Different types of cryptocurrency: From Bitcoins to Sh*tcoins

Thinking about investing in crypto but not sure where to start? Don’t worry, we’ve all been there! For many of us, the world of cryptocurrency can at times feel quite overwhelming – full of acronyms, lingo and confusing phrases that only a select few of the hardcore crypto fans truly understand.

In this post, we take a look at what we believe are the best cryptocurrencies to buy this year and simplify some of the key concepts associated with them. We cover the most popular types of cryptocurrency (like Bitcoin and Ethereum) as well as the upcoming cryptocurrencies (such as Cardano and Chainlink) which appear to have a huge growth potential in the coming months.

By the end of this post, you'll know:

• The best cryptocurrency to buy right now
• The upcoming cryptocurrencies to look out for
• The pros and cons of the different types of cryptocurrency
• How you're going to invest your spare change (hopefully 😁).

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Origins of Crypto

Before we go anywhere, let’s take a quick look at the origins of cryptocurrencies. During the early 1990s, a group of highly-skilled, anti-establishment, digital privacy activists known as “cypherpunks” came together to express their desire to radically reform traditional financial systems. These cypherpunks wanted to develop a new type of currency that eliminated the need for third-party oversight in recording transactions, improved the privacy of its users and prevented censorship by governments and other centralised authorities. They proposed a new type of digital currency called “cryptocurrency”, that uses encryption and a special type of technology called “cryptography” to keep users’ money safe. Since then, many different types of cryptocurrency have emerged and as of January 2021, there are said to be more than 4,000 cryptocurrencies in existence.

Read more about cypherpunks and the origins of cryptocurrency here!

1. Bitcoin: The Market Leader

It’s hard to talk about cryptocurrency without mentioning Bitcoin. Invented in 2008 by the mysterious figure who went by the name Satoshi Nakamoto, Bitcoin has since become the de facto standard for cryptocurrencies, dominating the market in terms of market capitalisation ever since.

Bitcoin transactions are processed through a system called ‘Proof-of-Work’, where so-called miners (computers on the network) constantly chip away at difficult maths puzzles until they beat competitors to a specific puzzle and win a prize – in the form of bitcoins.

The key issue with Proof-of-Work is that it is extremely demanding on electricity. In fact, the electricity used by all miners in the Bitcoin network every day is said to be the same as the entire electricity consumption of all of Ireland, per day. The environmental impact of Bitcoin mining has already raised concerns among users, and is likely to be the reason for its demise in years to come. Bitcoin is also said to be extremely speculative and volatile, meaning its price can change by €000s in a matter of minutes. While some argue that Bitcoin is the best cryptocurrency to buy right now, we would have to question that. We suggest you look at other types of cryptocurrency first, before deciding to put all your eggs in the one basket!

2. Ethereum: A Greener Option

Moving on from Bitcoin, another type of cryptocurrency is Ethereum. Where Bitcoin is about decentralising digital currency, Ethereum takes this a step further and aims to decentralise the entire internet. Its goal is to create a decentralised app-store that anyone in the world can have free access to, regardless of nationality, ethnicity, or faith. Users of the app-store pay for products using Ethereum’s coin, called Ether. The only person who can make changes to the app would be the original creator of the app, thus taking away control from today’s app stores such as Google Play and Apple’s App Store.

Ethereum’s major competitive advantage is that by the end of this year, it will move away from Proof-of-Work and into Proof-of-Stake – a far less energy-intensive and much more efficient mechanism of processing transactions.

Learn more about the differences between Ethereum and Bitcoin below 👇

3. Cardano: The Future

Similar to Ethereum, Cardano uses Proof-of-Stake technology to process transactions. It expands on the technology of Ethereum and intends to develop new features that can be used to detect voter fraud and offer solutions for legal contact tracing. It claims to be a more balanced and sustainable ecosystem for cryptocurrencies, and unlike the other types of cryptocurrency, it takes a research-driven approach to its development.

While it is still in the early stages, Cardano is definitely one of the upcoming cryptocurrencies to watch out for this year!

4. Chainlink: The Dark Horse

One of the key benefits of cryptocurrencies is smart contracts - the idea of self-executing contracts taking place between two parties, as described in a previously agreed contract. In order for these smart contracts to take place, they need to connect with outside data to determine the task has been executed. Currently, this is not feasible with the current types of cryptocurrency such as Ethereum and Cardano.

Chainlink looks to solve this problem by bridging the gap between smart contracts and real world data. It plans to provide trusted, real-time data such as market price feeds, financial data and data from IoT devices to facilitate the execution of smart contracts on other platforms such as Ethereum. It’s innovative technology and unique value proposition is hugely promising and serves as a clear indication of what is to come in the future of crypto.

Summary

Conclusion

Needless to say, the crypto market is extremely volatile and subject to extreme price changes without any prior warning. Having said that, there is huge potential for the future of crypto, as the world we live in becomes more and more digitised. Our advice to you is to carry out plenty of research into the technology behind the different types of cryptocurrency before making your decision, and only invest money that you’re prepared to lose.

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