The initial cryptocurrency was Bitcoin, devised in 2009 with a pseudonymous programmer named Satoshi Nakamoto. The marketplace does not know the real identity of Satoshi Nakamoto, but the groundwork set by the creation of Bitcoin paved the way for additional electronic currencies.
Additionally, it resulted in the rising acceptance of cryptocurrencies as an investment opportunity and as a medium of trade, a means to safely transfer money from 1 currency owner to a different digitally and with no usage of standard banks or financial institutions.
Cryptocurrencies are made to be the money, an alternate to the fiat currencies of the world, many of which have been in a variety of phases of erosion through inflation or are in danger of government seizure. Greece, a nation with a 45 percent tax rate, seizes over 900 bank balances every day.
The island state of Cyprus, a budding financial centre, endured the effects of Greek debt defaults, forcing Cyprus’ government to seize depositor’s funds to remain solvent.
Awareness for Cryptocurrencies is growing, but most of the focus has been on Bitcoin. Relatively few retailers accept cryptocurrencies for payment, but there are a few. Overstock.com announced in 2017 that they would accept cryptocurrencies as payment.
Payments will be limited to Bitcoin, Ethereum, Litecoin, Dash, and Monero, giving the other 1,500+ cryptocurrencies the cold shoulder. Pizzaforcoins.com accepts over 50 cryptocurrencies, allowing cryptocurrency owners to buy pizza from local establishments and have it delivered.
Market adoption of cryptocurrencies for payment has been slow and options continue to be limited but the cryptocurrency market can change quickly.
As many as 1,000 cryptocurrencies have failed already, with more currencies sure to follow. The most common type of failure is at the Initial Coin Offering (ICO) or shortly thereafter, with many coins finding a crowded market for coins with similar characteristics to existing offerings, causing skepticism among investors.
In some other cases, the ICO itself was just a cash grab, with the founders running off with investor funds. Currently, ICOs are unregulated.
Abandoned Cryptocurrency Projects
Most of the investment money for cryptocurrencies is focused on a relatively small group of coins. Without investor interest, projects can get abandoned, leaving investors with essentially worthless digital coins.
As it pertains to cryptocurrencies, regulation risk has two sides. In the U.S., cryptocurrencies are not regulated at a federal level, leaving states the option to introduce rules and regulations regarding cryptocurrencies or the blockchain technology that serves as the backbone for cryptocurrencies.
On the other hand, some investors and finance experts have expressed concern over future regulation for cryptocurrencies, which could cause a drop in demand or eliminate demand altogether.
Investors and lesser-known cryptocurrencies may find fewer buyers, creating challenges when looking to exit a position.
Few investment classes can rival cryptocurrencies when it comes to price volatility. Prices can rise or fall dramatically in a single day, making or breaking fortunes.
Mt. Gox, a Bitcoin exchange based in Japan, and the leading exchange worldwide in 2014 was hacked, leading to a loss of nearly half a billion dollars in Bitcoin. In total, an estimated 850,000 Bitcoins belonging to investors went missing, ultimately forcing the exchange into bankruptcy.
Cryptocurrencies are often kept in a digital wallet, which is secured by a long code or a long series of words.
Unlike your bank account or investment account, there is no recovery process available if you lose your password. Without your password, your cryptocurrency wallet and its contents are no longer accessible.
What to Look for in a Cryptocurrency
Weiss Ratings, a leading independent rating agency for financial institutions, recently introduced ratings for cryptocurrencies, identifying Bitcoin, Ripple, EOS, NEO, and Steem as its five top-rated cryptocurrencies. Weiss also spotlights a dozen cryptocurrencies it identifies as being the weakest.
Cryptocurrencies are highly speculative investments in the biggest gains are sometimes found among newly introduced coins or coins whose technology has found the market, as was the case with Ripple.
More cautious investors may choose to look at adoption rate, focusing portfolio investment on cryptocurrencies that are currently used in real-world transactions.
In many ways, the market cap for a given cryptocurrency goes hand-in-hand with liquidity. Fledgling cryptocurrencies may not ever find the market, preventing investors from exiting the position profitably.
Promising New Technology
Ethereum and Ripple both owe their stratospheric gains in 2017 to the innovative technology built into their respective platforms, differentiating both cryptocurrencies from the crowded market of often similar offerings.
Security or Anonymity Features
Technology such as smart contracts, found in Ethereum and several other cryptocurrencies make transactions more secure by enabling a set of rules for each transaction. Some cryptocurrencies, like Monero, place a strong focus on anonymity, obscuring the identity of the sender and receiver of funds.
Ethereum and Ripple are again good examples of cryptocurrencies with utility beyond a simple medium of exchange. Ripple, in particular, attributes its rise in popularity and a price appreciation of 36,000% in 2017 to acceptance within the financial industry as a tool to transfer money around the world inexpensively and faster than by traditional methods.
Red Flags for Cryptocurrencies
When choosing a cryptocurrency for investment purposes with the hope that it may someday become a tool for monetary trade, there are some things to look out for and some evidence that sometimes it’s more prudent to wait until a market is established for a cryptocurrency.
Many cryptocurrencies are built on open-source code, making it relatively easy to clone an existing cryptocurrency, possibly making only minor changes to the code or the cryptocurrency’s features.
In these cases, the new currency may not offer enough unique benefits to justify the investment or suggest that the currency will be widely adopted.
Limited Market Interest
The cryptocurrency market has its well-known heroes, but it also has its share of duds, well-intentioned cryptocurrencies that never get off the ground or poorly-supported or niche currencies that are better described as a hobby than as a currency. Staying with currencies that have shown signs of continuing market interest is a safer bet.
Low Market Cap
Much as market cap helps us to instantly distinguish between a Dow Jones stock and a penny stock, a higher market cap points to a more vibrant market and greater liquidity. Thinly traded cryptocurrencies or those with a low market cap could be a trap that’s difficult to escape if you need to make an exit.
Limited Exchange Support
Similar to the concerns regarding market cap, a cryptocurrency with little support on exchanges can make it difficult to trade, often requiring several steps and conversions to make a single trade. Cryptocurrencies with wider support on popular exchanges make it easier to build or exit a position.
How We Chose the Best Cryptocurrencies
The most daring investors can purchase new cryptocurrencies at the initial coin offering or shortly thereafter, following the example set by many of today’s Bitcoin millionaires. However, there may never be a”following Bitcoin”, and the estimated 1,000 cryptocurrencies that have vanished into the digital ether point to risks for early investors. We took into consideration:
More established cryptocurrencies with a larger market cap
Those that are traded on a number of exchanges (providing enhanced liquidity)
Historic performance and recent trends
1. Bitcoin (BTC)
The granddaddy of all cryptocurrencies, Bitcoin was first and is the most well-known cryptocurrency on the market. It also benefits from the largest market cap and is among the most highly traded cryptocurrency, assuring liquidity in the short-term. Bitcoin is the king when it comes to retail adoption, leading all other cryptocurrencies in terms of acceptance as a payment medium.
Down significantly from its all-time high of over $20,000 per Bitcoin, BTC may have plenty of room for growth despite an increasingly crowded field of competitors.
2. Ethereum (ETH)
As the currency and platform that made”smart contracts” a part of this cryptocurrency marketplace’s language, Ethereum has witnessed enormous gains since its debut in 2015. Currently monitoring just Bitcoin in respect to advertise capitalization, Ethereum has turned into among the most frequently discussed cryptocurrency jobs on earth.
A consortium of several of the greatest names in the company , such as Microsoft, Intel, Chase, and J.P. Morgan are constructing business-ready versions of this applications that pushes Ethereum. With market and momentum excitement supporting the Ethereum undertaking, there is no reason to believe Ethereum has run its course and investors must consider Ethereum within a cryptocurrency portfolio.
3. Ripple (XRP)
Ripple diverges from much of its cryptocurrency opponents in many of ways. Ripple is a creation of Ripple Labs, and the Ripple token is used in high-speed and economical currency transfers worldwide. Ripple Labs has announced that a range of partnerships with top money transfer solutions, with much more financial market partnerships anticipated later on.
Unlike a lot of cryptocurrencies that exchange on dreams and hopes, Ripple is used in the real-world now, showing indicators of prospective adoption over the financial market area. Ripple increase in value over 36,000percent in 2017, but comparable gains might not be probably going forward.
4. EOS (EOS)
Another cryptocurrency with intelligent contracts such as Ethereum, and that is gaining popularity is EOS. EOS is credited with being the primary blockchain functioning platform, offering decentralized applications that reside on the blockchain and concurrent processing, allowing faster transaction speeds and greater scalability than some rivals. Transactions on the EOS system are liberated.
Many competitions, such as Ethereum, possess a transaction fee for moving coins or tokens from 1 wallet speech to another. EOS concluded its yearlong ICO in May of the past year, raising a total of 4 billion. The longer-duration ICO was completed in an effort to make an orderly marketplace for EOS with no dramatic run-up and surprising crash shared to cryptocurrencies when started.
YTD functionality for EOS is horizontal, with less volatility than was viewed with a few competitions. Enthusiasm for the job remains high, and EOS is among the most actively traded cryptocurrencies on exchanges.
5. Bitcoin Cash (BCH)
Bitcoin Cash, a part of the first Bitcoin job, is one to see, as it is the fourth biggest cryptocurrency by market cap. If compelled to level criticism against Bitcoin in its existing form, slow trade speeds are one of its principal challenges.
Bitcoin money was developed using altered code in the Bitcoin job that enabled bigger block sizes, promoting faster transaction times and far better scalability. Though not as widely recognized or as broadly called Bitcoin, Bitcoin Cash remains a promising option to Bitcoin having a passionate market after.
6. Litecoin (LTC)
Currently called a payment system at Overstock.com, Litecoin might also have a brilliant future. Long-term investors in LTC happen to be rewarded with up to 20x yields, even though a spike in late December 2017 delivered the amount of LTC to over $350.
Litecoin currently trades at about $84 USD, and although showing signs of consolidation stays thinly traded and is always one of the best 10 cryptocurrencies when measured by market cap. Litecoin boasts a quicker transaction time than Bitcoin, chiefly credited to its usage of a different kind of algorithm to include transactions to the blockchain. Greater trade rate additionally enhances scalability.
Last Thoughts on Best Cryptocurrencies
Cryptocurrencies are still in their twenties. If you are new to cryptocurrencies, you might be better served by investing just risk funds and by constructing a portfolio of traded cryptocurrencies. First coin offerings could be tempting, especially with all the parabolic rises common to ICOs. Almost as common is that a precipitous fall after the ICO.
More based currencies help prevent some of their volatility and supply greater liquidity than seen with recently minted cryptocurrencies. It is very important to understand where a cryptocurrency could be traded and just how large the market is for this particular cryptocurrency.
Many early investors have found themselves with no workable approach to leave the position. In case cryptocurrencies are here in order to stay, a few very good chances are most likely to exist one of the most commonly traded currencies, while also reducing danger because of abandoned projects or absence of liquidity.