Understanding the World of Cryptocurrency
What is cryptocurrency, and are they all the same?
By: Andrew Moran | May 9, 2021 | 668 Words
Bitcoin became the fastest asset to reach $1 trillion in value. Ethereum is now worth more than the Bank of America. Dogecoin has become more valuable than Ford Motor. These are cryptocurrencies capturing international headlines and filling bank accounts. But what exactly is cryptocurrency, and why is it now at the top of global financial markets and the business news cycle?
Cryptocurrencies: A Primer
Cryptocurrency is a digital currency that operates using blockchain, a decentralized technology that manages and records transactions with cryptography for security and protection.
Cryptocurrency can be used to buy goods and services, but the form of payment has also transformed into a speculative investment on Wall Street in recent years. It can be bought by exchanging real currency, such as the U.S. dollar, euro, or British pound sterling, for cryptocurrency.
One of the reasons for its main appeal is the secure, transparency, and somewhat anonymous technology behind the concept.
A Brief Look at the Cryptocurrencies
It is estimated that there are close to 7,000 unique cryptocurrencies in the market right now. The total crypto market is worth approximately $2.4 trillion, with dozens of these currencies possessing a market value of at least $1 billion. Today, the most popular currencies in the global marketplace:
- Bitcoin (BTC): $1.069 trillion
- Ethereum (ETH): $400.137 billion
- Dogecoin (DOGE): $80.3 billion
- XRP (XRP): $77.08 billion
- Tether (USDT): $53.567 billion
But if they are all cryptocurrencies, what are the primary differences between a bitcoin and a dogecoin?
BTC or DOGE – What’s the Difference?
These virtual currencies trade on online exchanges, are stored in crypto wallets, and use distributed ledger technology (blockchain). At the same time, there are distinctions between, let’s say, bitcoin and ethereum.
For example, bitcoin performs mainly as a currency to buy and sell goods and services and co-exists within the financial system. Ethereum is a ledger technology that companies use to build new programs, deploying a series of smart contracts and decentralized applications thanks to its native programming language that runs on a blockchain.
But what about dogecoin? It’s merely a digital token with a picture of a dog stamped on it that was started as a joke.
XRP is another cryptocurrency that is designed for asset exchange, payment settlement, and security transfers. Meanwhile, tether is marketed as a stablecoin that quickly converts into cash and serves as a hedge against market volatility.
Many cryptos have differentiating purposes. It all depends on your goals and where you think the sector or economy is headed.
The Pros and Cons of Cryptocurrency
Many cryptocurrency aficionados will deny any drawbacks to the innovative technology. But, like anything else, crypto has its pros and cons. Let’s weigh the benefits and concerns about crypto:
- Pro: Unrivalled transparency since all transactions are stored on an open ledger.
- Con: The crypto market is going through extreme fluctuations and volatility.
- Pro: Consumers have instant and 24-hour access to their cryptocurrency.
- Con: In the event of a loss, you are not protected. If an online exchange or wallet is hacked, there is no security in place to safeguard your holdings.
- Pro: Eliminating banking fees and lowering transaction costs for international payments by getting rid of the middleman.
Innovation or Bubble?
A glance at CNBC or Bloomberg shows a consensus that the cryptocurrency market, primarily bitcoin and dogecoin, are going through an enormous bubble right now. Indeed, a bubble is defined as an asset skyrocketing in value in a short period. Since it took bitcoin a little more than a decade to reach $1 trillion in market cap, the bitcoin bubble conclusion might be correct. But cryptocurrency, blockchain, and cryptography are here to stay. Whether the industry is led by bitcoin or some other currency remains to be seen, but it is the technology behind these currencies that will become entrenched in the global economy and international finance.
That said, investors might be thinking that the next big thing in cryptocurrency is headed to the moon. If that unit can build upon bitcoin, ethereum, or the many other cryptos, they could be right.