It might be tempting to invest in the biggest and newest cryptocurrencies. But here’s the problem: whenever a new one is announced, every altcoin tumbles too. As soon as one major coin has a problem, all others feel the market-wide shift.
Here at Crypto Your Way we like to recommend the top 3 coins with their pros and cons. There are many other options, but this is the best way to diversify your portfolio.
That being said, if you want to invest in a single coin, look into Dash or Bitcoin. Dash was started by Evan Duffield and it has become a very popular cryptocurrency. Currently it’s ranked
One of the most popular cryptocurrencies today is Bitcoin. It’s been around for more than a decade and has weathered more than its fair share of controversies. But it’s still considered to be the gold standard for cryptocurrencies.
There are lots of other cryptocurrencies, though. Bitcoin is just one part of the whole cryptocurrency market. Some of them are also very popular, but others are a lot less well known and have fewer enthusiasts.
The popular ones create the most excitement, so it’s probably worthwhile for you to pay attention to them. As usual with investments in stocks or commodities, diversification is key. You can’t go wrong by putting some money in all the top five cryptocurrencies, but you can get better returns if you spread your investment between several different ones instead.
Cryptocurrencies are not just an investment, they are an entirely new kind of currency. They have their own unit of account, quite as much as the US dollar or the Euro. There’s no central bank that can print them up and devalue them. People who make a lot of money with cryptocurrencies don’t get rich by making money; they get rich by owning cryptocurrencies.
The biggest cryptocurrency at the moment is Bitcoin, which was created in 2009. It has nothing to do with the internet; it’s not a payment system. It’s just this thing that people trade. You can buy things with it: you can pay for your rent or your mortgage or your food with it; you can buy some cars at some dealerships, but you also use it to play online games, where you earn virtual currency called “Bitcoins” and spend them on virtual goods.
If you want to understand why things are going so well for cryptocurrencies, one useful thing to understand is how they work; besides the whole concept of money, cryptocurrency is about trading these things—and not just trading them but getting a big cut of everybody else’s trades too.
Cryptocurrencies are a new way of doing business. Currency is an exchange of promises to pay, and the promises can be made in different kinds of things. The normal thing is paper notes and coins. But more and more other kinds are being accepted as payment, sometimes with great advantages over paper money: they’re easy to transport, they’re hard to counterfeit, they’re harder to sneak out of circulation and so on.
Cryptocurrencies are not really currencies at all; they are software which lets you make electronic transactions without needing a bank or clearinghouse or central authority. You can’t use them to trade physical goods, but that’s not their purpose. Instead, cryptocurrencies are a medium for exchanging virtual currencies or digital assets (tokens). The general idea might be called “virtual cash.”
The main cryptocurrency is Bitcoin. It started as a kind of joke, a way of making money from nothing. But it has become far more than that; now the value of Bitcoin is greater than the value of gold — and it has even outpaced the value of silver. Bitcoin has become a store of value inspired by gold, but better in nearly all ways. There’s no reason that other cryptocurrencies won’t do the same; they seem to have great potential.*
Bitcoin is a protocol. It doesn’t mean much unless you can buy and sell it. So let’s do that.
Cryptocurrency is an asset class. It doesn’t mean much unless you understand it. So let’s do that too.
To get a handle on what cryptocurrency is, we’ll start with the basic unit: bitcoin. A bitcoin is a kind of digital commodity: a piece of data that represents an amount of value in the form of money (a currency) on certain computers (nodes or “miners”). The bitcoin is always worth about $4,000, and currently about $4,500. To send money through the bitcoin network you first have to create your own digital copy of the original bitcoin—store it in your private key—and then go to your friendly neighborhood node and tell it to send you some bitcoins by signing off their digital ledger, which is called the blockchain.
The coins are all created this way: miners put out lots of data representing things like “I just sent you five bitcoins,” and nodes collect those things from many other nodes and add them together to make up the blockchain ledger. To send money through the network, you have to go to another node and ask it to sign off your copy of the blockchain
The idea of cryptocurrencies is that it is easier to send money than it is to make it. In practice, that’s a bit more complicated. Sending money is always expensive: you have to go to the bank and pay a fee, and the fee gets bigger every year.
For a while, there was no way to send money without the bank. This made it hard for people to send money to each other, because banks are not very good at sending things out of their own pockets. If you want to send $100 to someone in Nigeria, you have to get the bank to do it by wiring $100 from your account in New York City to its account in Lagos.
It took quite a few years for banks and governments to figure out how they could use cryptography (which keeps messages secret) and computers (which keep records) together so that you could use your computer as part of a virtual bank. The story of how this happened is fascinating. But it takes up too much space here.
It’s tempting to go with the popular coin, which everyone else seems to be doing. But the price of that coin is likely to be very volatile, and it may not pay off long term.
If that coin really takes off, those early adopters will get rich. But if it doesn’t, they’ll probably lose their money anyway.
Or, if you’re a trader, you might be able to make money by going short on the popular coins and buying in cheap on a more obscure currency that people don’t understand yet.