Investing in crypto: What you should know about the top 5?

BITCOIN (BTC)

Without bitcoin (BTC) the cryptoasset market would simply not exist. Although there were precursors to bitcoin, such as b-money and bit gold, it was the invention of blockchain technology – the decentralised digital ledger underpinning it – that changed the game. Hence, bitcoin is considered the original crypto, and laid the foundations on which a majority of cryptocurrencies now operate.

The timing of its launch played a part: the first bitcoin was mined in January 2009, when the global economy was reeling from the last major financial crisis. There were significant concerns over trust, privacy, autonomy, and liberty with the mainstream financial system – many of which remain today – and bitcoin offered a potential alternative solution.

In October 2008, only weeks after the collapse of Lehman Brothers, then the fourth largest investment bank in America, Satoshi Nakamoto – the mysterious and still-unmasked figurehead of the Bitcoin movement – published the famous white paper, Bitcoin: A peer-to-peer electronic cash system. The author (or authors) proposed “a purely peer-to-peer version of electronic cash would allow online payments to be sent directly from one party to another without going through a financial institution”.

The white paper, which spawned the cryptocurrency craze, states: “No mechanism exists to make payments over a communications channel without a trusted party. What is needed is an electronic payment system based on cryptographic proof instead of trust, allowing any two willing parties to transact directly with each other without the need for a trusted third party.

“Transactions that are computationally impractical to reverse would protect sellers from fraud, and routine escrow mechanisms could easily be implemented to protect buyers.”

Bitcoin and more advanced cryptos have solved numerous problems outlined by Mr Nakamoto, causing many experts to posit that this form of digital currency represents the future of money. With an inbuilt safeguard against fraud and false identity – thanks to the blockchain technology – greater transparency, plus lower fees for cross-country transactions, and by being free from government interference, cryptos have begun transforming payment systems around the world.

Bitcoin relies upon peer-to-peer technology to operate and a method of mining limits the generation and creation of each coin. There is no central authority involved in its creation, transaction or storage; rather it is administered by the blockchain and governed by community members.

Mining bitcoin involves powerful mining programmes that solve sophisticated puzzles to unlock new coins. As with other cryptos, the more coins mined, the more difficult the mining becomes and the more effort (computer oomph and electricity) it requires.

There are a limited number of coins that can be introduced. As of late July 2018 there are close to 17.2 million bitcoins in circulation, meaning 3.8 million of the 21-million total are yet to be mined. That endpoint is expected to be reached in 2140.

Although bitcoin has been pronounced dead at least 250 times in its short life by the world’s media, interest has never been greater. This was helped by the astonishing bull run in late 2017; bitcoin surged in value from $900 at the start of the year to a record high of just shy of $20,000 in December, and elevated the price and understanding of other cryptos in the process.

Bitcoin is now accepted by a vast variety of organisations in a wide range of industries – such as Microsoft, Expedia, bloomberg.com, Save the Children, Wikipedia, Virgin Galactic, Subway, and Whole Foods.

So what does its future hold? “Predicting where bitcoin is going to go is anybody’s guess,” says Alon Muroch, Chief Executive of crypto-based social trading platform CoinDash. “It is a beast, and no one can be sure if it will go up or down, or if it will even continue to be a part of the cryptocurrency landscape going forward.”

ETHEREUM / ETHER (ETH)

Ever since the Ethereum network was launched in July 2015, its associated currency – also called ethereum, or ether (ETH) – has proven hugely popular for investors. This is because of its impressive transaction speed, compared to bitcoin, and also its widespread adoption.

To appreciate the benefits of the ethereum cryptocurrency, first one needs to understand Ethereum. It is a decentralised, open-source, public-distributed computing platform that runs smart contracts: applications that run exactly as programmed without any possibility of downtime, censorship, fraud or third-party interference.

The Ethereum network has given rise to hundreds of DApps (decentralised applications), built and deployed by developers. This programmable blockchain technology has many applications; digital currency is just one of them.

In the Ethereum protocol and blockchain there is a price for each operation. Ether is simply the unit of cryptocurrency used on the Ethereum blockchain, and is used to pay for computation time and for transaction fees. It is frequently compared to bitcoin, the founding crypto that was launched in early 2009, but it’s not actually a competing currency.

It did not take long, though, for the cryptocurrency of the Ethereum platform, co-founded by Russian-Canadian programmer Vitalik Buterin, to be established as the second-biggest in terms of market capitalisation.

Mr Buterin was introduced to bitcoin at the age of 17, in 2011, by his father. He became fascinated by the concept, and co-founded and wrote for Bitcoin Magazine. Mr Buterin published his Ethereum white paper that set out the desire to create a platform on which decentralised applications could be built in November 2013. It was the most exciting development in the cryptocurrency world since the mysterious (and unmasked) Satoshi Nakamoto introduced bitcoin. Ethereum was built as a decentralised computer network on top of which software developers could program any platform, and the network is fuelled by ether.

The Ethereum project raised close to $20 million in pre-launch funding in July and August 2014, and when ether was introduced it was valued at $2.8 per token. By March of the following year it had hit $10, and as transactions on the Ethereum blockchain skyrocketed a raft of top organisations begin backing the crypto. The United Nations, Toyota, Deloitte, and many others sought to take advantage of its enormously powerful shared global infrastructure. Before long its price reached $300, and Ether’s value peaked at $1,315 in January 2018. As a platform Ethereum has gained momentum, thanks to the backing of some serious players. Big financial institutions, such as JP Morgan and Credit Suisse, and tech titans, including Microsoft, have invested heavily in a bid to fulfil its potential.

What is so special about the Ethereum platform? Until recently, developers seeking to build blockchain applications have needed a background in coding, cryptography, mathematics as well as significant resources. Ethereum has changed that. Previously unimagined applications – from electronic voting and digitally recorded property assets to regulatory compliance and trading are now actively being developed and deployed faster than ever before – have been made possible by providing the tools with which the developers can build DApps.

However, Ethereum and ether would never have been possible without bitcoin, and there are many similarities between the two. For one thing, they are both blockchain-based cryptocurrencies and can be mined by users around the world.

There are some key differences. While the annual supply of ether is limited to 18 million, Ethereum could theoretically continue to introduce new currency and make its supply unlimited. Conversely, bitcoin’s supply is capped at 21 million. Another key contrast is the processing speed; bitcoin transactions take around 10 minutes, whereas an ether transaction takes only 15 seconds.

Like bitcoin, Ethereum is not free from controversy. After $500 million worth of ether was hacked and stolen in June 2016, the Ethereum community voted to hard fork the blockchain to restore all funds. A small group of dissenters resolved to continue to mine the old blockchain. Thus, ethereum has been broken in two separate active blockchains, each with its own cryptocurrency: the newer one, ethereum (ETH), and the old one, ethereum classic (ETC).

People in the know expect the prices to stabilise as the Ethereum platform scales and becomes a ubiquitous feature of the post-blockchain internet and corporate landscape. The potential, for both Ethereum and ether, is huge.

XRP (XRP)

XRP (XRP) by Ripple Labs is one of the most popular cryptocurrencies, and its founders have effectively been working on it since 2004 – long before bitcoin, the first cryptocurrency to gain worldwide recognition, was introduced in 2009. b

Crucially, it was not initially designed to be a standalone currency; rather it was created to serve as a moderation layer when making transactions using the Ripple payment protocol and exchange network.

On the Ripple platform transactions occur almost immediately, and because it is a peer-to-peer network it is resilient to systematic risk. It settles payments in around three seconds, which is considerably quicker than bitcoin’s processing speed (over an hour, on average). Indeed, Ripple can handle 1,500 XRP transactions per second, and is aiming to scale to handle a similar throughput as Visa (50,000 transactions per second).

Further, XRP tokens are not mined – unlike bitcoin and others – but each transaction on Ripple’s distributed network destroys a small amount of XRP that adds a deflationary measure into the Ripple system.

Ripple Labs’ software is starting to be adopted by banks but the native XRP token has yet to be used by financial institutions on a significant scale. Critics cite Ripple’s relative centralisation compared to other cryptos as well as the volatility of the asset making it a high risk.

The feeling is that as soon as one bank uses XRP, the rest will follow – and quickly. That is because the development and governance, supply and token economics, and value proposition techniques all combine to make Ripple an exceptional product and XRP a great prospect for success.

“The Ripple software is brilliant,” says Charles Hayter, Chief Executive of CryptoCompare.com. “Right now the big question on everybody’s lips is whether banks are going to adopt the native token, XRP. Their main worry is whether they can we hedge their liquidity risk.

“As long as their markets keep deepening, and the liquidity broadens globally then its use case will improve. As soon as the first bank hops on board with XRP I think the floodgates will open.”

BITCOIN CASH (BCH)

Bitcoin Cash (BCH) burst on to the crypto scene in early August 2017, and was the result of the first major “hard fork” in the history of digital currency. The “altcoin” was created by force when bitcoin’s blockchain ledger was successfully split by a group of disgruntled crypto activists, digital miners and entrepreneur within the community.

They forged a new version of the world’s most famous cryptocurrency, launched in 2009, because they were frustrated by scaling challenges. Specifically, they were annoyed by its sluggish processing speed and inability to cope with a large number of transactions. At peak trading times bitcoin transactions would take hours. In short, bitcoin had grown too big for its own good, and the Bitcoin network could not cope.

Bitcoin Cash is similar to bitcoin in terms of protocol – “Proof of Work” hashing; the capped supply of 21-million tokens; the same block times and reward system – however, its blockchain has a significantly larger block size limit (32MB rather than 1MB), meaning it can store more transactions per block. It also uses a different algorithm designed to speed up the mining process at times when the network is congested.

The hardfork divided opinion. Derin Cag, Founder and Chief Executive of Richtopia, commented at the time: “There are pros and cons to the fork. The pros are the media coverage, which is making bitcoin more mainstream. The second pro is the development of the technology in terms of blocksize, enabling bitcoin and / or bitcoin cash to scale.

“The cons are the extreme divisions in the crypto community and the split of the technology in to two. It is an internal debate, which lasted for two years and went from diplomacy to full-on war with the fork.”

Fred Ehrsam, Co-founder of the Coinbase exchange, was more positive and wrote on Twitter: “Forking is valuable behavior [sic]. Like mutations in DNA, it allows for faster evolution.”

Bitcoin Cash’s long-term success is dependent upon bitcoin’s progress. As the two cryptos stem from the same network they remained tethered, though they are rivals, and when the price of one asset goes up the other usually falls.

EOS (EOS)

Can EOS.IO be the “Ethereum killer” that its numerous avid supporters predict it will become? The early signs are certainly promising. The white paper on the Hong Kong-based project was only published in 2017, and it didn’t take long for EOS (EOS) – the cryptocurrency token of the blockchain-powered system that promises a decentralised application (DApp) platform – to break into the top-10 cryptos in terms of market capitalisation.

That is an amazing rise, considering that the EOS.IO platform was launched in late January 2018 by block.one – a startup and pioneer in the blockchain space, working towards the promotion of DApps and smart contracts, in particular.

Incredibly, block.one has raised over $4 billion in its ongoing Initial Coin Offering (ICO) – a record. EOS.IO has many fans in the crypto community, evidently. That huge financial backing means research and development can continue on a large scale for decades, in theory.

Like Ethereum – whose ether (ETH) the second-largest crypto by market cap at the moment – Chinese project NEO, and also Ripple Labs, EOS.IO is aiming to become a significant player in the blockchain arena. It has set out to do this by creating a benchmark platform for utilising the nascent and potentially world-changing technology that could transform finance, healthcare and many other industries. Written in the coding language of C++, the hope is EOS.IO will catalyse the dawn for mass blockchain adoption.

The EOS token was introduced in July 2017 as part of a multifaceted plan to roll out the EOS.IO DApps development platform. Cleverly, block.one was able to create and nurture a community before the platform was opened, thus making sure enough people would use it from the very first day.

Lead architect Dan Larimer has an impressive record in the blockchain space, and that has boosted confidence in EOS.IO and its token. EOS.IO aims to have greater functionality than the Ethereum platform, and boasts much quicker transaction speeds. Allied to that, zero user fees and its colossal financial backing make EOS an attractive cryptocurrency to invest in and trade. Blockchain enthusiasts and those with a long-term and holding mentality find the EOS token especially appealing, in part because it is unique and offers great portfolio diversity.