The Bitcoin Cash hard fork in 2017 accelerated the creation of new cryptocurrencies. Currently there are well over 1000 tradable virtual currencies available. Jembela gives you an overview of the most important cryptocurrencies and answers some frequently asked crypto questions.
Those who invest in a cryptocurrency will face the difficulties of a free and mostly unregulated market. The price of most crypto coins is very volatile which can lead to sudden price fluctuations. Those digital currencies are based on a complicated and complex technology and it's really very hard and a lot of work to stay up to date. When new innovations displace old ones, you need to react in time before it's too late.
Another important point is the potential price manipulation of a few market participants. The likelihood of such manipulation increases the fewer market participants there are in total.
As the underlying technology of cryptocurrencies is very new, it can also lead to unexpected complications. (Most crypto coins are based on blockchain technology.) Also programming errors in the respective software can lead to total loss. Therefore, it is important that real specialists take care of programming the software of a cryptocurrency.
Another problem concerns the crypto exchanges where virtual currencies are traded. If you keep your coins on one of those exchange sites, the owner of the exchange has to take care of the security of your digital currency. If it fails, your coins can be gone.
You could also be a victim of fraud. In the crypto world there are many scammers who try to exploit the ignorance of the users. One good example is the console of the default Bitcoin client BitcoinQT.
There is an explicit indication of possible fraud. So think about who you trust and inform you well. Besides, the virtual currency itself could be a scam. We have already experienced this with the ponzi scheme BitConnect. Unrealistic earnings promises are a clear indication of such scam. The only solution is always to be skeptical when, for example, a new virtual currency arises.
If you lose your crypto wallet or the encryption key of your wallet, all coins are lost. Furthermore, refunds are generally not possible for technical reasons. Sent and stolen coins can not be returned.
We do not recommend to buy any cryptocurrency as a value investment because it is too risky due to some of the problems mentioned above. Nobody knows what will happen to a specific crypto in the future. But that's also what makes those coins such an interesting thing. Instead of seeing cryptocurrencies as an investment, we look at the characteristics of different types of cryptos and try to take advantage of it.
Not all cryptos work the same way. Different coins have different properties and functions. Bitcoin is a kind of key currency among the digital currencies. However, there are some difficulties (e.g. long waiting times for transactions), which is why there are coins such as Litecoin and Bitcoin Cash, which should fulfill the same function as currency or payment system.
Ethereum is fundamentally different from Bitcoin. Functioning as a currency is not the focus, but Ether is needed to perform actions on the Ethereum blockchain. Since some people and businesses desperately need Ether, this digital currency has its own value that Bitcoin does not have. The same applies to some other crytos such as Waves and Ardor. However, these coins are far from having as many users as Ethereum.
Bitcoin transaction information is stored openly on the blockchain. Thus, Bitcoin is not anonymous, it's pseudonymous instead. All Bitcoin transactions are visible to everyone. This is why there are also some cryptos that provide improved privacy such as Monero and Zcash.
Further applications of blockchain technology are currently under investigation. In the next few years, there will be further innovations in the world of cryptocurrencies.