Robert has reported for a variety of international publications including the Associated Press, The Guardian, Vice, and Decrypt. Current areas of interest include the political economy of technology, cryptocurrencies, and privacy. Robert has a Bachelor of Science from UCL, and a Master's degree from the University of Oxford's Internet Institute.
Bitcoin was the first cryptocurrency, and a lot of people still think it’s the most important. Created in 2008 by a pseudonymous developer called Satoshi Nakamoto, it rose from the ashes of the financial crash and became a trillion-dollar asset a little over a decade later.
Nobody would dispute Bitcoin’s importance in disrupting the financial system, for better or for worse. It popularized decentralized technologies and spawned a whole network of blockchain-based digital currencies based on distributed security.
But over a decade later, some traders may no longer consider Bitcoin the top cryptocurrency. The next big cryptocurrencies are faster than Bitcoin, support more applications, are greener, and open up novel use cases for decentralized finance. In this piece, we’ll discuss the different types of cryptocurrencies, and why they’re important.Buy and Sell Bitcoin, Ethereum, and over a dozen other cryptocurrencies with Wealthsimple. Sign up and Trade here.
Ethereum is the second-largest cryptocurrency by market capitalization, and as of December 6, 2021, dominates 21% of the market (Bitcoin makes up about 40% of the $2.2 trillion crypto market, according to a chart on CoinMarketCap).
Ethereum was launched in 2015 by a team of software developers led by Vitalik Buterin. It introduced smart contracts, or self-enforcing financial contracts, to cryptocurrencies. If Bitcoin was an old rotary phone that could receive and make calls, Ethereum was the iPhone, introducing users to a network of decentralized applications. These applications now hold $116 billion in customer funds [accurate as of jan 25, 2022], up from about $630 million at the start of 2020, according to DeFi Llama. The next smart contract blockchain, Binance Smart Chain, holds about $11.99 billion. Ethereum’s native currency, Ether (or ETH), increased in value by about 10 times between August 2020 and March 2021.
Ethereum has its drawbacks. Transactions can cost hundreds of dollars on a particularly congested day, meaning that only the rich can play around with DeFi protocols, and transactions also take several minutes to complete. An upgrade to Ethereum, called Ethereum 2.0., is on the way, but it will likely take several years before it’s truly up and running.
However, other up-and-coming cryptos are already far cheaper and quicker than Ethereum, and they claim to be able to scale, too. Some people think that these types of cryptocurrencies will thrive in the next crypto boom.
Solana is one of the largest Ethereum competitors. It uses “proof-of-history” to validate transactions; each node on the network verifies transactions according to a cryptographic clock that everyone on the network agrees with.
The result of this is that transactions are near-instantaneous and cost a fraction of a dollar, meaning that anyone can access Solana-based decentralized finance protocols, NFTs, and decentralized exchanges. The coin launched in 2020 and blew up in mid-2021 (people called it “Solana Summer”). As of January 25, 2022, , the coin has become the seventh-largest cryptocurrency with a market cap of $28.6 billion.
Like Solana, Avalanche is faster and cheaper than Ethereum. Its architecture is quite different than both Solana and Ethereum. It uses three chains—X, P, and C—to hasten transactions. The X uses the consensus protocol to manage assets minted using Avalanche. The C chain manages smart contracts. And the P chain coordinates the validators that confirm transactions. The project’s native coin, AVAX, is the 12th-largest cryptocurrency with a market cap of $15.7 billion.
Cardano is a smart-contract blockchain led by Charles Hoskinson, the CEO of a software development company called Input Output Hong Kong (IOHK). It’s a fast and cheap blockchain that supports decentralized applications. One of its main innovations is to use a panel of academics to peer-review updates to its blockchain. This aims to ensure that all of the upgrades to the network make sense, and aren’t simply pushed by the people with the most coins on the network. Cardano’s native currency is called ADA, and it’s the sixth-largest cryptocurrency with a market cap of $34 billion.
Fantom is yet another so-called Ethereum killer. Like Hedera Hashgraph, it uses something called a directed acyclic graph, which expresses all transactions in a graph and has everyone validate them at once. Fantom’s coin, FTM, has a market cap of $3 billion, meaning it’s not nearly as large as Cardano, Avalanche, or Solana.
Binance Smart Chain
Binance Smart Chain is a cryptocurrency network that rivals Ethereum. It’s technically two chains, one is called Binance Chain and acts as a kind of settlement layer. Binance Smart Chain, the name by which this whole network is referred to these days, is the smart contract-enabled blockchain that powers a whole host of decentralized applications.
Binance Smart Chain is powered by BNB (also known as Binance Coin), a cryptocurrency that also lets you access discounts on Binance, one of the world’s largest cryptocurrency exchange platforms.
Like other “Ethereum killers,” most of the decentralized applications on BSC are similar to those offered by Ethereum itself. PancakeSwap replaces Ethereum’s popular decentralized exchange Uniswap, for instance.
Stablecoins are some of the most important coins on the cryptocurrency market. Most of the big ones, like USDC, USDT, DAI, and tUSD are pegged to the US dollar, the largest currency in the world. Others are pegged to other assets, like gold, silver, or stocks, or versions of coins that operate on other blockchains, such as WBTC, an Ethereum token that is pegged to the value of Bitcoin.
These coins are massive. Tether is the third-largest coin on the market, as of January 25, 2022, with a market cap of $78 billion. USDC is the fifth-largest coin, with a market cap of $48.2 billion.
Stablecoins can be useful because they are a way for traders to hold money in cryptocurrencies without exposing themselves to the currency risk and volatility of a particular crypto.
Stablecoins are also highly controversial. Regulators worldwide have often referred to them as a threat to global financial stability. In part, this is because stablecoins are unregulated and their backing to the US dollar is frequently contested.
Lots of people, including the New York State Attorney General, have alleged that there’s not much evidence to Tether’s claim that its coins are backed by US dollars or sensible cash equivalents. Tether points to regular audits, but people say that these audits don’t contain important information, like the names of the companies whose commercial paper Tether holds. Central banks, it may come as no surprise, get very anxious about privately controlled money.
There may also be broader concerns about stablecoins, too. In 2019, Facebook/Meta announced Libra/Diem, an upcoming (and much delayed) stablecoin that would be pegged to a variety of baskets determined by a small number of very large companies, including Uber, Spotify, and Lyft. This attracted considerable criticism. German MEP Markus Ferber argued that the project could become a “shadow bank” operated by private companies rather than by good governance. Many major companies, including Mastercard, dropped out of Libra/Diem after the regulatory backlash.
Decentralized finance coins power non-custodial financial protocols, which control hundreds of billions of dollars. Use cases include decentralized exchanges, lending protocols, decentralized ETFs, prediction (gambling) protocols, and robo-advisors. Most decentralized finance projects have their own cryptocurrencies, known as governance tokens. Examples include the eponymous tokens of 1inch, Aave, Compound, Uniswap, Curve, yearn.finance , and Maker.
These governance tokens fulfill multiple purposes. The first is to incentivize people to use the protocols. Often they are earned for pledging funds in the protocol, like investing your money in a yield farm on Yearn Finance or by providing liquidity to Uniswap, a decentralized exchange. Second, the tokens are also, as the name suggests, used for governance within a protocol’s DAO, or decentralized autonomous organization. This lets people vote on the parameters by which the protocol operates, and holding lots of these tokens means you can exert a huge amount of influence.
Privacy coins are cryptocurrencies that obscure the flow of money to protect your identity. Popular examples include Monero, Dash, and ZCash. These stand in stark contrast to a network like Bitcoin or Ethereum. These networks are pseudonymous, meaning that you can look up any wallet and check how it has spent its money, but you have no idea who owns the wallet (unless that person discloses that they control the address). By comparison, privacy coins like Monero hide data about coins sent across the network, meaning that you can’t work out which wallet sent money to another on a blockchain explorer (a site that lists all the blockchain transactions ever made).
Privacy coins are highly controversial, and with good reason: Some online black markets only accept privacy coins to protect the identities of the people that use them. Defenders of privacy coins maintain that privacy is worth protecting, even if it means that bad actors might benefit from these technologies.Buy and Sell Bitcoin, Ethereum, and over a dozen other cryptocurrencies with Wealthsimple. Sign up and Trade here.
NFTs, or non-fungible tokens, don’t work like Ethereum or Bitcoin. Instead, they are one-of-a-kind coins that can’t be replicated. That’s why they’re called non-fungible, since, unlike regular money, each is distinguishable from the last. Popular projects include Axie Infinity, CryptoPunks, and the Bored Ape Yacht Club. Axie Infinity is a Pokémon-inspired monster battling game that revolves around NFTs, and CryptoPunks and the Bored Ape Yacht Club are the most successful collections of NFTs that function as profile pictures. Combined, they have generated more than $5 billion in sales. You can trade NFTs on marketplaces such as OpenSea, Rarible and SupeRare.
NFTs aren’t just about art, and the technology can be applied to anything that requires blockchain-based ownership. Some, like those on Decentraland or The Sandbox, represent claims to in-game items, like virtual real estate or costumes. Those on the Ethereum Name Service or Unstoppable Domains represent ownership rights over censorship-resistant domain names. Gary Vaynerchuck’s collection of VeeFriends NFTs functions as a ticket to his in-person conferences.
A lot of people would dispute the importance of meme coins, but they’re an integral part of the crypto market. Dogecoin (DOGE), a coin that does little else apart from bear the name of a Shiba Inu, once had a market cap of about $90 billion. Shiba Inu (SHIB), a coin that innovated on Dogecoin by offering decentralized financial services, once hit $41 billion. A lot of meme coins are spin-offs of Dogecoin: Floki Inu and CateCoin are among other examples.
Most meme coins are flash-in-the-pans: Head to CoinMarketCap and check out which coin has boomed by 10,000% in the past hour, and chances are it’s a newly launched meme coin. The next hour, that coin might well crash, never to rise again.
So why are meme coins so important? It’s because cryptocurrencies made it so easy to financialize almost anything: You can turn a JPEG into an NFT with a click of a button, copy a yield farm and launch your own Ponzi scheme named after Elon Musk, or latch onto the Dogecoin craze. Anything that can be named can be sold, and in crypto, there are often willing buyers willing to throw money into the hype.
Frequently Asked Questions
It’s difficult to determine which cryptocurrency has a future. When researching a coin, you might consider its whitepaper, an academic essay that lays out the future of the project. You might consider its size, the reputation of its backers and its utility. But picking out the next cryptocurrency to explode is a little like picking the next stock: It’s a bet on the future success of a project. Remember that past performance does not indicate future performance. Never invest more than you can afford to lose. And be mindful of crypto’s volatility.
It’s impossible to determine which is the best cryptocurrency to buy without building an accurate model of the future. When considering a crypto investment, it’s wise to consider the various factors that affect the crypto market, understand the technology and remember that speculative investments are highly volatile.
The best way to buy cryptocurrencies in Canada is to sign up for a regulated exchange or an audited decentralized exchange. A crypto trading platform like Wealthsimple Crypto also offers cryptocurrencies.
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