Not counting the hundreds of tokens created on the Ethereum blockchain, there are over 900 alternatives to Bitcoin in the world today. Some use their own blockchain, others use a pre-existing one. At the end of December 2017, the market capitalization of this wealth reached $530 million, with the lion’s share provided by just 2.2% of these cryptocurrencies.
As a result, many ‘experts’ frighten laypeople by saying that it’s unwise to invest in altcoins, because they’ll die out and any money put into them will be lost. But is any sector of the economy truly risk-free? Stocks, real estate – where there is no risk, there is no room for profit. The trick is staying ahead of the curve.
Nevertheless, it’s a fact that most cryptocurrencies have no future. What should you do, then? First of all, differentiate between risks when building your investment portfolio. If you don’t put all your eggs in one basket, the likelihood that you’ll end up with an omelette will increase five or six-fold. Second, analyze. Study which currencies are currently popular, which of them might grow stronger, what technology or innovation is involved in each, and stay informed of any updates.
Susceptible to Influence
The exchange rate of cryptocurrencies depends heavily on media reporting and the disposition of government authorities. If a financial regulator wants to ban cryptocurrencies, the market will temporarily collapse. A glaring example of this was the ICO ban in China. The opposite also holds true: if a country declares that it will soon legalize cryptocurrencies, they experience a boom. That was the case after such news came out of Japan and South Korea.
There are also internal reasons for spikes in a cryptocurrency’s exchange rate. If differences arise among the development team, that currency’s future ceases to be clear. As traders start getting rid of it, its value plummets. That’s essentially what happened with Bitcoin just before the Bitcoin Cash fork in July 2017. So which altcoins are worth looking into?
Litecoin (LTC) – Faster ‘Bitcoin’
Launched in 2011, this coin’s supply will be limited to 84 million, which is why it’s considered ‘silver’ in comparison to Bitcoin’s ‘digital gold.’ LTC borrows heavily from Bitcoin conceptually but differs in several key parameters. For instance, its mining algorithm is based on Scrypt instead of Bitcoin’s SHA-265, which makes it a potential alternative to Bitcoin if the latter’s hashing algorithm breaks down.
DASH – Private ‘Bitcoin’
Designed to be confidential, this cryptocurrency was launched early in 2014. In 2017 it showed its fastest growth ever. Unlike most cryptocurrencies, the reward for each block is equally distributed among miners and masternodes, with 10% going to the ‘treasury’ system used by the developers for community projects and marketing. However, the presence of these masternodes prevents Dash from being fully decentralized, since the masternodes necessarily have certain privileges.
Ethereum Classic (ETC) – The Original ‘Ether’
Ethereum (ETH) initially attracted many adepts due to its innovation and its breakthrough idea of featuring smart contracts. Its developers enhanced Bitcoin’s powerful foundation with a Turing-complete programming language that forms the basis for contracts that don’t require users’ mutual trust. However, during Ethereum’s rise to prominence one of the most important projects built on its blockchain, The DAO, was hacked, resulting in the theft of 3.6 million ETH. In order to return the lost funds to their owners, the developers implemented a hard fork and reversed the transactions. A significant number of people in the crypto community felt that in so doing the developers had violated a fundamental principle of the blockchain – that transactions are non-reversible – and decided to stay on the original network, now known as Ethereum Classic. From a technological standpoint this cryptocurrency is no worse than Ethereum and, given the right conditions, may grow to become a successful project. The difference is that in the ‘classic’ version the principal foundations of the blockchain have not been violated, which gives us reason to hope that this will remain the case.
Monero (XMR) – Anonymous Coin
Monero is a cryptocurrency system which, through ring signatures, ring confidential transactions and stealth addresses, provides an anonymous digital currency. Its goal is to obfuscate the origin, amount and destination of all transactions. Launched in 2014, it began to rise in value significantly two years later. Some analysts ascribe its fast climb to its high demand among hackers, who use it to convert and withdraw funds stolen in other cryptocurrencies.
NEM (XEM) – Self-Promoting Coin
First appearing in early 2015, it’s still largely underappreciated. Unlike other coins, it was written in a completely original and open code. According to its developers, there isn’t a single line of Bitcoin in NEM. It uses the new POI algorithm, whereby the most active user forms a block. This is a fairer approach to the distribution of means, since incoming and outgoing transactions are considered alongside a user’s number of coins. One block is generated roughly every minute. There is a fixed supply of 9 billion NEM and there will be no more emissions once that number is reached.
ZCash (ZEC) – Anonymous Coin
Developed by the Zerocoin Electric Coin Company, this independent cryptocurrency has an open source code. Like Bitcoin, it has a total fixed supply of 21 million coins. It was launched on 20 January 2016. ZCash payments are published on a public blockchain, but the sender, recipient and amount being transacted remain private. It’s said that if for finance Bitcoin is http, then ZCash is https. Its technology is very promising, but due to its complex cryptography its coins make serious demands on hardware. It’s for this reason that there are still no smartphone wallets for it. Due to the hype surrounding it at launch, its value was higher than Bitcoin’s for a time.
Altcoins take a lot after their parent, but in 2017 we saw just how independent its children can be. The protocols of many coins bear only a distant similarity to Bitcoin’s blockchain, and sometimes even offer entire layers of conceptual innovation. It’s difficult to predict what will become of cryptocurrencies two or four years down the line.
In 1769 the French military engineer Nicolas-Joseph Cugnot built a half-wooden cart with a steam boiler – a prototype of the automobile and steam locomotive. He simply replaced the horse with an engine, but 250 years later we not only own our own cars and travel on electric trains that reach a velocity of 300 km/hr, we even fly on planes. The same holds true today. We can’t even imagine what changes in finance and society will be brought about by digital money. If altcoins and tokens are like the steam locomotive, then what airplane will ultimately grow out of Bitcoin, Satoshi Nakamoto’s cart?
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