A Block of Information to All the Types of Cryptocurrency
If cell phones are money-makers, then lots of companies offer phones, service plans, and accessories. Video game arcades, on the other hand, not doing so well these days – so they’ve largely gone away. Actual hard copy books? Still going strong despite all of the electronic options. Physical CDs in cases that you need a player to listen to? Not so much.
In reality, of course, it’s a bit more complicated than that, but the foundation of the system is still supply and demand. There are so many different types of cryptocurrency because, at the moment, quite a few different individuals and organizations are hoping there’s sufficient demand, and that their pretend money will outperform and outlast everyone else’s pretends money. As long as there are entrepreneurs out there who believe they have a better way to run alternative forms of digital exchange (and assuming it remains legal), there will be folks making new, pretend money in hopes of also building up lots of the older green rectangular stuff as well.
A Block of Information to All the Types of Cryptocurrency
The technology behind the cryptocurrency has actually proven revolutionary for all sorts of related endeavors. Contracts, business transactions, cybersecurity, and other realms have benefitted from the concepts and algorithms at the heart of many cryptocurrencies. It’s sort of the “space program” of the 21st century that way.
Why Are There So Many Different Types Of Cryptocurrency?
There are a number of ways to answer this, but for our purposes, we’ll stick with the most basic. There are so many different types of cryptocurrency because people like to make money, and many people think cryptocurrency can be profitable. That’s modern capitalism. If you think you’ve figured out how to make money (literally, in this case), you can give it a shot – assuming it’s legal and you have the resources to make it happen. It will work, or it won’t.
If you’re interested in the specifics of how it all actually works, you can check out two great primers by my good friend Grace Douglas, who lays out some of the basic terminology and logistics of cryptocurrency. You might also check out the Cryptocurrency Homepage here at Wealthry. For now, right here, let’s look at some of the most popular types of cryptocurrency you’re likely to encounter if you choose to enter this particular wonderland.
Bitcoin
This is the one we’ve all heard of, right? Bitcoin is in most ways the original cryptocurrency, created by an anonymous figure who published the idea in 2009 and set it loose on the world. The basic idea is that users can avoid government interference and many institutional fees and regulations by simply agreeing among themselves on the value of virtual “coins.”
The foundational concept of Bitcoin and many of its successors is a reliance on a universally shared “ledger” in which all transactions are recorded. This essentially prevents fraud since all ledgers have to agree on who’s sent what to whom. At the same time, identities are protected by a complex algorithm so that it’s very difficult for anyone besides those directly involved to know exactly which parties are involved in the transaction.
Tesla announced that it has bought $1.5 billion worth of bitcoin.
In theory, Bitcoin’s value is determined solely by users. There’s a maximum amount of it allowed to exist, which should help protect it from inflation, and it’s intended to operate independently of the stock market, economic conditions, or government policies. Whether it actually works that way or not is one of those things you can argue endlessly with strangers online.
Ethereum
Ethereum is currently one of the most popular types of cryptocurrency, second only to Bitcoin in scope and maybe a bit higher on the “coolness” scale. Its primary use is similar to Bitcoins – exchange of value. Like most fintech, though, Ethereum envisions breakthroughs in online security, particularly in regards to finances and personal data. Some have described it as a sort of “world computer” keeping everyone’s privacy safe through a very complex version of the crowdsourced mutual accountability mentioned above. The ironies in this scenario are many, and anyone who’s ever seen a science fiction movie or anything involving Iron Man knows how that pretty much always turns out.
I’m sure it will be fine this time, though. Seriously. What could go wrong?
Ethereum also wins the unofficial “best cryptocurrency name of all time” award, voted on by me and distributed exclusively here – in this blog entry, earlier in this sentence. I’m certain Ethereum’s creators now consider their years of labor entirely worthwhile. Blaine has spoken.
Litecoin
Litecoin is kinda like Bitcoin, only… well… lite. For most users’ purposes, it functions essentially the same way but with lower fees and faster transaction times.
Like Bitcoin, Litecoin uses “blockchain” technology. The workings of blockchain are summarized in those posts I linked to above, but the gist of it is that information regarding the zillions of transactions taking place around the globe using a specific currency (Bitcoin, Litecoin, etc.) are stored in immutable, unhackable “blocks.” Unlike a physical ledger or your typical database, which focus on organizing information carefully and allow a degree of manipulation, updating, erasing, adding, subtracting, etc., a block in a blockchain is more like that spike you used to see next to the cash register at the local diner. A “receipt” for each transaction is slammed down on the spike, piling on top of the ones before it and soon buried by transactions after it. When the spike (or block) is full, it’s attached to all the previous blocks and permanently sealed – it can be viewed, but not changed.
Now, add a technological wrinkle. Every receipt stuck on that spike is available to view by everyone else in the universe at the same time (or at least the ones using the same “currency”). That makes it nearly impossible to pretend you’ve paid your bill when you haven’t, or to spend the same money twice. At the same time, only you and the person you’re paying can easily see each other’s identifying information. To everyone else, “Gary” is 87V9372KHG-07237-AL233ASDKG-ASDG733NASL-97NADFN-ANSD73 and so forth.
Stellar
Stellar’s focus is on transferring money easily, even across borders. That’s something most cryptocurrencies do, but Stellar prioritizes efficiency and ease of use for developing economies across the globe which may not have easy access to traditional financial institutions or the same sorts of investment options major powers do. For that reason, you may read about Stellar, but probably have little reason to use it for normal transactions. If your goal is an investment, on the other hand, Stellar is the same roll of the dice as the rest – only perhaps a bit newer and more specialized.
Ripple
Ripple is unusual in that it’s not built on blockchain technology. Its primary target is corporations or other large businesses who need to move substantial dollar amounts (or Euros, or rubles, etc.) across the world easily and securely. Ripple is impressive in that it allows transfers in pretty much any form (dollars, cryptocurrency, shiny beads, cows) and operates something like 3,000 times faster than Bitcoin and 1,000 times faster than even Ethereum.
And while I was kidding about the cows and shiny beads, I wasn’t even exaggerating about the speed of operations. If they DID do cows, I assume that would slow things down considerably.
IOTA
This is one of the coolest ones, although just like with the rest of the cryptocurrency landscape, it’s impossible to know for sure what will happen with it over time. The initial goal of IOTA was similar to many types of cryptocurrency – to allow buying, selling, and trading across devices anywhere in the universe quickly and efficiently, without institutional interference. IOTA has its own cryptocurrency, which it calls “MIOTA,” but that’s just the beginning of their grander vision. IOTA wants to allow and improve the movement of almost any data between almost any devices, safely and securely.
See, as cool as blockchain technology is, it does have several downsides in the eyes of many. The first is somewhat technical and involves what’s called “mining.” Remember the bit about every transaction going into a “ledger” that can be viewed by everyone else using the same system? And how that allow users to verify every transaction multiple times? Doing that effectively and efficiently actually requires a huge amount of computing power. It’s all out there, but in order to motivate users to devote the time and energy, systems like Bitcoin are set up so that “miners” – the people who do the verifying – earn “coins” for their trouble.
Sounds great, right? And it is, except when reality intrudes into the equation. A handful of organizations with the computing power to devote to all that ledger-checking pretty much dominate the field of “bitcoin mining,” meaning that while it still works, it’s not exactly equitable. In the same way, family farms have been largely replaced by corporate agriculture and pretty much everything else has been steamrolled by Amazon, mining is hugely profitable for a shrinking number of players.
The other issue is that Bitcoin is so popular that even with all that computing power, there’s something of a lag between the time a transaction takes place and the time it can be finalized. This is due to a puzzle-solving thing which is built into the security protocols of the whole mining process and which we won’t go into here because it makes my head hurt. The lag isn’t serious – maybe as long as 10 minutes in extreme cases – but this is cyber stuff we’re talking about here and by golly, things are supposed to move faster than that!
The Tangle Process
IOTA uses a more accessible process they call the “Tangle.” The short version is that all transactions are linked together in a fashion that would look something like a complex molecule on paper. Any time you conduct a transaction with IOTA, you first must confirm the transactions of two other users which took place prior to yours. These are automatic – you’re not scrolling down a list picking and choosing or anything – and happen rather quickly, despite the massive amount of computing power required in total. This even distribution involves only users conducting transactions – not “miners” – and means that no matter how many or how few transactions are taking place, the system works quickly and efficiently, not to mention equitably for everyone involved.
| Cryptocurrency | Market Cap The total market value of a cryptocurrency's circulating supply. It is analogous to the free-float capitalization in the stock market.
Market Cap = Current Price x Circulating Supply. |
|---|---|
| Bitcoin | $871,840,822,495 |
| Ethereum | $205,895,162,521 |
| Litecoin | $11,443,851,074 |
| Stellar | $8,850,695,034 |
| Ripple | $21,390,205,092 |
| IOTA | $2,151,986,982 |
These Are Just The Beginning…
If you decide you’re interested in any or all of the many types of cryptocurrency, there’s enough information scattered across the internet to keep you busy for several decades (which, I suppose, is appropriate, given the nature of the topic). If you’re looking for my personal advice regarding cryptocurrency, on the other hand…
If you really want to dabble, then dabble. Learn more about how it works and use it for something. Set aside some small percentage of your savings to invest and see what happens. Scratch that itch with as small of a nail as possible, however, unless you can genuinely afford the risk of a larger leap.
Is Cryptocurrency “Real Money”?
No doubt a few of you are already offended I’ve referred to cryptocurrency several times as “pretend money.” There’s no need to get your virtual hackles up – it’s not an insult. Most modern money is “pretend,” including the pretty green bills we all used to carry around before debit cards. Even those are increasingly rare, however, as we conduct the vast majority of our business electronically.
Think about it. When was the last time you took eggs, butter, or homemade soap to your local utility company to pay for water or electricity for the coming month? Odds are you instead have numbers representing money you’ve never physically touched moved from one pretend folder at one pretend place (like your local bank or credit union) into a different pretend folder at a different pretend place (like the local trash pickup service). Do you spend weekends laboring in the homes or yards of the guy who sold you that car you’re still paying off each month? It’s far more likely that you scribble some numbers on a rectangular slip of paper with other numbers already stamped on it and maybe a faint image of bunnies or cartoon characters, then drop it in the mail and assume it’s taken care of – like leaving a tooth under your pillow for the Please-Don’t-Repossess-My-Car Fairy.
In Short
Most money is “pretend” in the sense that it acts as shorthand for stuff we want or need. While we could argue the same is true even of gold or silver coins (“specie”), those items at least have fairly universal value based on their rarity (plus, they’re so pretty and shiny). Paper and plastic money, however, is all based on faith and mutually agreed-upon value. A dollar is worth a dollar because enough people believe it is – including businesses and your friendly neighborhood federal government. It could just as easily be seashells or Nuka-Cola Bottle Caps and work just the same.
Cryptocurrency is simply someone’s all-digital version of seashells or bottle caps. If enough other people believe that a bottle cap is worth a certain level of goods or services, then it is. If they don’t believe, then it’s not. Whatever crypto’s potential advantages, it has one major disadvantage at the outset – very few traditional businesses and no major governmental organizations believe. Because of this, it’s value and reliability are very shaky and can change rapidly and unpredictably from day to day.
Learn about Building Wealth. Use the Right Tools to Build It. Meet Wealthry.
Why Do People Want Cryptocurrency?
There are many reasons someone might look into buying, selling, or otherwise using cryptocurrency. For the vast majority of folks, however, it boils down to one of two reasons:
When everything works the way it should, cryptocurrency allows users to conduct business over unlimited distances with a complex mix of transparency and privacy. In other words, you can use it much like you would U.S. dollars, PayPal, or credit cards, but with different benefits and protections. Many people buy, sell, or otherwise use cryptocurrency because they like what it does.
Or…
They don’t care how it works and they just hope they can make money off it like shares of stock or a lottery ticket.
Either way, it’s important to know a little bit about the different types of cryptocurrency and how they work before diving in. I’ll say this upfront – if you’re a casual investor looking for a nice, safe place to start building some long-term savings or lay a foundation for your retirement, there’s no need to finish this post. Click back to the main page or one of the inserted links we’ve sprinkled in along the way and focus on something more reliable and far more responsible from a financial management standpoint. Spend your remaining time and energy on any of our many articles on practical investments or ways to save money and take better control of your personal finances. We’ve got a pretty major release coming this spring that will make it MUCH easier to manage your various accounts and track your spending while helping you make better—
Sorry, I’m getting sidetracked. It’s just that we’re pretty giddy around here about what’s coming this April.
You can also check the savings account options below. All you need to do is enter your information:
But the point is, cryptocurrency isn’t like any of the other options out there. If you’re here because you’re just curious, or because you have lots of extra money you can’t figure out what to do with and you can’t hit the casinos because of Covid protocols, then please – read on. In the end, of course, your money is your money. You want to pour some of it into Ethereum or IOTA, that’s up to you. Who knows? Maybe you’ll end up scoring big and laughing all the way to the crypto bank.
Why Cryptocurrency is So Interesting
Its primary function is to buy, sell, or trade across the country or the globe with minimal headache or interference from institutions or government entities. Because cryptocurrency is decentralized – it’s sort of “crowdsourced” within an established set of rules – no one institution or nation can control it. This makes it ideal for complex financial transactions, especially those involving large amounts of money. As critics have pointed out, this also makes it ideal for financing illegal behavior or goods.
Conclusion
Responsible saving and investment still involve risk, of course. No matter how much you research and plan, in the end, you’re making educated guesses and subjecting yourself to the fates. By and large, however, successful long-term financial comfort and security comes from some pretty boring things – retirement planning, cutting costs, eliminating debt, paying attention to interest rates and your credit score, etc. The most exciting part is probably the technology which makes it increasingly easier to keep up with so many things effectively.
Did I mention we have this app coming out in April that we’re pretty excited about? I probably did.
The principles haven’t changed all that much, but the convenience is increasing and your access to information and answers to your questions is much, much better than we could have dreamed even a generation ago. Plus, there are sites like Goalry whose primary function is helping people just like you connect to the information, opportunities, and assistance they need – stuff that used to be reserved for excitable men in very expensive suits. We’re probably not quite as trendy or fun to talk about on Reddit as cryptocurrency at the moment, but chances are we can be far more helpful to you and your personal financial needs and goals.
We’re ready when you are. No blockchain or Tangle commitment necessary.