Best Cryptocurrencies – How to Invest in This Booming Market
While it might seem strange to invest in digital assets instead of traditional stocks like Apple, the cryptocurrency market has been booming in past years. Especially with the rise of trading apps like Robinhood, cryptocurrencies have gotten easier to invest in as of late. Even popular payment processing platforms like PayPal have offered users the ability to buy cryptocurrencies on their websites.
All of this is good information to know, but what exactly is cryptocurrency? Put simply, cryptocurrency is a form of digital currency that is safely stored in highly-encrypted ledgers, also known as wallets.
Unlike fiat currency, such as the U.S. dollar, cryptocurrencies aren’t backed and issued by the government and are instead decentralized in nature. While this means that its value is not intrinsic (for example, you can’t exchange your Bitcoins for gold), this also means that your currency isn’t tied to a major bank such as JP Morgan Chase.
Instead, cryptocurrency is built and sent from user to user leveraging advanced algorithms and blockchain technology. From transferring funds to settling trade disputes, blockchain offers a permanent ledger for your cryptocurrency, increases transparency for financial transactions, and can ultimately reduce costs and transaction fees.
Many people choose to invest in cryptocurrency, in effect buying into the idea that investing in open-source technologies with unprecedented scalability and avoiding the volatility and market capitalization associated with traditional currencies will continue to have value in the future.
That being said, there is a variety of competing cryptocurrency exchanges and platforms that can make it difficult to determine which cryptocurrencies are the most reliable. Read on to learn more about some of the best cryptocurrencies to invest in if you’re interested in diversifying your assets or moving beyond a traditional bank account.
- Overview of the best cryptocurrencies table
- Summary of Best Cryptocurrencies
- Why you should (or shouldn’t) use cryptocurrency?
- The bottom line
Overview of the best cryptocurrencies table
|Bitcoin/BTC||New investors who feel safer with a known cryptocurrency|
|Ethereum/ETH||Investors who believe in infrastructure|
|Litecoin/LTC||Investors interested in a high-risk, high-reward cryptocurrency|
|Binance/BNB||Frequent traders on the Binance network|
|Ripple/XRP||Investors who see blockchain technology as a way to improve existing banking|
|Tron/TRX||Investors who see value in smart contracts|
Bitcoin / BTC
When Bitcoin was first invented and released by Satoshi Nakamoto in 2009, users could purchase BTC for just a few cents. Since 2009, however, the price of Bitcoin has skyrocketed, with Bitcoin prices topping $38,000 as you’re reading this in 2021.
Clearly, that sort of exponential growth is one of the main reasons that so many people choose to invest in Bitcoin. As a result, BTC has become one of the leaders in cryptocurrency, thanks to its wide adoption and the fact that Bitcoin prices, for the most part, have stayed relatively stable on an upward trajectory over the years.
As a pioneer of peer-to-peer cryptocurrency, Bitcoin is the de facto leader. This fact is further proved by the fact that any other cryptocurrency that’s not BTC is immediately grouped into the category of “Altcoins.” While Altcoins like Ether or Dogecoin are functionally similar to other cryptocurrencies, their designation as an altcoin further illustrates just how much of a leader Bitcoin is.
Thanks to Bitcoin’s large market cap, notoriety, and widespread popularity, it's one of the strongest cryptocurrencies to invest in if you’re looking to get into cryptos. That being said, like all other altcoins, since there is no regulatory oversight for BTC, investing in cryptocurrency of any shape or form comes with a much higher risk than other securities. As Elon Musk's recent tweets about Bitcoin have illustrated, the market is susceptible to hype and fluctuations in a way other investment options aren't. It's important to keep in mind that the actions of influential investors can positively and negatively impact even the reigning king of cryptos.
Ethereum / ETH
Perhaps the second-most-popular cryptocurrency available online, Ethereum has a large market cap thanks to some of the innovations it brought to the crypto space. It’s worth noting that Ethereum itself is actually a platform for the open-source development of decentralized apps (commonly referred to as “dapps”) using blockchain technology.
Within that network, the actual cryptocurrency at the heart of Ethereum is known as Ether (ETH). Similar to BTC, ETH uses blockchains and mining in order to continually generate and solve more difficult computations. However, unlike BTC, ETH validates these transactions at a rate of 15 seconds instead of every 10 minutes.
As a result of so many users actively developing decentralized applications using Ethereum, it’s unlikely that Ethereum will disappear any time soon. That being said, a hack in the past did show that Ethereum wasn’t as secure as some users thought when the rollout of decentralized autonomous organizations (DAOs), which were intended to help automate some transactions on the platform.
Despite the hack, ETH still holds a large share of the cryptocurrency market. If you had to invest in only two crypto coins, you’d be hard-pressed to find an option as consistent as BTC or ETH.
Litecoin / LTC
Another popular coin that is offered on almost all exchanges is Litecoin. Litecoin (LTC) was designed in a similar manner to Bitcoin in that it’s a decentralized currency. However, Litecoin was specifically created to facilitate rapid, low-cost monetary transactions for goods and services—all while building upon some of BTC’s features.
Litecoin, like other cryptocurrencies, is designed to be in finite supply. There will only ever be 84 million LTC in existence, which offers some extra stability versus paper money which can be printed on demand.
Similar to ETH, LTC has a much shorter block approval time on each block exchange. Whereas Bitcoin validates block exchanges every 10 minutes, Litecoin’s developer set the coin to verify blocks every two and a half minutes.
Beyond improving upon the speed at which the block exchange functions, Litecoin also has a much smaller fee structure on processing transactions than Bitcoin. In fact, since you’re only spending 1/1000 of an LTC in order to complete your transaction, Litecoin transactions cost 1/50th of a Bitcoin transaction. While Bitcoin Cash worked to address some of these limitations, Litecoin is still a major player when it comes to faster transactions.
Obviously, these sorts of low fees—even on major transactions—make LTC very appealing for individuals who want to make the most of their cryptocurrencies.
Binance / BNB
Binance is predominantly known as one of the top cryptocurrency exchanges out there. If you’re looking to swap one ICO (initial coin offering) to another ICO, this regulated exchange is one of the most popular platforms to do so.
As a result of its popularity, 2017 saw the release of Binance Coins, also known as Binance tokens. Binance Coins (BNB) allow users to exchange from one coin to another while minimizing fees and increasing the types of pairings and conversions that can be made on the exchange.
For example, if you’re looking to trade Cardano for Monero, you can use BNB as an intermediary as a way to save money on exchange fees. This makes it easier to exchange one form of cryptocurrency to another, all natively within an exchange that you likely will already be using in the first place to make trades.
One important thing to note about BNB is that if you’re intending on using it you’ll want to make sure you purchase it on Binance and not through another exchange like Coinbase.
Ripple / XRP
Unlike other coins like Bitcoin which were intentionally meant to bypass traditional financial vehicles, Ripple and XRP are designed to help serve as a form of mediation between cryptocurrencies and traditional financial institutions.
Developed by Ripple Labs, a for-profit company, XRP serves as a token that represents value and serves as more of a utility than an actual financial instrument. XRP is thus more like a bridge between traditional fiat currencies as well as altcoins. Notably, XRP doesn’t use a traditional blockchain and instead uses a proprietary approach to decentralization known as Ripple Protocol Consensus Algorithm.
Especially on a global level, XRP and Ripple have major ramifications for banks. Instead of dealing with the tedious and time-intensive process of exchanging from one currency to another, Ripple allows for much smoother banking transactions between countries that would otherwise be much more difficult.
To date, a variety of financial institutions have partnered with Ripple, including Bank of America, American Express, and MoneyGram.
Tron / TRX
Named after the Disney film of the same name, Tron (TRX) is most similar to Ethereum as a platform for helping developers build and deploy decentralized applications. Although it’s only a little more than three years old, Tron has an incredibly big community following which has allowed it to quickly become a top ten altcoin in terms of market capitalization.
In terms of creating a decentralized internet, many people think that Tron has a key role to play. Part of this has to do with TRX’s impressive speed. Tron is capable of handling close to 2000 transactions every second, a feat that puts it on par with major payment processing giants such as PayPal.
One benefit of investing in Tron is that it allows for passive earnings while TRX sits in your wallet or ledger. Each TRX you choose to stake in your wallet offers a return in a 1 to 1 ratio, which in turn generates “Tron power” which can be utilized to create more TRX.
As an altcoin, Tron certainly lives up to its futuristic namesake, capturing the imaginations of many crypto investors who see it as a key component of decentralized internet and other powerful applications at the heart of the next wave of technological breakthroughs.
Summary of Best Cryptocurrencies
While one cryptocurrency may seem akin to another, there are a few key differences between each coin that may speak to you as an investor. Here’s a quick summary of some distinctions between each type of cryptocurrency mentioned above.
|Header||Network||Transactions (per second)||Header|
Can you hold cryptocurrency?
No. Cryptocurrency is a digital asset only, meaning it only exists in your ledger and not in a tangible way.
How do you buy cryptocurrency?
In order to buy cryptocurrency, you’ll need to use an exchange such as Coinbase or Binance. From there, you can purchase the coin of your choice using USD or EU and then exchange your coins for different cryptocurrencies.
Do you owe taxes when you sell cryptocurrency?
Yes, you will owe taxes if you make a gain when converting your cryptocurrency ot fiat currency. According to the IRS website: “When you sell virtual currency, you must recognize any capital gain or loss on the sale, subject to any limitations on the deductibility of capital losses.”
Why you should (or shouldn’t) use cryptocurrency?
It can seem strange to think about spending your money investing in something that you can never hold, but when considered against traditional shares in the stock market (which you interface with online in the first place), the idea isn’t actually that abnormal.
Cryptocurrency can be beneficial if you want a secure, untraceable way to spend your money or are interested in going “off the grid.” That being said, as an investment vehicle, the lack of any regulatory oversight means that volatility is common among cryptocurrencies.
If you have some spare money that you’re looking to invest and are interested in technology, cryptocurrencies can be worth investing some of your money in. Even so, they are technically confusing and it’s generally advisable to understand what you’re investing in, so if you’re seriously considering investing in crypto it can make sense to read up even more on the coin you’re interested in purchasing.
The bottom line
While you’ve probably heard of Bitcoin, there are hundreds of other cryptocurrencies on the market as well beyond BTC. Bitcoin is the most popular of all cryptocurrencies; however, many other coins in the above list, including Ethereum, Litecoin, and Tron, all have high market caps making them a relatively sound investment as well.
If you’re already pretty comfortable with personal finance or have a knack for technology and computers, cryptocurrency could be a fun way to diversify your portfolio. If you want to store some of your money in a system that is incredibly secure, cryptocurrency is another beneficial avenue to consider.
All that being said, for general investors or those new to personal finance, cryptocurrency can be complicated to understand and its volatility makes it a riskier investment than a portfolio of stocks and bonds. Ultimately, whether you decide to invest in cryptocurrencies is a personal decision and the above six coins will offer you a good mixture of stability and innovation for your money.