How to invest in cryptocurrencies – the easy start
Hi, nice to see you again in my blog series about cryptocurrencies! In this article, we will now look at the different types of cryptocurrencies. I will introduce you to the largest, best-known and, in my opinion, the most important currencies. I will also try to show you the ideas behind the individual currency. At the end of this article, you have a great all-round view of the different approaches and tactics of individual cryptocurrencies. The article is intended to help you decide in which currency you want to will invest later.
If you don’t feel safe yet, don’t worry. I will teach you step-by-step all necessaries for your first investment and I will accompany you in building a successful online business. Read on in my crypto series if you want to know more!
You learned in my last article where cryptocurrencies originated, what cryptocurrencies are and what you can do with them. If you haven’t read it check it here:
The world of cryptocurrencies can be divided into two areas, the bitcoins and the rest. The rest is the so-called altcoins. But don’t worry, „alt“ does not stand for old or outdated coins, but for alternative coins.
Besides, there are so-called S-Coins, also called sh*t Coins. The division into bitcoins and altcoins is quite simple. The Bitcoin was there first and everyone else is trying to either copy it or stand out from it.
Either way, the old coins are trying to be an alternative. The shit coins, on the other hand, are nothing more than smooth fraud.
Now for the really interesting part. The absolute number one of the cryptocurrencies is Bitcoin. It is an electronic currency that can only be created and traded on the Internet.
Bitcoin is not subject to central supervision and is not controlled centrally, so it differs significantly from the long-established dollars and euros. The network that creates this currency controls itself. Anyone who trades or owns a Bitcoin is part of this network.
It has long been known that Bitcoin can also be used as a means of payment. This happens directly from person to person or from customer to business. Since the whole thing runs without a financial institution in the middle, there are no transfer fees.
This is an advantage because international transfers can sometimes cost $20 or even more. With Bitcoin, on the other hand, they are 0. Well, at least as long as you don’t use a third party in between for example a stock exchange or a trading venue.
Almost everyone can transfer or create bitcoins. When a payment or creation is made, the bitcoins are provided with a digital signature. This allows you to track exactly which Bitcoin has gone from where to where or where it is at the respective time.
How are Bitcoins created?
You too could create a Bitcoin from home or as the experts say: „mine Bitcoins“. All you need is appropriate hardware. However, I would advise against mining shortly. The acquisition cost of a miner is too high.
There are also electricity costs and fees for joining a mining pool. This is a group in which you share your computing power with other miners to provide transaction processing, protection, and synchronization for all users in the network.
Unlike gold mining, bitcoin mining has a reward for useful services. The payment of the respective Bitcoin shares is based on the computing capacity provided.
In principle, you can mine bitcoins continuously. However, the amount in circulation is limited to a maximum of 21 million coins. No more can be created.
Bitcoins can be divided. The smallest part is a hundred millionth of a bitcoin and bears the name „Satoshi“, after its inventor.
Bitcoins are therefore very transparent. Every participant in the network can follow every transaction. If you think now, for heaven’s sake, then everyone knows how much money I’m moving, I can reassure you.
Personal data such as name address or date of birth are irrelevant. Every user in the network is traveling anonymously. You can register with a pseudonym. This way you can track the transactions, but you don’t know who is behind the name. But more on that later.
In the event of a network failure, all data can be saved on a hard disk.
Bitcoin is also less bureaucratic. You don’t need an account, you need an electronic wallet for your computer, mobile phone or offline in paper form. This is quickly downloaded and activated and you can receive, store or transfer bitcoins.
It is not known exactly who created the currency. There is always talk of a so-called Satoshi Nakamoto. However, this name is a pseudonym. So it is unclear whether this is a single person, a network, or a company.
Ethereum is the second-largest internet coin. The size of a coin is measured by its market share. Ethereum can be understood as the opposite of bitcoin. Bitcoin is based on a network that was created for the Bitcoin. It was about creating another currency that can exist independently from any bank in the world. In short, the Bitcoin network is for Bitcoin.
The Ethereum was created to operate a network that would complement the existing network services and perhaps one day replace them. So here the coin for the network was created. The Ethereum serves as fuel for the network.
The basic idea here is no longer a financial one, but a moral and philosophical one.
Because what the Internet is today is considered a primal sin. But for that, I have to go a little further.
The Internet was created to enable communication without control and thus freedom of information. But does that still exist today? The reality is very different. Network providers control the Internet. They provide the servers and storage that are necessary for the operation of the Internet. This has advantages and, of course, disadvantages.
The advantage of the classic Internet is that even small users can create a website, for example. A small company or a private individual does not need a server computer for their website. You simply rent a little space on a server computer from an Internet provider. A small app seller doesn’t need an app store. You simply use an existing provider.
However, the disadvantages are obvious, the person reveals himself and makes himself dependent on the large Internet companies. As a user saves his information on the network, the operator can see all this data. Even if the individual is less interesting, it is often used for advertising purposes and other statistical evaluation systems.
There is a dependency on the operators of a website or the users of an app store. You use the offer and have to abide by its rules. However, there is often no judicial review because you are not entitled to use the services. In other words, providers decide what they like and what they don’t like. What they don’t like is deleted and you can’t defend yourself against it.
Ethereum wants to change all of this. Instead of storing all of the data centrally, computer volunteers become so-called nodes. These nodes are simply small computers that together operate the entire network and store the data in it.
It is assumed that the participants in this network agree with their ideas and goals. However, participants can leave the network at any time if they do not agree with what is going on. Since there are a very large number of nodes, this is not noticeable.
The idea behind the knots is that the transparent person is replaced by the transparent program. Instead of storing its data on a server and thus revealing its information, the program saves it on its computer and displays it. Ethereum, therefore, creates the idea of the Internet from the start.
Ethereum uses the same blockchain technology like Bitcoin and extends it with smart contracts. The network itself creates this with its nodes and ensures that the Ethereum is distributed without the currency being copied or output twice.
The third-largest provider at the moment is the Ripple. Similar to Bitcoin and Ethereum, the Ripple also uses a decentralized network, the blockchain. Here, too, the actions are carried out via nodes and smart contracts.
Ripples particularly boast with its speed. Transactions are processed in seconds instead of minutes. The Ripple network also allows you to incur debt. So you can make payments that are not covered and then pay the amount owed later.
This ability to incur debt stems from the original idea behind the Ripple. The aim is to make it easier for traders, companies and financial institutions to do their business. The Ripple serves as an intermediate currency that avoids the exchange rates between contracting parties in different currency areas.
Another difference between Bitcoin and other cryptocurrencies is that the Ripple cannot be made by its users. Instead, the corresponding number of coins has already been created and will be put into circulation over time. This effectively limits the amount and practically guarantees an increase in value the more of these coins are used.
The downside, however, is that much of the currency is still held back by the makers of the Ripples. They can benefit from price increases but can also provoke a currency decline by suddenly releasing too many coins.
So ripple is very centralized right now.
Dash is another cryptocurrency that has already been established. In principle, this currency works like a Bitcoin or an Ethereum. You have a blockchain, i.e. a network, and you have a smart contract. But there is a big difference that could even be called a step backward.
Dash, like Bitcoin and Ethereum, wants to bypass central banking institutions and central servers. The goal is to create a coin that behaves like cash. This involves the two main characteristics of cash: it is handed over immediately and the handover is anonymous.
The transfer with the Bitcoin is very quick. It usually happens in minutes, but often faster.
The Dash wants to transfer money instantly.
To do this, the Dash does not simply use a system of equivalent, very numerous nodes.
Instead, the nodes are supplemented by large systems, by master nodes. However, the master nodes are somewhat comparable to the central server computers of today’s internet. So you could see a step back in them.
However, what these master nodes do is doubly important. First, they create an order that noticeably speeds up the transfer. Second, they take the information out of the hands of the nodes.
The blockchains of the bitcoins allow every user to see how many bitcoins are in each account. The account holder is anonymous because he only gives his pseudonym. This insight still means too much disclosure of information to the operators of the dash.
Which is why they take this out of the hand of the small nodes and bundle it into the master nodes. These then approve the individual transactions, which should prevent fraud. Only the master nodes know what money is in which account. This guarantees real anonymity.
Primecoin is another cryptocurrency that is already established on the market. However, the market share of Primecoin has not been very large so far. The Primecoin is similar in its structure and application to Bitcoin, but there are differences.
Primecoin is advertising to make transactions ten times faster than Bitcoin. Furthermore, calculations with scientific value are carried out when creating the Primecoin. This means that the energy that is used to create the currency is also fed into science.
The scientific content of the Primecoin revolves around the calculation of special chains of primary numbers. This results in the principle that you are rewarded for your work to promote science.
Litecoin is the fourth-largest cryptocurrency. It is an open-source software project (i.e. it works similarly to Bitcoin and Co. decentralized) that was released under the MIT/X11 license.
Traders often view Litecoin as the „little brother“ of bitcoin. This comparison is exactly what Litecoin developers had in mind when they created the cryptocurrency. Litecoin is similar to Bitcoin in many ways as it is a digital currency and payment system as well.
Differences to Bitcoin
Litecoin encryption is used for two primary purposes. The first would be to regulate the generation of Litecoin units and to verify and secure money transfers/transactions. Despite all of this, there are differences.
On the one hand, this is the faster payment confirmation that Litecoin has against Bitcoin. The Litecoin network aims to process one block every 2.5 minutes, whereas Bitcoin only does in every 10 minutes. Litecoin also uses a different hashtag algorithm.
This is called „Scrypt“ and was specially developed to make brute force attacks with specialized hardware more difficult. Ultimately, it remains to be said that the Litecoin network generates more “coins”.
The maximum number of Litecoins that may exist is 84, which is aimed at circulating four times as many digital „coins“ like Bitcoin. This has the advantage that larger amounts of coins can be traded, which means that bottlenecks in execution are less common than with Bitcoin.
IOTA was launched in 2016 after a short design phase. From the beginning, there was great interest in the cryptocurrency. Because the system was developed in close cooperation with industrial associations and companies (such as Bosch, Volkswagen, Jaguar Land Rover, Fujitsu and many more).
The system is so interesting for companies because IOTA is supposed to create faster transactions between machines, vehicles, and devices in the so-called Internet of Things. Strikingly, the IOTA does not use a blockchain.
The transactions carried out in the IOTA network are either „Value Transactions“ (transmission/payment) or „Data Transactions“ (information/data). Instead of the blockchain, a related structure is used, this is called a directed acyclic graph.
Every transaction runs via nodes, the resulting paths are called „graphs“ or „tangle“. Each of these paths has a clearly defined direction of travel. It is a directed graph. If a path can never be found that returns to its starting point, the graph is acyclic.
IOTA is still at the beginning of its development, but at least in theory, the design of the system has significant advantages. The tangle can be scaled as desired and, at least in theory, can execute any number of transactions simultaneously.
Furthermore, the system should theoretically become faster and faster with an increasing number of users. This increase in speed may not be directly observable for people, but in the intended application of the Internet of Things, it should be noticeable through low latency in the communication between end devices.
IOTA could therefore be an important factor in the development of the: automotive industry (e-mobility), healthcare, supply chain management, smart cities, smart home and Industry 4.0.
In addition to the cryptocurrencies mentioned here, there are of course several other coins. However, the problem is always to separate the wheat from the chaff. After all, you don’t want to give your money to a fraudster or download a virus that plunders your coin supply.
Good currencies that you can trust have usually been around for a while. She has already been written about it. A simple internet search quickly provides information. Good currencies also have the appropriate infrastructure.
That means your blockchain is fast and works flawlessly. There must also be a trading place where you can trade with them. There is no point in buying a currency that you cannot get rid of or that cannot be used to buy goods or services.
Important in cryptos
The vision or presentation of the currency is also important. What does the one who created the currency want to achieve with it? If internet users can identify with the target, the currency will find more customers. If the currency has already spread, some businesses accept it.
It is also important to find out who is behind the coin. The makers are not always serious. Unfortunately, as in the case of bitcoin, the creator of the currency cannot be found so easily. Again, you should look at how the currency was traded and accepted in the past.
As with any investment, it is always important that you inform yourself and only get in when you are convinced. After all, the investment should make money and not lose it.
If you want to get further informations about why you should invest in the first place. Consider reading my article i wrote about this excat topic here:
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