Although Bitcoin was the first to make headlines, there are many other cryptocurrencies available to the public. Generally, they all operate using blockchain technology in a decentralized, anonymous, and secure manner. However, each cryptocurrency has unique features that allow it to address different issues. In this article from Hapi, we explain what types of cryptocurrencies exist and how they differ.

What are cryptocurrencies and what are their main characteristics?

While there are various differences among cryptocurrencies on the market, we can typically identify four key principles that apply to most:

• Decentralized: Unlike traditional fiat currencies controlled by central authorities and banks, cryptocurrencies such as Bitcoin allow transactions to be processed and validated by a distributed, open network that is not owned by any entity. In many cases, the central authority becomes the central weakness that leads to the collapse of the currency.
• Irreversible and immutable: No one but the owner of the respective private key can move their digital assets, and transactions cannot be changed once recorded on the blockchain.
• Anonymity: Since no central authority is needed, users do not need to identify themselves when transacting with cryptocurrencies. Cryptocurrencies, like Bitcoin, use a private key and public key system to authenticate these transactions.
• Limited supply and scarcity: Fiat currencies have an unlimited supply since central banks can issue as much currency as needed to stimulate the economy. This often results in inflation and a loss of value over time. By contrast, many major cryptocurrencies have a maximum supply, making them deflationary in nature.

How is Bitcoin different from Altcoins?

Altcoins are typically defined as all cryptocurrencies other than Bitcoin (BTC). Some altcoins use different consensus mechanisms to validate transactions and open new blocks, or they attempt to differentiate themselves from Bitcoin by providing new or additional features.

Altcoins generally have disadvantages compared to Bitcoin, including lower liquidity, higher volatility, the possibility of their value falling to zero, and not all are deflationary. This makes Bitcoin generally regarded as a more conservative investment than altcoins.

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What protocols are used in each blockchain?

1. Proof of Work (PoW): A competition among miners to solve cryptographic algorithms or equations and validate transactions to earn blockchain rewards.
2. Proof of Stake (PoS): Selects validators at random to ensure the transaction is trustworthy, compensating them with cryptocurrency in return.

What are the main cryptocurrencies?

Here are some of the main cryptocurrencies by market capitalization (Market Cap) as of August 23, 2022:

Bitcoin (BTC):

Price: $21,476.25

Market Cap: $410,863,400,151

Bitcoin remains the leading cryptocurrency by far. It was created by someone under the pseudonym Satoshi Nakamoto in 2009 in response to the Financial Crisis. Bitcoin pioneered the use of blockchain technology to facilitate payments in a decentralized manner. To date, around 19 million Bitcoins have been mined, with a cap of 21 million.

Instead of relying on a central bank to control the money supply or third parties to validate transactions, Bitcoin’s blockchain operates as a public ledger of all Bitcoin transactions over time. Bitcoin established a peer-to-peer (P2P) verification system that uses cryptography and consensus, serving as the foundation for most cryptocurrencies.

This accounting system prevents fraud and aims to make transactions faster and cheaper than traditional mechanisms that depend on third parties. Bitcoin has gone through constant periods of volatility, gaining more popularity since 2017.

Ethereum (ETH):

Price: $1,667.03

Market Cap: $203,859,802,071

Ethereum is the second-most well-known cryptocurrency in the crypto space. Ethereum is both a cryptocurrency and a platform for developing software. It is famous for enabling smart contracts and other decentralized applications (dApps).

Its goal is to create a space for financial services that anyone in the world can freely access, regardless of ethnicity, nationality, or religion. This implies massive financial inclusion in countries without developed financial systems, through opening bank accounts and providing loans and insurance.

Tether (USDT):

Price: $1

Market Cap: $67,551,175,293

Tether is a type of stablecoin, aiming to have a less volatile price than other cryptocurrencies by being backed by an external asset (1 US dollar for each Tether). It also serves as a means to transition between cryptocurrencies without needing to buy or sell dollars.

XRP (XRP):

Price: $0.3451

Market Cap: $17,287,968,745

XRP is the native cryptocurrency for the Ripple Ledger Network, created in 2012. It is designed to be a medium for exchanging value and seeks to be a low-cost bridge to transfer fiat currencies globally.

Its protocol, known as the XRP Ledger Consensus Protocol, does not use proof of work or proof of stake mechanisms; instead, all transactions are verified through complex surveys among network participants. This makes it a world-class payment system that is faster and cheaper than Bitcoin, minimizes intermediary involvement, and benefits users more.

Cardano (ADA):

Price: $0.463

Market Cap: $15,562,980,995

Cardano was created by engineers, mathematicians, and cryptography experts with a research-based approach. Its founding team includes one of Ethereum’s original developers. Cardano uses a proof-of-stake (PoS) protocol, and its blockchain is capable of surpassing Ethereum in many aspects, such as preventing fraud, managing legal contracts, and enabling cross-network operations.

Solana (SOL):

Price: $35.23

Market Cap: $12,342,993,866

Solana is a cryptocurrency with the symbol SOL, and its blockchain is designed to host decentralized and scalable applications. Solana can process many more transactions per second and charges lower transaction fees than rival blockchains like Ethereum. Solana uses a proof-of-stake (PoS) blockchain and also incorporates a new technology called proof of history (PoH).

Dogecoin (DOGE):

Price: $0.463

Market Cap: $15,562,980,995

Dogecoin is widely known as the first meme cryptocurrency, launched in 2013 as a joke about Bitcoin. However, it gained attention and attracted significant investment. In April 2019, a tweet from Elon Musk expressing a positive view of the cryptocurrency raised Dogecoin's reputation as a legitimate cryptocurrency.

Dogecoin is an altcoin similar to Bitcoin in that it runs on a proof-of-work (PoW) blockchain system. However, there is no limit to the number of coins that can be mined (compared to Bitcoin's limit of 21 million coins).

How to Invest in Cryptocurrencies?

If you want to invest in cryptocurrencies, the first step is understanding how they work and how they differ from one another. Some have a limited supply, while others do not. Some operate on a Proof of Work (PoW) protocol, while others use Proof of Stake. These factors, among others, determine the speed, transaction costs, and ultimately, the success of a cryptocurrency.

Once you've conducted thorough research, you can begin buying cryptocurrencies through an app. Hapi offers the ability to buy over 40 cryptocurrencies on the platform, as well as stocks, without commissions and instantly. Plus, Hapi offers a welcome crypto bonus to help you start investing on the right foot. What are you waiting for?