As interest in the cryptocurrency world grows, new investors are increasingly coming into the space and naturally wondering what the difference is between various types of cryptocurrencies, especially regarding the unique technology that backs up each one.
If you are a long-term investor, as we always encourage, then this question is even more important.
For short-term investors or traders, fundamentals don’t matter as much; instead, what matters is short-term price movements.
However, as a long-term investor, you have to consider cryptocurrencies that have good technological fundamentals and can, therefore, deliver value in the long term.
Above and beyond previous price movements, smart investors should focus on the technology behind the cryptocurrency, its uniqueness, and the impact it has or will have on users and the community at large.
[For an introduction to what cryptocurrencies are, read “What is Cryptocurrency? A Beginner’s Complete Guide”]
In this article, we will help you learn the difference between the different types of cryptocurrencies by examining 8 popular coins. Since we have already extensively explained why investors invest in bitcoin in this blog, we want to now focus on other cryptocurrencies of interest – in an objective analysis of their tech and general overview of their potential for shaking up the future of business and finance.
[Do you want to apply your knowledge of the different types of cryptocurrencies as part of your investment strategy? We just launched Crypto trading on our Sarwa Trade platform, allowing you to buy and sell cryptocurrencies in the UAE. Register and start trading cryptocurrencies for as low as $1.]
[DISCLAIMER: The information in this article is not financial advice. Cryptocurrencies are high-risk assets. You should schedule a call with a Sarwa wealth associate before investing.]
1. Ether (ETH)
Background
Ethereum is a decentralised blockchain network that was conceived by the Russian-born Canadian programmer Vitalik Buterin in 2013 and was launched in 2015 together with Gavin Wood, Charles Hoskinson, Anthony Di Iorio and Joseph Lubin.
Ether is the native cryptocurrency of the Ethereum network that is mined to reward miners who add blocks to this blockchain network. It is currently the second-biggest cryptocurrency by market cap, behind bitcoin.
What’s behind the tech?
Ethereum is a blockchain network that supports the building and running of various types of decentralised applications.
The Ethereum network is widely used globally by various application developers. A 2021 research by Electric Capital, a crypto trading firm, found that the Ethereum network is the most used by developers in this space, with 4,000 monthly active open-source developers.
Due to the wide adoption of its network, Ethereum has been fundamental to the development of Decentralised Finance (DeFi) – the attempt to provide financial services like lending without brokers, centralised exchanges or banks.
The network also supports smart contracts, a kind of digital agreement that is automatically executed once certain conditions are met, which is a development that has been essential to improving industries such as supply chain management.
Non-fungible tokens (NFTs), which have become popular in recent months, are also part of the Ethereum network.
Most recently, developers of Ethereum are now switching to Ethereum 2.0, which is designed to improve the technique, increase the speed, and reduce the energy consumption of the network by moving to a proof-of-stake system from a proof-of-work system (we’ll explain the difference between the two below).
DeFi, smart contracts, and NFTs continue to have widespread interest in the global economy. As long as Ethereum continues to be the top network that supports them, ether will continue to draw in attention as a valuable and attractive cryptocurrency.
Overview
Market cap: $294.242 billion
Circulating supply: 120.73 million ETH
Trading volume (24-hr): $37.19 billion
2. Cardano (ADA)
Background
Cardano was founded in 2015 and released in 2017 as an open-source and decentralised blockchain network by Charles Hoskinson, one of the founding creators of Ethereum.
Unlike Ethereum, it started off as a proof-of-stake system.
ADA is the native cryptocurrency of the cardano network that coin owners/validators stake to verify transactions on the network. It is currently the eighth-largest cryptocurrency by market cap.
What’s behind the tech?
Cardano is similar to Ethereum as it is also a network that allows the creation and running of various decentralised apps. It also aids industries such as supply chain management by supporting the development of smart contracts.
However, unlike Ethereum, Cardano uses a proof-of-stake system to validate transactions.
In a proof-of-stake system, owners of ADA can stake their coins (that is, hold them) and then qualify to validate transactions on the network by building new blocks. Out of all qualified validators, one is randomly selected to validate a particular transaction.
This is considered an improvement on the proof-of-work system, where miners would have to perform some computational work to win a transaction before new blocks can be created. In this proof-of-work system, miners compete to be the first to complete the computational work and gain the right to verify the transaction and earn the new ether (for example) created.
Proof-of-stake is known to decrease energy usage and increase transaction processing speed because of its random selection. No wonder that Ethereum developers are switching to it with Ethereum 2.0.
As long as the proof-of-stake system is considered superior, Cardano will continue to gain ground as the leading proof-of-stake network. Also, there is still a lot of potential for Cardano in the DeFi world and it is well positioned to challenge Ethereum in that space.
Overview
Market cap: $21.408 billion
Circulating supply: 33.82 billion ADA
Maximum supply: 40 billion ADA
Trading volume (24-hr): $1.94 billion
3. Polkadot (DOT)
Background
Polkadot was created as an open source blockchain platform in 2017 and released in 2020 by Gavin Wood, one of the founding creators of Ethereum (Are you seeing a pattern here?).
Like Cardano, Polkadot was created as a proof-of-stake system.
DOT is the native cryptocurrency that is staked on the Polkadot network. It is currently the tenth-largest cryptocurrency by market cap.
What’s behind the tech?
Polkadot is a blockchain platform that enables the interoperability of other blockchain networks. With polkadot, developers can work on more than two blockchain networks within the same platform. This includes parallel networks that have their own native tokens.
“In simple terms, Polkadot (DOT) is a blockchain with a core network — the relay chain, where other blockchains connect and communicate with each other,” according to Coin Telegraph. “By hosting blockchains, the relay chain also handles their security and transactions, allowing cross-chain interoperability (communication between different blockchains) to function seamlessly.”
Polkadot also allows developers to create their own blockchains and use the security of the Polkadot network for their own network, a feature referred to as shared security.
Most blockchain networks are not able to provide all the benefits that users want in a network – Ethereum is decentralised but with high transaction fees and traffic while EOS.io is free and fast but not decentralised.
Therefore, interoperability will always be a key demand of developers who need features scattered across different networks.
Overview
Market cap: $10.439 billion
Circulating supply: 987.58 million DOT
Trading volume (24-hr): $1.69 billion
4. Litecoin (LTC)
Background
Litecoin was created as the first altcoin in 2011 by Charlie Lee, a former Google engineer. Like bitcoin, it is an open source payment network that uses the proof-of-work system.
Miners who validate transactions on the network are rewarded with LTC, the cryptocurrency of the network. LTC is currently the 21st-largest cryptocurrency by market cap.
What’s behind the tech?
Litecoin is a spinoff of bitcoin and uses the same proof-of-work system to validate transactions and build new blocks on the network.
Though not widely used like bitcoin, it generates new blocks faster than bitcoin (2.5 minutes per block compared to bitcoin’s 10 minutes per block) and, therefore, has a much faster transaction confirmation/processing time.
Litecoin has a maximum supply of 84,000,000 LTC, which gives it a finite supply.
While Litecoin is still behind bitcoin in global acceptance, its faster transaction time still makes it a good long-term competitor.
Overview
Market cap: $5.605 billion
Circulating supply: 70.26 million LTC
Maximum supply: 84 million LTC
Trading volume (24-hr): $1.52 billion
5. Bitcoin Cash (BCH)
Background
Bitcoin Cash is a hard fork of bitcoin that was created when developers and miners disagreed about what changes should or should not be made to the original code of bitcoin.
Bitcoin Cash was created as a split from Bitcoin in 2017, which was led by Roger Ver, one of bitcoin’s early advocates.
Bitcoin Cash also uses the proof-of-work system to reward miners with BCH, its native cryptocurrency. BCH is currently the 23rd-largest cryptocurrency in the world.
What’s behind the tech?
A major point of disagreement that led to the creation of Bitcoin Cash was the size of a block.
The bitcoin code limited the size of a block to 1MB while Bitcoin Cash increased it to 8MB. For bitcoin advocates, the lower block size means that nodes could be operated with less resources and you don’t need big computing power to participate.
However, for Bitcoin Cash advocates, larger block size means more transactions can be processed at a higher transaction speed.
Bitcoin Cash advocates believed that if bitcoin wanted to be a medium of exchange rather than just a speculative investment asset, the bigger block size was the way to go.
Bitcoin retained its smaller block size and Bitcoin cash was forked out with its larger block size.
Just like Litecoin, Bitcoin Cash processes transactions faster than bitcoin. While adoption still lags behind Bitcoin, it also promises to continue to be a big competitor as a payment method.
Overview
Market cap: $4.33 billion
Circulating supply: 19.06 million LTC
Maximum supply: 21 million LTC
Trading volume (24-hr): 3.83 billion
6. Solana (SOL)
Background
Solana was conceived in 2017 and launched in 2021 by Anatoly Yakovenko as a blockchain network that uses a hybrid of the proof-of-stake and the proof-of-history systems.
SOL is the native token that powers the Solana network. It is currently the seventh-largest cryptocurrency by market cap.
What’s behind the tech?
Solana is similar to Ethereum, Polkadot and Cardano in its usage for the creation and running of decentralised apps. It has also been integral in the DeFi, smart contract, and NFTs world.
In 2021, Melania Trump, then first-lady of the US, announced her intention to create an NFT on the Solana network.
Unlike Ethereum, Solana uses a proof-of-stake system; but unlike Polkadot and Cardano, Solana uses a combination of the proof-of-stake and proof-of-history systems.
The proof-of-history system provides a way to validate transactions on the blockchain by situating it between two events – that is, transaction X occurred before event Y and after event Z.
The Solana network is known for its low transaction fees, high transaction processing speed, and security, which makes it a long-term competitor of Ethereum.
Growth in the DeFi, smart contract, and NFT markets means that the future of Solana could be bright. With lower transaction fees and faster processing, it has the potential to eat into Ethereum’s market share in the future.
Overview
Market cap: $19.79 billion
Circulating supply: 336.79 million SOL
Trading volume (24-hr): $3.16 billion
7. Polygon (MATIC)
Background
Polygon is a layer two solution that was created by Jaynti Kanani, Sandeep Nailwal, and Anurag Arjun in 2017 to improve the scalability and infrastructure development of the Ethereum network.
MATIC is the native cryptocurrency of the Polygon network that keeps it functional. It’s currently the 20th-largest cryptocurrency by market cap.
What’s behind the tech?
Layer two solutions are designed to improve the performance of existing blockchain networks.
Polygon was created to expand Ethereum into a multichain system by improving its scalability and infrastructure development.
The goal of Polygon is to make Ethereum transactions faster and more cost-effective.
As long as Ethereum remains the favourite of developers, layer two solutions like Polygon will continue to grow.
Overview
Market cap: $4.758 billion
Circulating supply: 7.85 billion MATIC
Maximum supply: 10 billion MATIC
Trading volume (24-hr): $1.40 billion
8. Stellar (XLM)
Background
Stellar is a blockchain network that provides enterprise solutions for financial institutions and supports cross-border transactions for individuals and institutions. It was created in 2014 by Jed McCaleb, the developer of Ripple protocol.
Lumens (XLM) is the native token of the stellar network. It is currently the 27th-largest cryptocurrency in the world.
What’s behind the tech?
As an enterprise solution, stellar allows banks and investment firms to carry out large transactions in a fast, easy, and cost-effective way without any intermediary.
Stellar also allows individuals and institutions to carry out cross-border transactions without any central authority. Mobile payments companies like Flutterwave (Africa), Coins.ph (Philippines), ICICI Bank (India), and Tempo Money Transfer (France) have built applications on it. Even Deloitte, an accounting firm, created its Deloitte Digital Bank on the network.
The institutional appeal of Stellar from banks, investment firms and payment fintechs makes it a valuable network for the long term and thus one of the more interesting types of cryptocurrencies to keep an eye on.
Overview
Market cap: $3.441 billion
Circulating supply: 24,810,502,500 XLM
Maximum supply: 50,001,806,812
Trading volume (24-hr): $578.68 million
Investing in cryptocurrencies in the UAE
Now that you know the difference between the most popular types of cryptocurrencies, it’s time to consider how one would go about building a cryptocurrency portfolio.
Sarwa has just launched crypto investing/trading on its Sarwa Trade app, allowing investors to buy and sell cryptocurrencies (in addition to stocks and ETFs) in the UAE or KSA from the comfort of your phone.
Currently, you can buy Bitcoin, Ether, Bitcoin Cash, and Litecoin. The offerings will continue to increase as we add more types of cryptocurrencies in the future.
Are you ready to start investing in different types of cryptocurrencies? Register on Sarwa Trade to start building your portfolio.
Schedule a call with a Sarwa wealth advisor if you are unsure where crypto belongs in your investment plan.
Takeaways
- While bitcoin is the most popular crypto, there are other types of cryptocurrencies with important technology.
- Long-term investors should focus on the fundamental value a crypto platform has for future technology before investing.
- Ethereum, Cardano, Polkadot, Litecoin, Bitcoin Cash, Soldano, and Stellar are some of the most popular types of cryptocurrencies.