With a market cap of nearly $200 billion, it is safe to say that nothing has had a quicker rise to fame in recent years than cryptocurrency. Bitcoin’s foundation in 2009 was the first domino to fall in a line of hundreds as the blockchain industry continues its rapid expansion.

 

The general technology provides users with a decentralized platform that allows them to make untraceable transactions with lower transaction fees compared to standard online payment mechanisms. However, different cryptocurrencies come with different purposes and more nuanced functions. Blockchain technology is already complicated enough without examining it at the micro level, but understanding the core purpose of each currency is essential when deciding on whether to make an investment.

 

While the cryptocurrency market carries great risk because of its recent foundation and unsettled future, by breaking down each individual crypto’s function with our financial fluency tools, we can invest smarter, together.

 

Bitcoin

 

If the cryptocurrency market was the e-commerce industry, Bitcoin would be its Amazon (AMZN). The first digital currency to take the world by storm, Bitcoin has quickly become the gold standard of the industry with a market cap of over $100 billion. It was the first decentralized peer-to-peer network allowing for lower transaction costs and faster processing. New cryptocurrencies are created nearly every day, however, many of these are referred to as altcoins since they are simply modified versions of Bitcoin. The cryptocurrency provides high liquidity, growing market acceptance, and strong value retention. As Bitcoin continues to grow, it will be interesting to see how government authorities decide to regulate the digital currency. There is obvious risk with investing in such a new market with a tentative future, however, as long as the train continues chugging, investors will keep pouring their money into Bitcoin.

 

Ethereum

 

Although Bitcoin is more of a household name, Ethereum is slowly becoming a strong competitor to its founding father. Launched in 2015, Ethereum serves as the blockchain technology used to create its cryptographic token ether. Although Bitcoin is strictly a currency, Ethereum is actually a software as well. Developers looking to utilize Ethereum technology use ether to run applications on its decentralized platform without any downtime or fraud concerns. Ethereum has a market cap of nearly $30 billion, second only to crypto-giant Bitcoin.

 

Ripple

 

Ripple is a hot cryptocurrency at the moment as it differs from other digital currencies in a unique way: it does not require mining. The creators of Ripple believe this reduces the software’s usage of computing power, allowing for minimized network latency. Instead, Ripple distributes value through business developments and investment deals. The cryptocurrency continues its meteoric rise as investors are interested in currencies that provide enterprise solutions rather than just a digital security. Ripple currently has a market cap over $8 billion.

 

Litecoin

 

Launched in 2011, just two years after Bitcoin’s creation, Litecoin was one of the earliest cryptocurrencies to hit the market. Litecoin offers a decentralized global payment network that utilizes scripts as proof of work. Like many cryptocurrencies, Litecoin is very similar to its parent Bitcoin, however, it offers faster block generation rate which leads to faster transaction-processing. Due to its early foundation, Litecoin is becoming continuously more accepted in global marketplaces as its name reaches more and more households. Litecoin currently has a market cap of over $3 billion.

 

So how do I trade it?

Although the cryptocurrency craze has taken over global markets in recent years, you must always be cautious when investing in such new technology. Bitcoin provides no intrinsic value, therefore, any amount that you invest is at risk to become valueless. Not only are new markets extremely volatile, as has been the case with cryptocurrencies, uncertainty surrounding regulation makes digital currency’s future value unpredictable. Investors must stay cautious when analyzing a potential investment opportunity in cryptocurrencies because their high returns come with equally high risks. Let’s take a deeper look as we inch towards achieving financial fluency.

 

With a market cap growing by the billions every day, it is hard not to take notice of cryptocurrencies. The complex technology seems simple on the macro level, however, a closer look at each individual digital currency proves it is a lot more complicated. Investors must analyze the core purpose of the cryptocurrency they are considering investing in because each one differs from the last. There is always risk in investing in new markets, however, there is added risk in cryptocurrencies due to their unique place in the technology world and individualized functions. By surrounding yourself with a greater understanding of the markets, you can continue to step closer to financial fluency. Cryptocurrencies have demonstrated a historic rise to fame this year, and by understanding their individualized purposes and associated market risk, we can continue to invest smarter, together.