Let me start this post by stating that I am not a financial advisor and I am not giving anyone financial advice. This is just a compilation of the research that I have done as I investigated investing in cryptocurrencies.
The cryptocurrency market is a very volatile place. It’s hard to know which currencies are good and bad investments because of the unpredictability of their prices. Some cryptocurrencies will skyrocket in value, while others fall into oblivion.
There is no “best” cryptocurrency that you should invest in – instead, it depends on what your individual goals and risk tolerance levels are.
In this blog post, we’re going to discuss 9 of the cryptocurrencies that I investigated before I decided to put my money into any of them. I also used this information to choose the crypto that I decided to mine to earn passive income from home.
I started out by learning what a cryptocurrency is and what it can be used for. I looked at what the developers of the crypto had in mind when they created it, how it has grown and what other investors think of each coin. I also looked at the ability to mine each coin, the potential growth – short term and long term – of each coin and whether or not I thought the coin was best used as a collectible investment like art, an inflation hedge like gold and silver, or as an actual currency like cash.
So, as Marvin Gaye sang it – let’s get it on!
What Is Cryptocurrency?
Cryptocurrency is a digital or virtual currency that uses cryptography for security. It’s not issued by any central authority, such as a government body, and cryptocurrencies are typically decentralized.
Cryptocurrencies are constructed as a means of payment — an alternative to fiat currencies around the world some of which are being affected in various stages of erosion through inflation or are currently risking government seizure.
One of the most well-known cryptocurrency projects is Bitcoin, which started in 2009. Since then, hundreds of other cryptos have emerged with various pros and cons compared to Bitcoin – some might be better at working on blockchains than others; some will focus more strongly on privacy features while others won’t; etc.
Why are cryptocurrencies important?
Cryptocurrencies could disturb the current financial order and democratize finance across the globe.
Cryptocurrencies allow for decentralization, which means that they are not controlled by any single person or organization.
They instead operate through what is known as a blockchain network where computers around the world confirm transactions and add them to what’s called an immutable ledger – i.e., everyone can see what happens in real-time because the blockchain is a public record of every transaction.
Advantages of Cryptocurrencies
Due to their decentralized nature, cryptocurrencies can be sent across the globe almost instantly, allowing for fast transactions.
For example, if you wanted to send me some of your hard-earned Dogecoin this morning at 11 am EST then I would have had it within seconds without any fees!
That’s right – cryptocurrencies are decentralized and therefore not controlled by banks or central governments so no middlemen or politicians are trying to get their cut of your transaction.
We can’t put a price on having financial sovereignty, but with cryptocurrencies, you will have these advantages:
- Decentralized nature
- Scarcity (there are only 21 million bitcoins total for example)
- Transparent ledger meaning that everything is public
Why are there so many cryptocurrencies?
Because of the decentralized nature and how new cryptocurrencies can easily be created with a few lines of code, there are many.
This is good news for you though because it means that just about any cryptocurrency will have some value. With so much competition among cryptocurrencies, your investment in one coin doesn’t mean another coin becomes less valuable.
The developers of each cryptocurrency design their blockchain and currency for specific purposes.
For example, Steem is a decentralized social media platform where cryptocurrency users can get paid to post articles.
NEM’s blockchain technology provides an enterprise solution for companies looking to implement blockchain into their business. It gives customers a real-world use case that many other blockchains don’t have yet since it’s still so early in the crypto game!
In order to provide a market cap for each crypto below I used data from Coin Market Cap.
So, with all that said, let’s look at some crypto!
Bitcoin is the bell cow of cryptocurrencies. It is the first crypto that most people ever heard of and is the largest by market value by far. Bitcoin can be used as a currency to buy products and services. It can also be held as a “collectible” like art work due to the fact that there is a hard limit on the number that can ever be created. Since only 21 million Bitcoin can exist, it is considered to be a deflationary coin – governing bodies can’t simply create more out of thin air.
Many consider Bitcoin to be the digital age version of gold. Some even view it as a way to protect wealth like gold can due to the limited amount that can ever be in existence.
Bitcoin can be mined using ASIC miners. These miners consume a lot of electricity to mine a coin so a lot of people don’t like Bitcoin because it isn’t “Green” enough for them. This is one of the reasons that Elon Musk gave when Tesla stopped accepting Bitcoin as payment for new electric vehicles.
Risks of Investing in Bitcoin
Bitcoin tends to fluctuate in value quite a bit. In the last couple of months it has been as high as $67,000 and has also fallen below $30,000.
From a mining perspective, the expense of ASIC miners, the mass consumption of electricity, the heat produced by the mining rigs and the volatile nature of the value makes Bitcoin a risky proposition. Miners can make a lot of money quickly but can also lose a lot just as fast.
Litecoin was among the first virtual currencies that followed Bitcoin. It was created by Charlie Lee an MIT graduate and formerly a Google executive. Litecoin is based in an open-source world payments network that is not controlled by central authorities. As I write this article, Litecoin shares were valued at almost $14 billion, the 17th largest cryptocurrency in the world. It also operates a faster block generation rate and thus provides a faster confirmation time for transactions. It is also becoming accepted by the merchants that are taking Litecoin in a larger and faster manner.
The limit on Litecoin is 84 million coins so it is also considered to be a deflationary cryptocurrency.
Litecoin is also accepted by many companies for payment of goods and services.
Litecoin can be mined using ASIC miners that consume lower amounts of electricity and generate less heat than most Bitcoin miners. These miners are available from around $700 and up depending on the hash rate. Mining Litecoin is a fairly low risk proposition for generating passive income.
Risks of Investing in Litecoin
Investing in Litecoin is not risk-free. It has risks that are associated with it just like any other investment, and the risks of investing in litecoin can lead to losses as well simply due to the nature of cryptocurrencies.
Chainlink is a decentralized oracle network whose core network has bridged the gap between the network’s smart contracts and the data outside. It has a market value of almost $15 billion as I write this making it the 14th largest cryptocurrency.
Chainlink can connect to almost any API to pull data used in building smart contracts. The use of decentralized nodes helps to protect the transaction integrity.
Chainlink is not a directly mineable cryptocurrency.
Risks of Investing in Link
The risks associated with investing in Chainlink are the common risks for all crypto investing – volatility. It isn’t prone to wild swings in value like many other cryptos are but it will move up and down fairly rapidly.
Stellar is an open blockchain network that allows financial institutions to connect with each other for the purposes of massive transaction processing. This allows the banks and financial institutions to conduct vast transactions virtually immediately, without intermediaries, and at a minimal price.
Stellar is currently the 22nd largest crypto by market cap with a value of just over $9 billion.
Stellar uses Stellar Consensus Protocol (SCP) instead of Proof of Work which makes it not mineable.
Risks of Investing in Stellar
The risks of investing in Stellar include centralized servers, limited development team and the limited number of validators. The Stellar Foundation holds approximately 60% of all XLM in existence which creates a central point of failure.
Ethereum is a decentralized platform for transferring money over the Internet. It is designed to bring financial access to the masses without having to worry about government overreach. Due to it’s programmable nature, Ethereum can be used for many applications other than moving money like games and apps that can be run without fear of your data being compromised.
Eth is currently the 2nd largest crypto by market value behind Bitcoin. It has an estimated market value of $489 billion as of the date this article is being written.
Ethereum is mineable using ASIC mining rigs and using GPU mining rigs. It will be moving from Proof of Work to Proof of Stake which will eliminate mining at some point in the future.
Risks of Investing in Ethereum
Failed transactions and high transaction fees, known as gas, are some of the limitations of Ethereum. There are also other factors such as the ability to front run a contract that will limit the ability of Eth to continue to grow. Some of these risks will be addressed as Eth move from PoW to PoS protocol.
Cardano is a Proof of Stake cryptocurrency developed by engineers math/coding engineers and cryptography specialists called Ouroboros. The project was co-founded by Charles Hoskinson one of the five founding members of Ethereum. The researchers behind the project wrote more than 90 papers on blockchain technology across a broad spectrum of topics. As of October 2021, Cardano had the fourth-largest market capitalization of $71 billion and one ADA was trading for about $2.18. It has the purpose of becoming a global financial operating system by the establishment of decentralized Financial Products similar to Ethereum.
Cardano is not a mineable cryptocurrency. You can, however, use sites like UnMineable to mine other cryptocurrencies and be paid for your work in Cardano.
Risks of Investing in Cardano
Cardano is touted as a potential “ethereum killer” meaning that the technology used could provide faster, less expensive transactions than Ethereum does. If they can achieve this then adoption of Cardano would grow rapidly. The biggest risk for Cardano is that they either do not fully achieve that ability or that they lag in adoption.
Dogecoin is an open source, peer to peer crypto that was started as a joke. It was based on the growing crypto craze created by Bitcoin and the mascot was a popular Japanese dog known as a Shiba Inu.
The developers limited Dogecoin to about 100 billion coins, significantly more than Bitcoin’s 21 million coin limit.
It became popular as a meme on forums like Reddit and gained a lot of media attention when celebrities like Elon Musk and Mark Cuban began to talk about it on their social media channels.
Doge is currently the ninth largest cryptocurrency by market cap with a current estimated value of $35 billion.
Doge is mineable using ASIC miners. It uses the same protocol as Litecoin so most of the ASIC mining rigs will mine both coins at the same time.
Risks of Investing in Dogecoin
Dogecoin’s price has proved strongly vulnerable to hype – good and bad. The quantity in dogecoin that can be mined is massive when compared to Bitcoin. Dogecoin also has a history of low prices.
Solana is considered to be the fastest blockchain available today. It is used for a wide variety of apps like DeFi, NFTs, Web3 and many more. It can process thousands of transactions per second at an extremely low cost per transaction.
The Solana network is designed for compatibility, growth and speed. It currently has over 1100 validators insuring that it will remain decentralized and free from government interference.
Solana is another crypto that can’t be mined. Like Cardano, you can mine other coins and get paid in Solana on Unmineable.com.
Risks of Investing in Solana
Solana has a high risk of investment because it is still in its early stages. This means that the cryptocurrency’s value could go down at any time, especially if no additional users join and utilize this product. If Solana does not attract new investors with enough capital to increase demand over supply then the cost will decrease even more than they already have.
Polkadot is a cryptocurrency technology that is gaining popularity. It allows investors to purchase tokens and trade them using its dApp marketplace, investing in other cryptocurrencies like Bitcoin or Ethereum . The platform has several unique features such as cross-chain interoperability, proof-of-stake consensus, and parallel transaction processing which makes it stand out among the crowd of cryptos.
Polkadot uses the Nominated Proof of Stake protocol which means that you have to own some Polkadot to be allowed to nominate a validator for a transaction. You will share in the validation reward based on the percentage of Polkadot that you own.
Risks of Investing in Polkadot
Polkadot is still in the early stages of development so risks are high.
One risk is that it may not be adopted by mainstream users since its rather complex technology, instead remaining on the fringes of the crypto scene. It also needs to convince big players like Amazon or Uber to use their platform for payment processing which could take some time.
These are just some of the cryptocurrencies that I researched when I decided to invest in crypto. I do not own all of these at this time. I do own the following as I write this article:
I am learning about crypto investing and crypto mining currently. My goal is to build a crypto based portfolio and hold it for long term growth.
In closing, let me remind you that I am not a financial advisor nor am I giving anyone financial advice. This is just a list of things that I considered as I started my crypto investing journey.