There is Bitcoin, there is Ethereum, and there are now literally hundreds of other cryptocurrencies. In fact, as of late March 2018, there were almost 1,600 cryptocurrencies listed on CoinMarketCap. Admittedly, the majority of these are thinly traded, and only a few of them are serious contenders for first place.
Before 2017, most people had never heard of Bitcoin, and many of those who had associated it with a fringe trend among tech enthusiasts or something more sinister, a currency used by organized crime. Even people who had heard of Bitcoin would have been unable to name any of its competitor like Ethereum or Ripple.
Today, most people are familiar with Bitcoin, but the crypto market is becoming more fragmented with each new crypto currency having its own unique characteristics, use cases, and raison d’etre. In many cases, buying cryptocurrency could be likened to gambling. However, whether or not you are interested in participating in this market, it would at least be wise to know a few things about it.
There are four main points to consider when deciding which crypto to use:
- use cases,
- transaction processing capabilities,
- privacy, and
- available supply of the coin/token.
Use cases are probably the most important point to consider. If you don’t know what you will use the cryptocurrency for, you probably shouldn’t be buying it. There are many options, and simply buying Bitcoin because you’ve heard people talking about it could turn out be a mistake. Here are three questions to consider in order to better understand your needs.
- Is privacy important to you?
- Are you planning to automate transactions using smart contracts?
- Do you make a lot of international transfers or payments?
The second most important thing to consider is transaction processing capabilities. Speed, volume, and fees are important in this area. Sometimes a transaction may be processed in a couple minutes or even a few seconds, but if the network is congested it will take longer. As the volume of transactions on a network grows, so will the time it takes to complete a transaction. Visa is capable of processing tens of thousands of transaction a second, and there are rarely wait times of more than a second or two at the point of sale. Perhaps more importantly, crypto networks can sometimes charge high fixed fees for each transaction, regardless of the size of the transaction. If your business involves transferring millions of dollars every few months, this won’t be an issue. However, if you want to run a coffee shop using crypto, you’ll need a low-transaction cost, high-volume network. Hint: Bitcoin isn’t it.
Another area of importance is privacy. One of the main reasons that cryptocurrencies became popular on darknets was because people thought they were anonymous. They are – kind of. And it depends which one. By nature, everyone can see all of the transactions made with coins like Etheruem and Bitcoin. They were designed to be entirely transparent. If someone can connect a Bitcoin address to a real person, that person’s entire transaction history will be known. Others are much more secretive, like Monero and Zcash, which are designed to be privacy focused.
Finally, the available supply may something to consider. Many coins have an upper limit on the supply. Some are close to reaching that point, others are far away, and some even have no upper limit. Once coins are no longer mineable, there is a maximum fixed supply, and prices will become absolutely dependent on demand. Furthermore, transaction fees may increase significantly. They are relatively low now because miners receive newly minted coins for their efforts, but once the supply reaches its upper limit, miners are likely to raise their fees in order to remain profitable.
If you want to know more about the top coins and their use cases, transaction capabilities, privacy, and available supply, you can find it nicely iconized in the infographic below.
Nick Rojas combines 20 years of experience working with and consulting for small to medium business and a passion for journalism to help readers grow. He writes about technology, marketing, and social media for the aspiring entrepreneur. When Nick is not sharing his expertise, he can be found spending time at the beach with his dog Presto. @NickARojas
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