Which Crypto to Buy?

Bitcoin and other cryptocurrencies are digital forms of money used in the same ways that fiat currency is used in the world of the traditional economy. The main difference between virtual and fiat currencies is that cryptocurrencies are not backed by or regulated by any central authority but are built on the principle of decentralization instead.

There is a staggering number of new digital currencies entering the market to improve and diversify the cryptocurrency economy. The large selection of cryptocurrencies on the crypto market can make it difficult for investors to pick the best one for their trading strategy.

In this article, I’ll talk about the different kinds of cryptocurrencies as well as the most profitable ones so that you can choose which crypto to buy.

Understanding the Different Types of Cryptocurrencies

By design, cryptos are digital assets that provide a layer of protection and privacy for their users’ financial transactions and identities. The word “crypto” refers to the intricate process of cryptographic encryption that allows for the creation and transmission of digital currencies on decentralized networks.

Fintech teams or cryptocurrency enthusiasts develop cryptocurrencies as code, implementing procedures for creating digital currencies (usually through mining)..

Cryptocurrencies were created to solve the problems with conventional money by giving currency holders more agency and control. Namely, since crypto asset transactions occur on a decentralized blockchain network, users do not have to place their trust in the centralized banks when handling their funds or private data.

Coins vs Tokens

Some people mistakenly believe that tokens and coins are identical in every way. This could be in part because cryptographic language is not always user-friendly. Naturally, these two digital products share some features and have some unique distinctions. 

First and foremost, coins are made to work with their own blockchains, while the tokens are built on top of preexisting blockchains. That’s why you’ll frequently find a crossover between the uses of coins and tokens. 

Also, coins and tokens can both be considered cryptocurrency units, but they serve different purposes. At least to a certain degree. Let’s find out the differences. 

What Are Coins?

Coins are defined as native cryptocurrencies that operate on their original blockchains or forked blockchains, new chains formed due to modifications in the protocol. When Bitcoin split into two blockchains, for instance, BTC continued to operate as the native coin of the authentic blockchain, while Bitcoin Cash (BCH) emerged as a brand-new coin on the forked chain.

There are a number of factors that go into determining the value of a coin’s intrinsic value. Two of these factors are the efficiency and reliability of the underpinning blockchain technology.

Furthermore, coins can be exchanged online between two parties. These virtual currencies were basically designed to function as an alternative to or in addition to traditional fiat currencies when making purchases online or in person. 

To this end, when you send or receive a cryptocurrency, no actual coins are exchanged. Crypto coins are digital records in a worldwide computer system. Also, the trades are recorded on a public ledger, monitored, and validated by computers across the globe.

Since the coins within a single blockchain ecosystem are interchangeable, they’re also fungible. The usefulness of fungible coins can be traced directly to their ability to be exchanged for other values. Because of this, coins can be used as a medium of exchange, credit, or cryptocurrency. 

What Are Tokens?

As I previously mentioned, tokens don’t have their own blockchains. Instead, they’re built on already developed blockchains (e.g., on the Bitcoin or the Ethereum blockchain).

Token generation can be simplified by employing pre-built applications. The ability to write code is not a necessary precondition for using such a platform. It might be as easy as putting together your website using a builder.

However, more technical expertise will be required to create a token with more complex features. Installing a smart contract is the first step. The term smart contract refers to a type of digital contract whose terms and conditions are stored in a blockchain and then automatically executed by the network. The smart contract code for some networks can be cloned directly from a repository on a software development platform such as Github. 

Also, to ensure consistency and interoperability, blockchains have token standards that must be adhered to. On Ethereum, for instance, there are ERC-20 tokens, whereas the Binance Smart Chain produces BEP-20 tokens, and Solana produces SPL tokens. These blockchains have standards that make it simple to incorporate tokens into apps like crypto wallets and DeFi protocols.

The tokens are essentially designed to function differently than currencies. In particular, tokens can facilitate communication between users and the project’s platform and products. For instance, a  stake in a blockchain or decentralized finance (DeFi) project could be represented via a token distributed as part of an initial coin offering (ICO) when an investor buys the coins. 

Also, a token can represent a physical item, such as a house or precious metal. In fact, they can stand in for anything from real money to virtual game items. It’s, indeed, a common practice for blockchain-based metaverses to employ non-fungible tokens as the standard for digital items (NFTs).

The First Blockchain-Based Coin That Revolutionized the Digital Economy

Bitcoin (BTC) is one of the earliest and most valuable cryptocurrencies to have appeared on the market, introduced in 2009 by the enigmatic developer Satoshi Nakamoto.

The Bitcoin network uses the innovative distributed ledger technology labeled as blockchain to record all transactions. The blockchain ledger was a game-changer in the world of finances because it eliminated the need for a centralized authority to control or issue the currency. Because Bitcoin operates on a decentralized peer-to-peer network, all Bitcoin transactions are conducted directly between users.

This pioneering coin was accountable for laying the groundwork upon which subsequent cryptocurrencies and digital assets were built. 

Altcoins – Alternative Cryptocurrencies to Bitcoin

To a greater or lesser extent, the programming code behind Bitcoin forms the foundation for the creation of other cryptocurrencies. However, most of them are just tweaks on the original (thus the moniker alternative coins, i.e., altcoins).

At this point, it’s important to keep in mind that there are cryptocurrencies that use completely different algorithms than Bitcoin.

Two altcoins that stand in stark contrast to Bitcoin (BTC) are Ethereum (ETH) and Ripple (XRP). The consensus algorithm is one of the primary distinctions between these two digital currencies and the first officially recognized cryptocurrency.

To put it another way, a consensus algorithm is a digital method that these coins and networks use to reach an agreement. In particular, the consensus mechanism aids the secure authentication of the transactions and contributes to the network’s smooth functioning.

Which Crypto to Buy: The Top 5 Cryptocurrencies to Invest In

1. Bitcoin (BTC)

Bitcoin (BTC) is the first officially recognized cryptocurrency, as well as the most successful crypto project in the industry. As Bitcoin’s fame has grown, so has its value. There was a time in May of 2016 when one Bitcoin cost roughly $500. 

Because of its utility as a store of value and the fact that it actively promotes the idea of scarcity, Bitcoin continues to attract a growing number of investors. Out of a total of 21 million Bitcoins, over 19 million are already in circulation, according to CoinMarketCap.

Additionally, Bitcoin’s Proof-of-Work (PoW) validation process appeals to risk-averse traders who are far more focused on the security of their holdings than on the profit potential. In the bargain, Bitcoin is noteworthy for not being supported by any government or central bank.

Last but not least, many retailers now accept Bitcoin and other cryptocurrencies as payment, which helps to increase Bitcoin’s adoption in real life, facilitated by some of the major players in the market, such as Visa and MasterCard. As a result of this progress, the most popular cryptocurrency is receiving more backing from large financial institutions.

2. Ethereum (ETH)

If you look at the market capitalization of all blockchain networks, Ethereum is second only to Bitcoin. Ethereum, a smart contract marketplace launched in July 2015 by a group of developers guided by Vitalik Buterin, is widely considered the most popular of its kind because of its flexibility and support for various applications, including non-fungible tokens (NFTs).

The Ethereum network enables developers to design their currency and implement smart contracts by utilizing blockchain technology.

Similarly to BTC, ETH, too, has seen a remarkable expansion in recent years. The price of this cryptocurrency increased by 14,202% between April 2016 and the end of November 2022, going from approximately $11 to over $1,573.

More users are likely to join after its successful Merge upgrade on September 15, 2022, when it switched from a Proof-of-Work (PoW) to a Proof-of-Stake (PoS) consensus protocol. The goal of this upgrade was to make the network more scalable while decreasing its energy and gas costs. As a result of these modifications, the Ethereum blockchain is likely to draw more financial backing from users hoping to capitalize on the cheaper gas prices.

However, due to the high volume of transactions on the Ethereum network, the processing time for each transaction remains slower than usual as a preventive measure. Buyers of Ethereum would do well to know that the platform’s security has historically been a weakness; the latest update, however, is intended to address this issue.

3. Binance Coin (BNB)

You can think of Binance Coin, or BNB, as the underlying cryptocurrency of the Binance platform. This coin was issued using the BEP-20-compliant Binance Smart Chain (BSC) blockchain.

Plus, Binance Coin is not only traded on the Binance trading platform itself but on a wide variety of other markets and exchanges. Users of BNB gain access to a plethora of additional advantages, including lower prices and numerous investment opportunities, crypto loans and transactions, making donations to charitable causes, buying virtual presents, and more.

The initial value of one BNB coin was only $0.10 in 2017. By May 10, 2021, the coin’s worth had risen to a new all-time high of $690.93, shattering the top spot by a wide margin. As a result, the Binance ecosystem, which began as a straightforward token exchange platform but now encompasses a vast and diverse range of services, has found the BNB token to be an extremely valuable asset.

4. XRP (XRP)

XRP was developed by the same team that brought you Ripple, a fintech company. This cryptocurrency can be traded over the Ripple network for other digital and fiat currencies. In this context, XRP is useful as a blockchain that enables faster and cheaper international payments.

Regarding the consensus mechanisms, XRP does not employ either Proof-of-Work or Proof-of-Stake. Instead, the requested updates to the previous ledger are validated by separate validating servers. Since XRP is based on a distributed network, there is no central body that decides who can create nodes or validate transactions.

This allows for instant processing of transactions involving multiple currencies, which in turn attracts more crypto investors who are shifting away from the outdated and often slow SWIFT network.

Since new ledgers are generated every three to five seconds on the XRP blockchain, transaction settlement is lightning fast. Ripple claims the XRP ledger can process 1,500 transactions per second (TPS) on average and 65,000 TPS at maximum capacity. Compared to this, Bitcoin and Ethereum have slower settlement speeds of 5 TPS and 15 TPS, respectively.

The opening price of XRP in 2017 was $0.006. Its price increased 7,561% to $0.46 as of November 1, 2022.

5. Polygon (MATIC)

Polygon is an Ethereum-based digital asset that was created to make Ethereum more scalable and robust. To expedite transactions and confirmations, it adopts the “layer two” concept that creates a network of Ethereum blockchains.

Polygon is also scalable, interoperable, and has top-notch security. It provides a good experience for both users and developers, with adaptable and modifiable systems. Every decentralized application (dApp) on Polygon has its own resources and a flexible technology stack under its own independent administration.

Polygon’s token (MATIC) is accepted on the cryptocurrency exchanges Binance and Coinbase and used for payouts, service charges, and transactions. Being listed on major cryptocurrency exchanges increases the coin’s visibility, which could lead to a rise in its price.

Conclusion

Bitcoin has not only been a pioneer in developing other cryptocurrencies based on a decentralized peer-to-peer network, but it has also become the default standard for cryptocurrency, spawning an ever-increasing army of followers and versions. 

Since Bitcoin isn’t the only cryptocurrency out there, it’s important to research other options and determine which ones are thriving.

Therefore, in order to make it easier for you to grasp cryptocurrency terminology, this article provides extensive explanations of coins and tokens, as well as details on some of the most lucrative cryptocurrencies on the market to decide which crypto to buy so that it fits your investment objectives.