If you have taken a taxi or Uber ride lately, you would know that cryptocurrencies are being talked up as a hot investment. So what are they and what are the top five cryptocurrencies you need to know about?
Bitcoin is a decentralised digital currency. It is finite, erratic and completely unregulated, meaning investors are subject to higher risk. Many have cried, “No bank fees? Sign me up!”
Public trust is high when it comes to this legacy cryptocurrency and as a result its value has been moving up and up at a substantial pace. The very first cryptocurrency and still at No. 1, it is at least slightly more trustworthy than its new brothers and sisters, having existed for longer.
On the other side of the (Bit)coin, we have Bitcoin Cash – Bitcoin’s first outside venture, which began due to the rapid growth of its parent offering. Boasting an increase in block size limit and increased hardware wallet security, Bitcoin Cash is otherwise much of the same with a trusted name.
Ethereum, in its simplest form, is an open software platform based on blockchain technology.
However, it allows developers to build and deploy decentralised applications, unlike Bitcoin, which primarily focuses on the trading of currency. In essence, Bitcoin runs on a peer-to-peer blockchain model whereas Ethereum “miners” work to earn “Ether” – a type of crypto token that fuels the network itself.
More than just a tradable cryptocurrency, Ether is also used by application developers to pay for transaction fees and services on the Ethereum network. Think “a market within a market within thousands of other potential markets that are yet to exist”. Sounds volatile? That’s because it is.
Litecoin is similar to Bitcoin in nature; however, there are two key differences. It boasts a faster moving market, thanks to a significantly shorter transaction time. Litecoin traders enjoy a two-minute rate while Bitcoin transactions take around 100.
There are currently 84 million Litecoins in circulation compared with Bitcoin’s 21 million, meaning Litecoin is for those with a shorter-term trading strategy – if one can really say they are strategically trading with cryptocurrency, which I don’t think one can.
Think of Ripple like an app on your iPhone – if the iPhone was Bitcoin. Ripple claims to complement Bitcoin by way of its commitment to allow the seamless transfer of any form of currency, be it dollars, euros, pounds, yen or bitcoins. Its “friendly” competitive play has afforded it some popularity and while it may never topple its gargantuan siblings, Ripple has earned a place in the crypto-marketplace – for the moment.
So are they really a good buy or will you just end up saying goodbye to your money?
One thing I know after being in the financial industry for well over 20 years is everything always comes back to value and because cryptocurrencies are highly speculative it is hard to qualify, let alone quantify, any value in them.
In my opinion, we are simply seeing the latest fade bubble, and as we all know bubbles burst and when they do the masses get caught out.
I am not alone in my opinion.
Billionaire investor Howard Marks, co-chairman of Oaktree Capital, says: “In my view, digital currencies are nothing but an unfounded fad (or perhaps even a pyramid scheme), based on a willingness to ascribe value to something that has little or none beyond what people will pay for it.”
While I think cryptocurrencies are currently a bubble, I am not saying they won’t become mainstream over time. However, right now it is hard to validate them in terms of finding value, which therefore puts them firmly into the basket of gambling.
That said, if you decide to invest, my advice is to stick with the top five, as they have proven to be the best and are less likely to take all of your money if they head south.