin worldwide.
With regulation and standardization, however, ICOs present a disruptive and extremely agile method of raising capital for emerging innovators.
Decentralized services represent one of the most interesting use cases, and are the potential future of cryptos as a whole. Much in the same way Airbnb massively disrupted the accommodation industry by shifting it away from a centralized group of hotels and accommodation services and into the hands of a decentralized swarm of individuals, blockchain technology is positioned to decentralize virtually everything else.
Blockchain platforms such as Golem are set to decentralize the cloud computing world by allowing individuals to lease out their spare processing power, while SiaCoin, Factom, and NEO promise to do the same for cloud hosting with spare hard drive space. Mysterium offers the world a crowdsourced list of IP addresses for the operation of VPN services, while BAT places advertising back in the hands of the community at large.
Blockchain technology simultaneously elevates security efficiency and strength while boosting productivity. The decentralized service applications of crypto reduce the risk and reach of industry monopolies and oligarchies, minimize the overall cost of services, and eliminate the barriers that prevent newer players from entering established industries.
Internet of Value
It’s easy to assume that the only industries that crypto platforms are set to disrupt are online services, but the efforts that crypto innovators are making to bridge the gap between the digital and physical worlds are making it extremely likely that blockchain technology will eventually become ubiquitous in our daily lives
If the practice of issuing legally binding certificates of ownership over physical property and goods via blockchain platforms becomes commonplace, then it’s inevitable that we will see improved liquidity across virtually all asset classes. Ubiquitous blockchain tech will vastly reduce the presence of middlemen in business relationships and dramatically lower legal costs and dispute frequency.
Blockchain technology that incorporates legally binding ownership certificates will also streamline supply chain and logistics management and integrate a broad spectrum of disparate systems across different sectors and countries. This unique application of crypto will also allow for individuals to distribute partial ownership in previously indivisible assets, as well as observe and analyze Big Data on an almost unimaginable scale.
Autonomous Machine Economy
IOTA is a unique blockchain platform that is designed to facilitate the creation of a machine economy in which autonomous AI systems are able to trade with one another. While this concept may seem outlandish, it makes a lot of sense when real world examples comple into play.
Imagine self-driving cars become widespread. In this example, we have an electric autonomous car that is being rented out for consumer transport via Uber. When not in use, this car parks itself in an automated parking lot while it waits for its next fare. The autonomous vehicle communicates with the parking lot, which charges it for each minute it remains in the car park in IOTA.
If the vehicle begins to run out of battery, it can communicate with a local electric car charging station, navigate to the station, connect automatically, and pay autonomously in IOTA. Later, the vehicle is damaged by a group of vandals, who break a window. The vehicle is able to autonomously notify the local law enforcement services while at the same time notifying its insurance company, which is also on the blockchain.
The blockchain-based insurance company is able to automatically orchestrate the repair of the vehicle at an automated mechanic, which is able to replace the damaged window and autonomously invoice the insurance company, who then pays for the repair in IOTA.
Automated systems at the mechanic observe that window pane stock is running low and thus orders the delivery of new stock to be delivered by drone, paid for in- you guessed it- IOTA. This entire scenario occurs without any human intervention.
While this may appear to be a ferverishly optimistic technologist’s dream, some of the greatest forward-thinking minds in the business world are completely convinced that innovation in the artificial intelligence, machine learning, and robotics industries will make such scenarios inevitable. The only missing link standing between existing technological platforms and this new industrial revolution is transactional.
Chapter 4: the Most Popular Cryptocurrencies
In this section, we’ll take a look at the most popular cryptocurrencies in order of market cap at the time of writing and break down their specific points of difference and an explanation of the problems they are attempting to solve. We’ll also take a look at the consensus methods they use, the applications they are currently being used for, their future uses, and an analysis of their respective risks and advantages.
In this breakdown, we won’t be assessing these crypto platforms as a speculative investment, as this is fairly standard in the current market environment. We’ve also only labelled cryptocurrencies with long enough tenure in the industry, typically older than five years, as reliable stores of value.
1. Bitcoin (BTC)
Bitcoin is the final boss of the Bitcoin world, and is the longest running, most stable, and most reliable cryptocurrency in existence. Considered to be the most secure cryptocurrency in the current market due to its long lifespan and therefore most significant commercial proof of security, Bitcoin boasts the largest pool of computing power and is protected by the largest group of nodes in the crypto ecosystem.
Bitcoin has recently implemented a software update that permits SegWit2x, which has the effect of increasing block size. To draw upon our bank analogy form earlier in this guide, this update increases the size of the “pages” in the ledger- or blockchain- from 1MB to 2MB, and also facilitates the creation of “side chains”. These side chains free up space on the primary blockchain and allow users to leverage additional functionality, such as instantaneous transactions, Smart Contracts, and simple swapping between different cryptocurrencies.
Consensus Method: Proof of Work (PoW)
Intended Use: Currency
Present Use: Storage of value and currency
Future Uses: As above, with the addition of Smart Contracts pending RootStock implementation
- Disagreements between miners have the potential to cause instability and volatility
- Bitcoin has gathered a significant amount of political attention, making it prone to inhibitory regulation
- Bitcoin has been slow to adapt to technological innovation to date, presenting the possibility that it may be overtaken by platforms with superior technology
- Governmental structures may create and enforce regulation that prevents the conversion of fiat currencies to Bitcoin, although the same can be said of any cryptocurrency that doesn’t conform to compliance requirements
- Bitcoin sufferers from an ongoing transaction backlog, and it’s not yet clear whether SegWit2x will remedy the issue
- There is a possibility that miners switching between Bitcoin and other more profitable PoW cryptocurrencies could catalyze a chain reaction that would lead to longer block times, more extensive transaction backlogs, and overall investor uncertainty
- Bitcoin demonstrates the effectiveness of a powerful first mover advantage
- Bitcoin benefits from largest network effects, and is experiencing widespread adoption as currency and as a payment method worldwide
- Largest due diligence regarding changes due to the immense volume of stakeholders and high the value of the currency
2. Ethereum (ETH)
Ethereum has experienced a meteoric rise recently due to an explosion of hype surrounding the potential applications of Smart Contracts. Ethereum is an extremely versatile blockchain platform, and has recently hosted a large amount of initial coin offerings. As a Turing Complete language, Ethereum makes it possible to develop virtually any kind of application for it.
Ethereum aims to provide users with much more than a simple cryptocurrency- in addition to functioning as a currency, Ethereum also focuses on functioning as a platform on which decentralized applications and Smart Contracts can be written. The entire Ethereum platform uses its own bespoke programming language, called Solidity.
Consensus Method: Proof of Worth (PoW), plans to shift to Proof of Stake (PoS)
Current & Intended Uses Smart Contracts, decentralized apps, ICO platform
Future Uses: Vitalik Buterin, the founder of Ethereum, has stated that within three years Ethereum will rival Visa in terms of scale, speed, and adoption.
- The DAO hack on other software developed for the platform has made investors wary of the potential for another attack that exploits the room for error that coding in an unfamiliar language such as Solidity presents
- The unfamiliar Solidity programming language also causes slower uptake
- Like Bitcoin, Ethereum may potentially be overtaken by platforms that focus on technological agility
- The upcoming shift from Proof of Work to Proof of Stake consensus is surrounded by a significant amount of uncertainty
- The Turing Complete nature of Ethereum makes it possible to program an extremely broad spectrum of decentralized apps to operate on the platform
- The Ethereum platform has the largest developer following of any blockchain platform
- This large developer following has provided developers with arguably the best developer tools in the crypto ecosystem
- The Ethereum Enterprise Alliance delivers powerful corporate support
- Although unfamiliar, the Solidity programming language is concise, elegant, and ideal for blockchain applications.
3. Ripple (XRP)
Ripple is the first crypto platform to be publicly endorsed by established financial and banking institutions. The reason Ripple is endorsed by incumbent financial power structures is its extremely specific use case: it’s designed specifically to provide liquidity in Forex markets between banks. This doesn’t mean that Ripple is intended to replace Forex markets, but is instead created to supplement them.
Consensus Method: Ripple is a unique case in the ecosystem, and uses a unique consensus method called Ripple Consensus Protocol Algorithm, or RCPA. The entire Ripple network is operated by a few trusted nodes that are run by banks.
Although this consensus method doesn’t deliver the same level of trustless transaction capability offered by other methods, it’s perfectly adequate for its intended use case, which is specifically to facilitate transactions between banks.
Intended/Current/Future Use: Enhanced Forex market liquidity between financial institutions
- Ripple is entirely created by and reliant upon banks
- Extremely centralized, and thus paradoxical within the crypto world
- Highly specific use case
- Currently in use
- Legally compliant
- Depending on your perspective, strong links with established financial institutions
4. Bitcoin Cash (BCH)
Bitcoin Cash is a hard fork generated during the controversial Bitcoin scaling debate. Bitcoin Cash opted to solve the scaling issue in a more immediate and different manner to Bitcoin, increasing block size from 1MB to 8MB. This block size increased doesn’t address the transaction speed issue that Bitcoin suffers from, but does dramatically lower transaction backlogs while at the same time bolstering security.
Bitcoin Cash also implemented an emergency block difficulty adjustment in the first few weeks in order to adapt to the dramatic change in processing power, which allows for the rapid altering of block difficulty.
Consensus Method: Proof of Work (PoW)
Intended/Current/Future Use: Currency, storage of value
- Bitcoin Cash currently has lower popularity than Bitcoin, but is growing
- Most Bitcoin Cash nodes are centralized in China
- Does not appear to deliver any functionality, or intend to develop any additional functionality in future
- The emergency block difficulty adjustment may be open to exploitation. It’s possible that the crypto ecosystem will see miners temporarily engaging in Bitcoin Cash mining to take advantage of lower difficulty adjustment, only to switch out when difficulty increases. This would lead to instability in block times and overall profitability.
- Bitcoin Cash delivers all of the same benefits as Bitcoin pre-hard fork with improved transaction capacity
- Could potentially function as a backup to Bitcoin
5. LiteCoin (LTC)
LiteCoin is extremely similar to Bitcoin and is similar in most respects. What LiteCoin offers that Bitcoin doesn’t, however, is a much faster technological adoption rate and overall higher levels of adaptability and agility. LiteCoin is extremely popular in China.
Consensus Method: Proof of Work (PoW)
Intended/Present Use: Currency, storage of value
Future Use: The LiteCoin Lightning Network aims to bring Lightning Apps, or Lapps, to LTC that offer potentially unlimited use cases.
- Could potentially become redundant if it does not differentiate from Bitcoin, but the LiteCoin Lightning Network should solve this issue
- LiteCoin boasts a confirmation rate four times faster than Bitcoin
- May possibly synergize with Bitcoin
- Is aggressively driven by public representative Charlie Lee, who may be able to deliver more decisive direction than Bitcoin
- Widespread adoption in China
- Has recently been the most stable cryptocurrency
6. NEM (XEM)
Nem, like Ripple, possesses its own unique consensus algorithm. Nem uses a consensus method called Proof of Importance, or PoI. This method promotes network usage as a currency as opposed to as a storage of value. Proof of Importance is a complex but innovative method of enhancing security and functional efficiency while at the same time promoting further usage of the platform.
The Proof of Importance method used by NEM is set to benefit from a wide range of different updates that will increase functionality. In the meantime, NEM already provides users with the ability to create multi-signature wallets that require more than one key to authorize a cryptocurrency transaction. This functionality can be used to divide up responsibility for possession NEM, or create joint accounts and financial services.
Consensus Method: Proof of Importance (PoI)
Intended Use: NEM is primarily used as a currency, but is focused on network usage
- The complex nature of Proof of Importance consensus can make it difficult for some users to understand the underlying technology, which may slow uptake rates
- Proof of Importance consensus inherently encourages increased network usage
- Multi-signature wallet functionality provides an advantage to users with dynamic ownership requirements
- NEM demonstrates a consistent commitment to updating the technology that drives it
- Has already been used to establish partnerships
7. Dash (DASH)
Dash, short for Digital Cash, is focused on making cryptocurrency accessible to the consumer market. To make crypto accessible, the Dash platform allows for extremely fast transactions, making it ideal for retail applications and other fast-moving industries. Dash also incorporates a “treasury system” in which 10% of the transaction fees gathered by nodes are pooled together in order to fund further development of the Dash protocol in an autonomous, self-governing system.
Consensus Method: Dash utilizes Proof of Work consensus in combination with a second tier of Proof of Stake “master nodes” that deliver a range of additional services such as enhanced privacy and instant transactions. Master nodes are required to stake a specific amount of Dash- currently 1,000 Dash.
Intended/Present Uses: Dash is currently focused on mainstream adoption as a currency with rapid payments.
Future Use: With the development of the Dash Evolution platform, Dash intends to create consume-friendly wallet solutions that facilitate one-click purchases from websites or mobile apps.
- Dash is attempting to establish itself as a currency alternative in an already-saturated marketplace
- Despite claims made to the contrary, Dash is not completely anonymous
- Extremely fast transaction speed
- Low transaction fees
- Focused on user experience, usability, and consume uptake
8. IOTA (IOTA)
IOTA is an extremely unique crypto platform that we have touched on earlier in this article in our both our explanation of consensus methods and in our breakdown of potential crypto use cases. The unique manner in which IOTA gains consensus is not though blockchain technology, but instead through a “Tangle Network” which allows for instantaneous, free transactions.
IOTA, by the virtue of the Tangle Network, aims to establish an autonomous “Machine Economy”. With the growing prevalence of the Internet of Things, different machines are beginning to possess the ability to communicate with each other. IOTA aims to take this interconnectivity further by facilitating automated payments between machines, allowing them to pay each other for products, goods, and services.
To achieve this goal, IOTA is currently in the process of developing their own dedicated hardware solutions. Interestingly, this solution incorporates a Ternary CPU that uses three possible values, as opposed to common binary logic, which uses only two. Despite this forward-leaning technological perspective, there are still many questions regarding the security of the IOTA network.
Consensus Method: Tangle Network
Intended Uses: The development of an autonomous machine economy
- The Tangle Network that IOTA uses to achieve consensus is currently in a “training stage” that is maintained by an Overseer. The training stage is only intended to function until the network is large enough to eliminate security concerns, but many users are unsure of the ramifications the end of the training stage would bring
- IOTA required specialized hardware that is still in development, potentially delaying its intended use
- The market that IOTA is aiming to streamline does not currently exist, but is arguably inevitable
- Nodes are not penalized for attacking the Tangle Network, which is a potential red flag from a security perspective
- IOTA and the Tangle Network are truly unique and extremely progressive technological concepts
- Instantaneous free transactions
- If the Machine Economy manifests IOTA is guaranteed to dominate such a market
- The potential market IOTA aims for is extremely large
- IOTA is reinforced by several strong partnerships
9. NEO (NEO)
NEO is commonly referred to in the crypto world as the “Ethereum of China”. Similarly to Ethereum, NEO uses Smart Contracts and has established itself as a progressive platform that facilitates the development of decentralized apps. Unlike Ethereum, however, NEO has a clear intent to integrate with existing systems and connect the physical realm to the digital realm, supporting many commonly used programming languages such as Java, Python, and C#.
Neo focuses on combining legally binding asset certificates with verifiable digital identities and Smart Contracts to establish what it refers to as the “Smart Economy”. Unlike other cryptocurrencies, NEO is indivisible, and are designed to function as shares that provide owners with voting rights as well as remitting dividends in the form of GAS, which is used to power transactions and a spectrum of additional services.
Consensus Method: Delegated Byzantine Fault Tolerance (dBFT)
Current Use: ICO platform
Future Use: The digitization of real-world assets and their trade, such as the creation of a digital stock exchange or digital real estate market, as well as business-centric blockchain solutions.
- While Delegated Byzantine Fault Tolerance is highly unique, it is currently untested and has not been demonstrated to work in practice
- The low initial supply of GAS combined with marketplace speculation cold potentially lead to extreme GAS price volatility, which could discourage businesses that want to know in advance how much a transaction will cost
- The development team has been lax with communication, although this has improved greatly in the latter half of 2020
- Highly efficient transaction throughout, around 1,000 transactions per second
- Low or nonexistent fees
- Requires addresses for a legally compliant approach
- Virtually impossible to hard fork
- Supported by an extensive developer community called the City of Zion
- Easy access to Chinese market.
10. Monero (XMR)
Monero focuses on two key factors: privacy, and true decentralization. The Monero development team have eschewed marketing and user experience in favor of prioritizing the refinement of their privacy technology, which allows it to deliver solutions specifically targeted toward its niche. Monero is able to bundle together transactions in a manner that provides unparalleled security to its user base.
One of the most obvious implications of the true anonymity that Monero delivers is that it will be used to facilitate illegal or illicit transactions, or at least provide individuals participating in less than legal activities with an untraceable anonymous method of transmitting currency. Many individuals do value privacy for completely legitimate reasons, however, especially in light of recent net neutrality developments.
Monero has created a solution that allows ordinary consumers to remain competitive in the crypto mining industry with normal consumer computer tech, providing a protocol that is far more accessible than Bitcoin mining, which requires specialized ASIC computers.
An important point of difference between Monero and Bitcoin is that Monero transactions are roughly 25 times larger than Bitcoin transactions, which may cause scaling issues moving forward. While there will be no immediate issues caused by this difference, as block sizes scale dramatically bandwidth may become a serious problem in future.
Consensus Method: Proof of Work (PoW)
Intended/Current/Future Uses: Completely untraceable transactions, currency
- Indeterminate market segment size may limit room for growth
- Not currently scalable
- Network effects
- Completely anonymous transactions
- Powerful & well-distributed decentralization
- If consumer interest in completely privatized transactions increased, market size will increase dramatically
- Supported by extensive developer community and strong technological foundation
11. OmiseGo (OMG)
OmiseGo is a decentralized app that is built on top of the Ethereum blockchain. The OmiseGo app is the creation of Southeast Asian market payment gateway provider Omise, and resembles highly popular Asian mobile payment gateway solutions WeChat and AliPay. These platforms leverage the fact that smartphones are ubiquitous, and allow consumers to make payments for everything from bills to street food with a simple swipe of their device.
This convenient method of payment has already become extremely popular in China, and Omise is aiming to popularize it in the Southeast Asian market by incorporating cryptocurrencies into the system. The OmesiGo platform is unique for a number of reasons. Firstly, it allows consume to access a source of secure funds without the need for a traditional bank account. This is an extremely attractive feature to inhabitants of Southeast Asia, where only 27% of the 600 million-strong population possess a bank account.
Secondly, the OmiseGo platform is actively working towards integrating fiat currencies in the payment options it offers as well as cryptos, making the entire platform much more appealing to everyday consumers and merchants. OmiseGo is potentially the key to mainstream adoption of cryptocurrency as an everyday real-world payment method.
Consensus Method: Based on Ethereum blockchain tech, which is currently Proof of Work but is soon to shift to Proof of Stake
Intended Use: Payment gateway, banking services
- The development of the OmiseGo platform is currently in extreme early stages, and has no proven track record
- The marketing campaign for OmiseGo has, to date, been extremely well put together and slick, which has potentially over inflated its value due to excessive hype.
- Many high profile crypto thought leaders have consulted with Omise as advisors in the creation of OmiseGo, including Ethereum founder Vitalik Buterin, Lightning Network author Joseph Poon, and Julian Zawistowski, the founder of decentralized blockchain supercomputing platform Golem.
- Currently in negotiations with the Thai government for implementation in Thailand
- Uniquely positioned to access the Southeast Asian market, with a concerted effort on Thai, Japanese, and Korean markets
- Extremely professional structure and presentation
12. Stratis (STRAT)
Stratis is focused on creating a platform that allows businesses to create their own custom blockchain solutions. These solutions can be extremely varied, and could potentially be used for applications from optimizing supply chain management to enhancing the transparency of research publications.
The high level of integrity and transparency offered by blockchain technology is utilized in the Stratis platform to provide users with a greater amount of control over complex large scale systems such as Big Data and supply chain management.
Consensus Method: Proof of Stake (PoS)
Intended Use: Providing businesses with a platform on which to build business blockchain solutions
- Less popular than a number of other crypto platforms that offer similar features and functionality
- Uses blockchain technology as a foundation, ensuring a high degree of security and integrity
13. QTUM (QTUM)
Based in Singapore, QTUM is a business-focused Ethereum competitor. Built on top of the Bitcoin core code, QTUM integrates a second layer that allows it to interact with virtual machines, including the Ethereum virtual machine. Virtual machines enable to use of Smart Contracts and Dapps. The QTUM platform intends to fuse the security offered by Bitcoin with the unlimited use cases offered by Ethereum
Consensus Method: Proof of State (PoS0
Intended Use: Business-based smart contract solutions
- Patrick Dai, the CEO of QTUM, has received a significant amount of negative press due to his association with Bitbay several years ago
- QTUM’s layer-based approach that combines virtual machines and Bitcoin blockchain technology has yet to be proven
- Operating from Singapore provides QTUM with a significant geographic advantage, as it has been extremely encouraging of blockchain technology innovation to date
- Uniquely positioned to target both Western and Eastern markets
- As the QTUM platform is not in direct competition with NEO or Ethereum, it’s possible for all to coexist
14. EOS (EOS)
EOS attempts to position itself as the “operating system” on which other blockchain solutions can be developed. The EOS platform can be compared to the way in which computer programs are programmed to interact with the Windows OS instead of computer hardware itself, or the way in which smartphone apps communicate with either Android or iOS and not the smartphone hardware.
The CEO of EOS, Dan Larimer, is the founder of Steem and Bitshares, two of the largest cryptos in the market that boast both market caps far beyond $100 million USD. Larimer has likened the EOS system to his previous successful platforms by explaining the ease of which it will allow similar Dapps to be created. The EOS platform intends to facilitate interoperation between Dapps much like the way programs on an operating system interact.
Larimer come under fire recently for providing misleading technical details regarding the his platforms, however, and has aroused a significant amount of suspicion in the crypto community regarding EOS ICO due to the complex legal disclaimers it incorporates and it’s needlessly complicated structure.
As the EOS platform uses a Proof of State consensus method Larimer claims that it’s impossible for one individual to control too much of the overall supply. Given that the EOS platform does not yet have a viable product, it’s clear that the price of the crypto is purely speculative.
Consensus Method: Delegated Proof of State (dPoS)
Intended Use: Providing blockchains with an intelligent operating system
- Highly suspicious ICO format
- No working product released yet
- Extremely convoluted structure and documentation
- Relatively high bandwidth
- 5 second transaction confirmation time
- Claims many other technical advantages
15. BitConnect (BCC)
Bitconnect is an extremely controversial platform in the crypto community. Claiming to provide investors with a guaranteed ROI if they “stake”” their BCC tokens for at least 15 days, BitConnect resembles a traditional high yield investment program, or HYIP. There is no documentation on how BitConnect functions, no whitepaper, and absolutely no comprehensive information on the way it functions.
While many investors have been receiving a regular return on investment from BitConnect, it’s safe to say that the BCC platform is most likely a pyramid scheme or Ponzi scheme equivalent. The specific type of pyramid scheme that BitConnect resembles- a HYIP- typically experiences a gaussian curve in profitability.
Early adopters are able to benefit from the initial rise in profitability, but as late-stage withdrawals depend on the deposits of newer investors, it’s extremely likely that many investors will lose all of their staked capital when the BCC platform inevitably collapses.
As with any HYIP or high risk investment scheme, it’s best to get in early, and get out fast.
Consensus Method: Leased Proof of State. This consensus method is functionally similar to PoS, but provides users with the ability to “lease” their currency to nodes in order to generate profit
Current/Intended Uses: Mysterious money-generating machine
- Pyramid scheme. Likely to fail catastrophically
- If you’re willing to get involved with an extremely unstable pyramid scheme that could collapse at any moment, then there is a possibility that you may generate a strong ROI from Bitconnect if you are able to invest, profit, and withdrawal in time
16. BitShares (BTS)
BitShares is another crypto launched by EOS founder Dan Larimer. The Bitshares platform is intended to function as a decentralized exchange that delivers enhanced equality and security between market orders. BitShares doesn’t allow high frequency trading, hidden orders, front running, or location bias, and is one of the only crypto platforms that provide support for digital tokens of commonly traded physical assets such as gold.
Unlike other platforms that trade physical asset tokens, BitShares doesn’t back by real physical assets. The BitShares platform also has pegged fiat currencies and charges no fees, making it an ideal trading platform.
Consensus Method: Delegated Proof of State (dPoS)
Current/Intended Use: Decentralized exchange
- There is currently no legal framework backing digitized assets on the BitShares platform
- High transaction speed
- Extremely high transaction rate at over 100,000 transactions per second
- Low or nonexistent fees
- The decentralized nature of the BitShares exchange eliminates third party risk
17. Waves (WAVES)
Waves is a decentralized platform that makes creating new tokens incredibly easy, and is thus extremely popular with new ICOs. Waves also provides users with a decentralized exchange on which these new tokens can be created
Consensus: Leased Proof of Stake (PoS)
Current Use: ICO platform, crowdfunding
- The ICO market is already saturated with thousands of redundant or poorly constructed offerings with minimal oversight. Removing the barriers of entry that prevent low quality initial coin offerings from entering the market could potentially oversaturate the already stressed ICO ecosystem
- The Waves platform is extremely user-friendly and does not require a large amount of technical expertise to use
18. ZCash (ZEC)
ZCash is another privacy focused cryptocurrency that aims to completely obfuscate user information by using a protocol called zk-SNARKS to deliver anonymity. In addition to completely anonymized transactions, ZCash also integrates zero-knowledge proofs that make it possible to confirm fully encrypted transactions as valid. This new property should allow for the creation of entirely new classes of decentralized applications.
Consensus Method: Proof of Work (PoW)
Current Uses: Completely anonymous transactions
Future Uses: Platform for completely anonymized Dapps
- Anonymous transactions and Dapps have a potentially limited market size
- In order to remain relevant as an anonymous currency, ZCash must implement a range of further updates to enhance privacy and security
- The ZCash platform is likely to coexist with other anonymous currencies such as Monero
- Delivers clear utility
19. Tether (USDT)
Tether is designed to create cryptocurrencies that derive their value and price from fiat currencies. The Tether platform currently supports both USD and EUR, and plans to integrate JPY support. Tether acts as a safe haven for users of crypto exchanges, and essentially makes it possible to store fiat on the blockchain.
Tether is based on the Omni protocol, which, in turn, is built on top of the Bitcoin Blockchain. Every unit of digital USD/EUR/JPY is backed by real currency in reserve.
Consensus Method: Proof of Work (PoW)
Current Uses: Trading, storing fiat currency on the blockchain
- There are a number of questions regarding how the fiat currencies traded on Tether are backed. If every Tether user were to withdraw their funds simultaneously, it’s likely that the network would collapse.
- Tether offers redundancy to traders when entering a bear market
Chapter 5: Getting Started with Cryptocurrencies
Now that we’ve addressed the functions of blockchain technology and taken a look at some of the most successful cryptos on the market, we’ll advance to the practical section of this guide: how to get started in the world of crypto.
How to Buy and Sell Cryptocurrency
In this section, we’ll proceed to outline the basics of buying and selling cryptocurrency, how to store your crypto, provide an analysis of the most popular exchanges and wallet services, and provide some information on identifying good investment opportunities and avoiding scams.
Once you’ve developed an understanding of the crypto ecosystem, performed your due diligence, and have a firm grasp of what you’re actually investing your money into, it’s time to take a look at the practical aspects of purchasing cryptocurrency.
The most popular method of trading crypto at this point in time is via online exchange platforms. There are now dozens of online exchanges that allow crypto investors to trade many different types of crypto. Getting set up with these platforms works in a similar manner to most online services. Users are required to create an account that is typically verified with email and SMS confirmation, as well as ID and address verification in most cases.
The vast majority of exchanges require new users to deposit fiat currency, and take a few working days to process each application. In most cases, users that deposit one type of cryptocurrency in order to exchange it for another aren’t required to provide any identification or verification, but anti-money laundering and “know your customer” regulations make it necessary for the conversion of fiat to crypto.
Once you’ve created an account on an exchange, it’s highly advisable to create a two-factor authentication method to secure your crypto. This means creating two layers of security- a password for the exchange itself, and another security layer that prevents unauthorized users could potentially access this password with the ability to do any damage.
Many exchanges offer SMS confirmation as a two-factor authentication method, but it’s also possible to use the Google Authenticator app from the Play Store or App Store. As hacks of personal information are commonplace in the crypto ecosystem, it’s essential not to overlook this critical step. Most exchanges offer detailed step by step walkthroughs on how to set up the Google Authenticator app.
Once you’ve established your exchange account, verified your identity, and set up two-factor authentication, it’s time to send fiat currency to your exchange account. This can be achieved through credit cards and bank transfers or through online payment gateways such as PayPal, depending on what your chosen exchange accepts.
Crediting your account with fiat is a relatively simple process on most exchange platforms. Loading your wallet with crypto is also relatively simple. After logging in to your exchange, you should be presented with a series of menu options, one of which is usually “wallet”, “account”, or “deposit”. Many exchanges provide lists of specific cryptocurrencies that can be used to fund a wallet or account, and provide users with specific links to add them.
After clicking the corresponding link for the cryptocurrency you wish to deposit into your wallet, your exchange should provide you with the wallet address and a corresponding QR code. If you use a smartphone-based wallet application, then it’s simple enough to scan the QR code, but if not you’ll need to manually enter the wallet address in order to send to it.
Shortly after you’ve deposited your crypto into your wallet, you should see the amount you’ve deposited in the “pending” deposits section of the wallet page your exchange provides. Some exchange platforms can take a short amount of time to credit wallets with fiat currency, with timeframes ranging from minutes to days depending on the platform and the currency. Don’t worry too much if the transaction doesn’t appear in “pending” immediately.
Once your deposit has finished pending, the currency will clear from pending and show the relevant amount in your wallet. At this point it’s possible to navigate to the relevant market to the cryptocurrency you want to purchase. If you’re credited your wallet with USD, for example, and want to purchase Bitcoin, then you’ll need to navigate to the BTC/USD exchange.
The BTC/USD exchange of your chosen exchange platform should present you with a chart of prices, an order book, and a spectrum of other information. The simplest way to purchase a cryptocurrency is to place an order setting the price at the “Ask” price, selecting the amount of cryptocurrency you wish to purchase, confirming the amount of USD it will cost you, and then submitting your order.
Your exchange will then provide you with a confirmation that your order has been processed, at which point you should see the requested amount of cryptocurrency, or in this example, Bitcoin, in your wallet. When using this method to purchase cryptocurrency, it’s best to select “Immediate or Cancel” in the order preferences in case your order is not fulfilled immediately, or you’re not sure what cancelling is or what it means.
Seling Bitcoin or other cryptocurrencies on an exchange platform is a similar process. Exchanges typically provide a separate function for selling that allows traders to set the price at “Bid” price, along with the volume of currency they want to sell. When the order is confirmed, you should see USD or whichever currency you’ve chosen in your wallet.
Keep in mind that trading is a complex process that is more complicated than it appears in this guide. To get started buying and selling crypto, however, this should be enough to begin. It’s also important to remain aware of the fact that most exchanges charge both transaction and withdrawal fees.
In this section we’ll proceed to break down the most popular exchanges and find out what they offer traders:
Coinbase is a comprehensive cryptocurrency exchange that supports Bitcoin, Litecoin, and Ethereum. As one of the biggest online exchanges, Coinbase is supported in more than 32 countries worldwide, boasts more than 10 million users, and to date has exchanged more than $20 billion USD in digital currency.
Coinbase also offers mobile wallet apps, secure offline storage, insurance protection, full control of private keys, instant exchanges, and programmable scheduled recurring buys. Recently, Coinbase has also launched Coinbase Merchants, which allows for international payment acceptance, and the Shift card, which is a Visa debit card that allows cryptocurrency holders to withdraw their crypto into fiat directly.
It’s possible to credit a Coinbase account with bank transfer in fiat currency, credit card, debit card, and PayPal.
Coinmama is another highly popular crypto exchange that is currently used by more than half a million crypto traders. The Coinmama platform allows traders to purchase Bitcoin or Ether with USD or EUR, and accepts credit card payments. Coinmama charges a 6.15% fee, as well as a 5% debit or credit card transaction fee.
Based in Prague, Changelly accepts supports a wide variety of different cryptocurrencies. Changelly provides support for 35 different cryptos, including Bitcoin, Ethereum, Monero, Ripple, Dash, and Litecoin. The platform accepts both EUR and USD, as well as credit and debit cards.
Poloniex is a US-based digital asset exchange that stands out from other exchanges due to the high security levels it offers. The platform supports more than 100 different cryptos and features a simple, easy to navigate UI along with stop-limit orders that reduce trading risk and fully zoomable charts that cover complete market history.
Kraken is one of the fastest Bitcoin exchanges online, and offers traders the ability to trade Bitcoin for USD, EUR, CAD, and JPY. Depending on the volume of BTC traded, fees are extremely low and in some cases even free.
In addition to Bitcoin, Kraken supports Ethereum, Bitcoin Cash, Monero, Dash, Litecoin, Ripple, Stellar/Lumens, Ethereum Classic, Augur REP Tokens, ICONOMI, Melon, ZCash, Dogecoin, Tether, Gnosis, and EOS.
Bittrex is one of the most diverse crypto trading platforms in existence, and provides support for more than 190 different cryptocurrencies, which is roughly 1/6th of the total market. Bittrex also offers extremely low trading fees, with a standardized 0.25% fee across all trades. Bittrex wallets can be funded with USD or credit and debit cards, as well as other cryptocurrencies.
Bitfinex is a major player in the cryptocurrency trading ecosystem, and is currently the world’s largest exchange platform, covering 10% of the entire crypto trade market. Supporting Bitcoin, Ethereum, NEO, Bcash, Litecoin, Zcash, OmiseGO, Iota, Ethereum Classic, EOS, Dash, Ripple, Monero, ETP, and Santiment, Bitfinex is extremely comprehensive, and offers a number advanced features that appeal to high profile traders.
In addition to an online trading platform, Bitfinex also offer mobile trading tools apps for iOS and Android, as well as margin trading, a margin funding market, and a suite of different order types.
GDAX is a professional crypto exchange launched by Coinbase, and aims to provide higher level advanced trading functionality. Offering the same features as Coinbase, GDAX also provides similar advanced order types to Bitfinex, but doesn’t offer margin trading.
The GDAX platform delivers good liquidity and competitive fees, but as it’s operated by Coinbase it suffers from the same privacy issues and could benefit from better support.
Formerly known as Coinimal, Bitpanda is an exchange that focuses on remaining compliant in the Eurozone, which has made it one of the most popular exchanges in Europe. Founded in 2020, Bitpanda charges higher rates than most exchanges, as they allow traders to purchase Bitcoin with methods that allow chargeback such as credit cards and Skrill.
LocalBitcoin is a unique case, and can’t really be referred to as an exchange in the same manner as the other platforms on this list. The LocalBitocin platform matches users with other Bitcoin owners in their local area that are either buying or selling digital currency.
While selling Bitcoin in person has it’s own unique advantages and disadvantages, LocalBitoin provides users with the ability to purchase Bitcoin via local bank transfer, deposits, and hard cash. LocalBitcoin is extremely popular with users in countries that regulate against bank deposits or payments to online digital currency exchanges.
The LocalBitcoin platform also integrates a points system that allows users to rate other sellers and buyers based on how trustworthy they are, providing a modicum of collective moderation. When using LocalBitcoin to meet another user to trade Bitcoin in public, be sure to wait until at least six confirmations have occurred to ensure the transaction is successful.
11. Bitcoin ATMs
Bitcoin ATMS has been popping up around the World in the last few years, and are extremely common in both Southeast Asia and Eastern Europe. There are many different Bitcoin ATM models, but all of them work in the same way. In order to use a Bitcoin ATM, it’s easiest to use a smartphone based wallet that provides your public wallet address in QR code format.
Placing your QR code as displayed on the screen of your smartphone up to the QR scanner of the Bitcoin ATM will allow the machine to locate your wallet. At this point it’s possible to insert fiat currency into the ATM in order to purchase Bitcoin, and the ATM will inform you of the amount of BTC that has been transmitted to your wallet.
Some ATMs allow users to withdraw fiat currency by selling Bitcoin, but these ATMs typically charge high fees and often require pre-registration.
12. Peer to Peer
Peer to Peer is the simplest way to sell Bitcoins, but also the riskiest. Selling to friends, coworkers, and other close associates is obviously safe, but always be sure to exercise caution when selling Bitcoin or other cryptocurrencies to strangers and remain aware of the transaction confirmation process.
Storing Your Cryptocurrency
All cryptos are stored on “Wallets”. Wallets come in an extremely diverse variety, and can be hosted on a computer, a smartphone, a specialized piece of hardware, with an online wallet hosting service, on a flash drive, a piece of paper, or even memorized and hosted entirely in the mind of the owner. Exchanges store the cryptos that investors trade on hosted wallets.
A crypto wallet can be considered to function in the same way as a traditional cash wallet, or a bank account. Wallets contain the amount of cryptocurrency that belongs to that “address”, which in this case can be considered to be synonymous with wallet. Establishing a wallet and using it to send, receive, and store cryptocurrency can be extremely simple, but it’s critical to remain very aware of the best security practices for maintaining a wallet.
Types of Wallets
Wallets can be divided into two main categories: hot wallets and cold wallets. The simplest way to illustrate the difference between these two different wallet types is to consider hot wallets as connected to the internet, while cold wallets are offline. Most crypto traders maintain both hot and cold wallets as they each deliver different benefits.
Hot wallets can be compared to checking accounts, while cold wallets can be compared to savings accounts. Most traders and cryptocurrency users keep a small amount of functional cryptocurrency in their hot wallets, using this crypto to trade and purchase goods and services, while holding the majority of their crypto in a cold wallet.
The reason crypto owners choose to hold their cryptocurrencies in a cold wallet is because they are far more secure- hackers are unable to access wallets that are not connected to the internet. The security of a hot wallet is dependent on the security habits of their owners and the third parties that host them.
As hot wallets are constantly connected to the internet, they are vulnerable to hacking attacks. Accounts with exchange such as Bittrex or Coinbase are considered hot wallets, as the companies that host them do so on connected infrastructure and servers. If a hacker were to gain access to Coinbase and drain it of crypto, then there’s a very high likelihood that all Coinbase users would lose their cryptocurrency.
As a general rule, using exchange platforms is generally regarded as safe, as long as users move large amounts of crypto from their exchange wallet to a cold wallet after concluding large trades. Another example of a hot wallet is wallet software applications that are downloaded to a computer, such as Exodus. There are many hot wallets that function in a similar manner, such as the Dash QT wallet.
With downloadable wallet applications, your private wallet keys are safely in your hands, but still susceptible to attack from hackers that could potentially gain access to your computer. Many of these downloadable wallet software suites integrate seamlessly with popular exchanges, improving ease of use.
Cold wallets come in many different forms, but a highly secure variety is a hardware wallet. These wallet solutions are physical devices that remain offline, but retain the ability to connect to a computer when needed. Hardware wallets also add another layer of security, requiring users to press a physical button on the device to confirm transactions. There are three main brands of hardware wallets- Trezor, Ledger Nano S, and Keepkey.
Lastly, the most secure wallet format is a paper wallet. This solution consists of a hard-copy paper document that contains all of the information necessary to generate private keys, forming a wallet of keys. The term paper wallet has grown to encompass any method of storing cryptocurrency offline using a physical paper document, including paper keys and redeemable codes. While paper wallets are completely immune to hacking, they must be treated in the same manner as high value goods such as precious metals, jewels, or cash.
Wallets use a specific code called a “private key” to sign off on any transaction a crypto user wishes to make. This private key also functions as the ID of a wallet. If a cryptocurrency owner loses access to a wallet, the private key is the only thing that will allow them to regain access to their funds. When creating a wallet for the first time, you’ll be presented with a private key and, in some cases, a twelve word phrase. It’s a good idea to take note of these and store them in a secure location.
The “public address” of a wallet is used to receive cryptocurrency. It’s critical to ensure that you do not mix up your private key and public address. The highly complex nature of private keys makes it impossible for anybody to guess yours, even with the aid of a supercomputer. If a hacker or somebody else gains access to your private key they will have access to the entirety of the cryptocurrency stored in the related wallet, so it’s extremely important to remain selective regarding who you choose to share it with.
If anybody gains access to your private key, they will be able to send the funds your wallet contains to any other wallet address, including their own, which is completely irreversible. There are three critical elements to remain aware of when storing cryptocurrencies:
- When your cryptocurrency is stored in a hot wallet, whether on an exchange or your own computer, you do not have 100% assurance that you will not be hacked. Storing cryptocurrency on an online exchange means trusting the exchange with the value you have stored in the exchange-hosted wallet
- Whether using a hot or cold wallet, access to the private key provides complete control over the funds it contains. Never reveal your private key to anybody
- Backing up your private key, preferably in an offline location, is critical. Store your private key on a piece of paper or an offline drive, preferably in more than one place. If you lose access to your wallet and don’t have your private key, the funds your wallet contain are permanently irretrievable.
Choosing the right wallet solution can be a complicated process. We’ll proceed to break down a number of popular wallet solutions and highlight their salient features:
MyCelium is an open source wallet solution that provides advanced control features, and is backed up by an extensive development team that is actively improving it. The MyCelium solution is primarily aimed at the Android market, but also offers cold wallet prepaid cards that function as cold wallet solutions.
Jaxx is a hierarchical deterministic closed source wallet solution that is currently in open beta. Developed by Kryptokit, the Jaxx wallet supports Ether, Ether Classic, Dash, DAO, Litecoin, REP, and Bitcoin. The Jaxx wallet has a unique philosophy that adheres to a number of specific axioms- Jaxx never access or hold user funds, they offer a client-side security model, and never require personal information from users.
3. Ledger Nano S
The Ledger Nano S is a currently the most affordable hardware wallet available on the market today, and is the cheapest hardware wallet with a screen. Offering extremely simple and easy setup, the LEdger Nano S boasts two physical buttons that enhance security by requiring that users press both buttons at once to confirm a payment or transfer.
4. Paper Wallet
It’s possible to create a paper wallet to store cryptocurrency that is completely hacker-proof. Typically, paper wallets are documents that contain both the private and public keys that make up a crypto wallet. Often, paper wallets include QR codes to facilitate quick transactions. When using a paper wallet, however, it’s important to ensure that it’s stored securely, as it provides access to all of the funds stored on it.
How to Avoid Getting Scammed
Many market observers refer to the cryptocurrency ecosystem as the “wild west”, as there is very little customer service or guarantees, and a high chance of getting scammed if traders are careless or unaware. The relative complexity of cryptocurrency paired with the unfamiliarity most users have with the underlying technology has created a market that is preyed upon by scammers and hackers.
The sheer amount of operators attempting to prey on the ignorance of new cryptocurrency investors means that remaining aware of common scams is critical. It’s important to inform yourself of the most common ways in which scammers attempt to exploit the cryptocurrency market.
Performing your due diligence is essential in any investment market, and the crypto market is no different. Understanding the mechanics of the cryptocurrency market is essential, and it’s important to remember that unless you possess an encyclopedic knowledge of the code under the hood of the blockchain it’s important to be careful at all times.
Any crypto worth investing in should provide a complete breakdown of its constituent code on their Github repository. If you’re not a coder, checking to see that the development team is at least pushing regular updates should suffice. If there’s only one developer pushing updates, or there hasn’t been a code update in three years, you should be immediately suspicious.
If any crypto platform offers guaranteed returns, then it’s highly likely that it is a scam, or at least a Ponzi scheme. While these platforms grow fast, they inevitably crash, without exceptions.
There are many positive, genuine initial coin offerings on the market today. There are also many fraudulent ICOs. When assessing an ICO, be sure to check a number of key factors to ensure you don’t get burned. What is the key proposition? Is there a white paper? Who runs the ICO, or is behind it? Assess ICOs carefully.
Before using an exchange to sell or buy cryptocurrency, it’s important to check the fees the exchange charges. Some exchanges trade in indivisible cryptocurrency, which means anything withdrawn after the decimal point is claimed by the exchange.
Always remember that you can’t be sure a transaction has been executed until you have received at least six confirmations. This is important when conducting peer-to-peer transactions
Style Does Not Infer Substance:
A slick website and social media presence does not necessarily mean a project or platform is a good investment. Many projects spend a significant amount of money on marketing, only to fail in the end.
Identifying Good Investments
There are a number of factors that can be assessed to identify a positive investment. The following factors are by no means definitive, but are a good place to start when analyzing an investment:
A strong community is a good sign of a positive investment opportunity. Active slack channels, subreddits, or other social media sites in which members actively contribute to discussion is a good indicator of a strong investment.
ICOs in particular benefit from a comprehensive roadmap that provides a chronological breakdown of how soon the development team plans to roll out features, as well as an estimated time of completion
Address a Real Issue:
It can be difficult to assess this factor, as it’s primarily a fundamental analysis factor, but it’s important to take a look at whether a project has real use cases. A project should have a large enough impact on a platform that users of legacy technology will abandon existing platforms. What is the size of the industry the project targets? Is there an advantage in the new system?
Room for Growth:
It’s similarly important to determine whether the industry the project targets has enough room for growth. Even the best ideas will fail if there are not enough users and adopters to support it.
The Different Roles of Crypto
Cryptos have many different uses. In this section of the guide we’ll take a look at the different roles of crypto and their various utilities:
Currencies are the largest and most disruptive application of cryptocurrency. Digital currencies are not limited to one specific industry, but face a significant amount of competition and currently have a large amount of regulatory assessment to overcome, especially as they grow to threaten fiat currency.
Platforms, such as NEO and Ethereum, are the second most disruptive application of cryptos, as many different digital assets are likely to use them as a foundation. Over the the long term, it’s likely that one or two platforms will dominate this space.
Digital Assets are virtual representations of physical assets or commodities. In the near future it’s likely that digital assets will be the most popular method of trading these items.
Tokens created by new startups and organizations that aim to solve specific issues or fill a specific niche are highly effective. There are many tokens that use their own blockchain, as well as hundreds that use existing networks, such as the Ethereum network.
Government regulation is one of the most widely discussed topics in the crypto ecosystem. Many countries, such as Dubai and Japan, have shown a significant amount of support for blockchain technology. Others, such as China, have come down hard on crypto, banning it until legislation can be ironed out.
The most likely element of the blockchain ecosystem that will be targeted by governmental structures is exchanges, as they are currently the easiest method of converting crypto into fiat currency. The future of legislation for cryptocurrency looks bright, however, with potential talks of licensure in China inbound and larger countries such as Russia considering the launch of national cryptocurrencies.
The crypto market is currently extremely volatile. The massive market caps that traders are observing in the crypto market give the impression that blockchain based currencies are fully developed, but in reality it’s likely that there are still several years to go before commercial adoption. Short term returns on crypto may disappoint some traders, but medium term predictions are extremely promising.
Chapter 6: The History of Cryptocurrency
Understanding the history of cryptocurrency and the historical movements that have led to the current market state can deliver powerful insight into their future movements. In this section, we’ll illustrate some of the history of cryptocurrency and how it came to be.
The earliest days of blockchain technology saw a range of different and unique projects, but BitGold was the first fully developed cryptocurrency. Developed by Nick Szabo, a forward-thinking tech innovator who first outlined the benefits of decentralized ledger practices for currency applications, BitGold is the precursor to Bitcoin.
BitGold was the first digital currency to combine Proof of Work consensus methods, one way algorithms, and ledgers spread over many different servers. Szabo was also the first visionary to develop the concept of Smart Contracts and Digital Assets.
Bitcoin, the most disruptive application of blockchain tech to date, was launched in 2008 by a mysterious developer operating under the pseudonym “Satoshi Nakomoto”. Nakomoto released a whitepaper titled “Bitcoin: A Peer-to-Peer Electronic Cash System”, and subsequently the first Bitcoin client went online and available for download.
Satoshi himself mined the first block of Bitcoin, which has been termed the “genesis block”. Hal Finney was the first person to download the client, and was also the recipeint of the first Bitcoin transaction, sent by Nakomoto.
Nakomoto is estimated to have personally mined around one million Bitcoin, making him the largest shareholder of BTC on the planet, and an extremely wealthy individual. To date, the real identity of Nakomoto is unknown.
In 2020 a number of competitors to Bitcoin began to enter the market. This year saw Vitalik Buterin, the mind behind the Ethereum Network, co-found Bitcoin Magazine. Inspired by the success of Bitcoin, Vitalik launched the Ethereum network in 2020, which is similar in many aspects to Bitcoin, but also offers enhanced functionality and utility through the implementation of Smart Contracts.
The Mt. Gox Scandal & Other Exchange Hacks
Extreme fluctuations occurred in the crypto market in 2020 when a series of events rocked the ecosystem at large. Mt. Gox, the largest exchange at the time, halted trading due to US Financial Crimes Enforcement Network seizures of Mt. Gox assets.
The price of currencies in the crypto market took a further hit in 2020, when Mt. Gox filed for bankruptcy protection after the loss of more than 744,000 BTC, causing Bitcoin prices to plummet. More recently Europe-based exchange Bitfinex was subject to a hack that saw the loss of more than 120,000 BTC, serving a a warning to keep the larger portion of your crypto in a cold wallet.
Bitcoin ATMs & Widespread Merchant Adoption
The very first Bitcoin ATM went live in Vancouver, Canada, in 2020. By the end of 2020, more than 771 Bitcoin ATMS were live worldwide. In the same year, Swiss railway operator SBB converted their ticket machines to Bitcoin ATMS.
In 2020, online retailer Overstock began accepting Bitcoin, as did the University of Nicosia. Zynga, the international gaming giant, has begun to offer Bitcoin as a payment method, as have several casinos in Las Vegas. Notably, Microsoft began accepting Bitcoin as a payment method for Windows apps and Xbox games in 2020.
By August 2020, more than 160,000 merchants worldwide were accepting Bitcoinas a payment method. Barclays announced that they would be the first UK high street bank to accept BTC in the same year. In April 2020 computer gaming giant Steam began accepting BTC, as well as transportation app Uber.
The Current State & Rapid Growth of Cryptocurrency
Blockchain technology and crypto in general is beginning to see more use not only as a legitimate currency and method of storing value, but also as a potential new way to create a wide variety of applications and services. The number of merchants currently accepting Bitcoin has increased by over 400% in 2020, and daily transaction volume has reached more than 7 billion USD. The future of cryptocurrency certainly looks bright.
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