If you go back to 2015, people were buying and selling bitcoins at a price of about $250 each. Later on, a single bitcoin would reach a value of more than $62,000 before crashing down to something closer to $18,000. These are the kinds of incredible swings in value that cryptocurrency markets are famous for.
Of course, there are many different types of crypto. Many of them have stories just as exciting as that of bitcoin. Many people have made or lost their fortunes investing in a wide variety of crypto options.
So what are the top types of crypto for you to consider as investment opportunities? Read on to learn about the different kinds of crypto you might want to keep an eye on!
Start Investing With Bitcoin
Bitcoin is the oldest of all cryptocurrencies. At least for now, it is also still the largest.
However, it used to be the largest by a factor of more than 100. These days, bitcoin is only about twice as large as the next largest cryptocurrency. Should you invest in bitcoin?
On the one hand, doing so may be a safe investment. Many institutions and even countries around the world have started to accept bitcoin. It has a long history of recovering from every dip in its value.
It has maintained its position as the most valuable cryptocurrency every year since it was created. On top of that, there’s something to be said for the simplicity of bitcoin.
Newer cryptocurrencies try to build on the foundation laid by earlier coins. They aim at more and more complicated features so that they can differentiate themselves from competitors. In contrast, bitcoin is a simple cryptocurrency that basically does one thing.
Bitcoin is an alternative form of currency that allows people to make transactions. In that sense, it is as simple and ordinary as the dollar or the euro. You may even be able to find an ATM that lets you access bitcoin.
At the same time, being able to make transactions with bitcoin provides many benefits that traditional currencies do not.
The Potential of Bitcoin
You can make private and anonymous transactions with bitcoin. You can also make transactions with anyone around the world without needing a financial institution or a country to facilitate it for you.
Some people still have hope that bitcoin will eventually become the main currency of the planet. They look at the failures of traditional fiat currencies and expect people to switch to bitcoin when they observe similar failures.
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On the other hand, bitcoin may lose out to another coin that provides more functionality. It is also worth keeping in mind that bitcoin is not a very efficient coin.
People spend a lot of electricity keeping the bitcoin system running. Some places have started to regulate bitcoin mining because they are afraid that people are wasting too much electricity. So what is another coin that might be worth investing in?
Try Other Crypto Types Like Ethereum
The second largest cryptocurrency in the world is ethereum. After the incredible rise in demand for bitcoin, people started to make many other cryptocurrencies.
They all fought it out, but ethereum ended up beating all of them and taking second place behind bitcoin. So what is it about ethereum that makes it such a popular coin?
The most important difference between ethereum and most other coins is that ethereum allows you to set up smart contracts. Smart contracts are a prime example of the kind of added functionality that more modern cryptocurrencies aspire to provide.
At the same time, some cryptocurrencies have started to engage in gimmicks and other features that do not matter much. In contrast, ethereum is an older coin that provides more functionality while still sticking to what matters most.
So what is so great about smart contracts? Why did so many people invest in ethereum because of this one extra capability? Understanding smart contracts is easier when you compare them to traditional contracts.
In a traditional contract, two people make an agreement with each other and then sign a contract to obligate themselves to fulfill it. Later on, someone can still attempt to break their word and violate the contract.
However, traditional contracts also come with an enforcer. If one party tries to break the agreement, the enforcer steps in and ensures that the contract is not violated.
If people find ways to violate a contract anyway, then a broader enforcement system like the courts may punish them or demand that they pay recompense to the other party of the contract.
From a sociological perspective, contracts are an amazing piece of technology that let people coordinate with each other even if they do not have a strong bond of trust with each other. The presence of an enforcement mechanism allows them to bridge the gap of their lack of trust.
However, the downside of this system is that you have to trust the enforcement mechanism. Enforcement mechanisms can fail in multiple ways.
First, they can fail to enforce a contract due to a lack of ability. No enforcement mechanism is omnipotent. People violate laws all the time without getting caught.
Second, standard contractual enforcement mechanisms can become corrupt. If you can’t trust a court, then you can’t trust a contract with another party.
Smart Contracts Enforce Themselves
Smart contracts are designed to enforce themselves when certain conditions are met. To make a smart contract, two parties will agree that, when a certain event occurs, a smart contract will execute a certain operation. For example, a contract might send money from one party to the other.
The amazing thing about smart contracts is that they are computer programs that can check whether or not the chosen event has occurred or not. If it does not, then the contract will not activate. But if the chosen event does occur, then the contract will activate with certainty!
In other words, smart contracts do not have the same problem as the traditional enforcement mechanisms for traditional contracts. You can’t just break a smart contract and hope that you will get away with it. The contract will enforce itself.
This also means that smart contracts are immune to corruption. Once the contract is made, it will execute itself unless the parties agree to call it off.
Ethereum made it big by providing access to smart contracts for the first time in the world of cryptocurrency. It continues to be a promising candidate for the largest cryptocurrency in the world.
Try Popular Crypto Coins Like Cardano
Another of the largest cryptocurrencies in the world is cardano. At one point, this coin was the third largest in the world. At other times it has moved between 4th and 8th place.
Regardless of its exact position, cardano has enjoyed some of the greatest success in the history of cryptocurrency. So how did it do this? Cardano solves many of the problems that larger cryptocurrencies deal with.
For example, we have already discussed how bitcoin is inefficient and consumes a lot of electricity. In contrast, cardano allows you to make transactions without consuming significant quantities of electricity.
Another problem with bitcoin is that it can only handle so many transactions at a given time. If it ever gets too popular, people may have trouble making transactions with it in a timely manner. In contrast, cardano is designed so that it can make many more transactions than bitcoin without slowing it down.
One of the big problems with ethereum is that it is expensive to use. Although it provides impressive capabilities, people are unhappy about having to pay so much to use them.
Cardano also allows users to create smart contracts. However, it allows this without charging fees that are nearly as high.
The power of network effects
One of the most important dynamics in the world of cryptocurrency is network effects. The value of a coin is partially affected by how many people are already using it.
This dynamic has the effect of helping successful coins to stay successful. It can also mean that it is difficult for new coins to compete. So why are network effects so powerful?
One of the main values of a cryptocurrency is that you can use it to make transactions. However, you can only buy something from someone with a cryptocurrency if they are willing to accept it as payment. That means that the usability of a cryptocurrency is limited by how many people and institutions will give you goods or services in exchange for it.
The same principle applies to other cryptocurrencies. People sometimes buy cardano in the hopes of making smart contracts without paying high fees. However, once they get some cardano, they realize that they cannot make smart contracts with it unless it is with another party also using cardano.
Since more people are using ethereum, there are more opportunities to create smart contracts with it.
Invest in Polkadot
Polkadot has also moved back and forth between various spots in the top 10 largest cryptocurrencies. It outcompeted the vast majority of cryptocurrencies by offering something that few others did. The premise of polkadot is that it can allow separate cryptocurrencies to interact with each other seamlessly.
The more popular cryptocurrency becomes, the more valuable this feature becomes as well. If cryptocurrency continues to grow, then the demand for polkadot may grow as well.
On the other hand, it is important to keep in mind that many other cryptocurrencies have now copied this feature. Although polkadot is still the largest, another competitor may someday replace it.
Try Coins With Partners
Some of the largest cryptocurrencies are associated with smaller coins as well. For example, cardano is associated with a smaller coin called ergo.
Ergo adds some extra capabilities on top of cardano. It does not do much else, so its popularity is dependent on the success of cardano. What that means is that if cardano succeeds, ergo is likely to succeed as well.
Plus, because Ergo is a smaller coin, it is likely to experience more volatile swings in value. If cardano goes up by 10%, then Ergo might go up by 20% or 30%.
What this means is that you can use these types of coins to increase the variance in your return on investment. If you think that a certain coin will go up, you can check if it is associated with other coins as well and invest in them.
Invest in Fad Cryptocurrencies
When the Squid Game show on Netflix was a big deal in the new cycle, someone made a squid game cryptocurrency. Most people who bought this cryptocurrency did not know anything about it. They only bought it because it was connected to an item of interest.
Later on, it turned out that this coin was a scam and a lot of people lost their money. However, this story demonstrates an important principle in cryptocurrency.
Sometimes, a coin can achieve a market cap of millions or even billions of dollars on the strength of nothing but its association with an idea. If people think that a coin is valuable, then it becomes valuable for as long as that stays the case.
In this way, you can compare these cryptocurrencies to phenomena like beanie babies. They do not possess intrinsic value. However, some people are so interested in them that they become worth incredible amounts of money.
Buying crypto is sometimes a profitable investment even if it seems a little strange.
Understand Different Types of Crypto to Invest In
Learning about different types of crypto will make it easier for you to decide which coins are worth investing in. Some people prefer to skip over studying and jump straight to investing in whatever everyone else is investing in. However, that kind of strategy is a gamble that you may be more likely to lose than win.
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