To date, there are more than 1,500 cryptocurrencies with a market value of more than $750 billion and counting, according to CoinMarketCap. Despite this, many wealth managers caution against investing in Bitcoin or any of its ilk.
These concerns center on the fact that although there may be a finite number of Bitcoins in circulation — set by an algorithm that measures how economical it is to “mine” the cryptocurrency (the cost of electricity and computing power) — the number of other cryptocurrencies seems infinite.
The veracity of some cryptocurrencies is mocked by Dogecoin (pronounced “doggie coin”), a cryptocurrency based on the parody of an Internet meme. It broke $2 billion in market value in early January, and its creators, who have said they haven’t updated the software in two years, show this is an example of irrational investing.
Many cryptocurrencies have gained market value largely because they are cheaper than Bitcoin. For example, on Jan. 8, 2018, one leaderboard showed Bitcoin (BTC) priced at $14,179 with 104,639 shares traded. Ethereum (ETH) was priced at $1,001 with a volume of 1.2 million, and Ripple (XRP) was priced at $2 with a volume of 281.4 million. Tron (TRX) was priced at 13 cents and had a volume of 1.8 billion. It’s apparent that traders are moving to cheaper cryptocurrencies in hopes they have a Bitcoin-like price surge.
But how do cryptocurrencies differ? Most are general tokens like Bitcoin, which was launched around 2009 on the hope that it would become a global currency. Many, though, are based on different “ecosystems” or underlying technologies. Several large global banks reportedly are testing Ripple’s blockchain technology — a digital payment system, remittance network and currency exchange. While payment confirmation using Bitcoin now takes 10 minutes, Ripple aims to take just seconds, according to some sources.
Some cryptocurrencies are more attractive to the dark web set. Monero (which was priced at $358 and had a volume of 306,551 in early January) encrypts the recipient’s address (which in Bitcoin is recorded by blockchain) and generates a fake address to obscure the real sender, as well as the amount of the transaction, a Bloomberg news report explained. Another token that encrypts addresses is Zcash. While encryption is attractive to criminals, it is growing in importance for many legitimate businesses as well.
Several cryptocurrencies are tokens designed for specific reasons. For example, some gaming companies have their own cryptocurrencies in which users can buy or sell applications for games, such as more ammunition, more gold bars, etc.