Types of Cryptocurrencies – The Most Important Altcoins of 2020
Cryptocurrencies can be a great investment or trading opportunity. However, with over 5,000 cryptocurrencies available on the market as of early 2020, breaking into the market can seem overwhelming.
If you’re struggling to figure out which cryptocurrencies to pay attention to, then you’re in the right place. In this guide, our experts have identified the best types of cryptocurrencies for trading or investing. With our help, you’ll learn:
- Which cryptocurrencies are the most popular and why
- The qualities of the most different types of cryptocurrencies
- How to choose which cryptocurrencies to trade or buy
- How to find the right broker for trading your cryptocurrency of choice
Which cryptocurrencies are the most popular?
Before we dive into the exciting world of different types of cryptocurrency, lets first take a step back and ensure that we know exactly what we mean when we use the terms ‘cryptocurrencies’ and ‘altcoins’.
Cryptocurrencies are digital assets that have different purposes, but they are mainly designed to operate like traditional currencies. The ‘crypto’ part of cryptocurrencies comes from the fact that they are designed with powerful cryptography systems. These systems ensure the security of cryptocurrency transactions, verify asset transfers, and control the creation of more units.
Another important distinction between cryptocurrencies and traditional currencies is that cryptocurrencies are decentralized. This means that they are independent of a central banking system, and so their value cannot be manipulated by governments or financial institutions. To achieve this, a technology known as blockchain is used. Blockchain is a distributed ledger that operates over a massive network of computers and it acts as a public database of financial transactions.
Altcoin is a term that refers to all cryptocurrencies other than Bitcoin. It was coined from the idea that all these other types of cryptocurrencies are alternatives to Bitcoin. The various types of altcoins that exist include mining-based cryptos, security tokens, stablecoins, and utility tokens.
Bitcoin is the most popular cryptocurrency, largely because it was the first. Created in January 2009, it appealed to people who were searching for an alternative payment method with low fees.
Bitcoin trading offers you the chance to profit from the coin’s volatility. You should consider Bitcoin like any other asset, with the caveat that it is quite unpredictable. This is because it doesn’t have any intrinsic value and a high level of speculation. Of course, this is what makes it so appealing too.
Many forex brokers now offer bitcoin as part of their trading instruments. You can trade bitcoin currency pairs, like BTCUSD, or through CFDs.
- Can be used to make fast and cheap international payments
- You can deposit with bitcoin at forex brokers, and set BTC as your account base currency
- High liquidity compared to other cryptocurrencies
- Exchanging bitcoins for fiat currencies can be expensive
- You can’t pay with BTC if you don’t have access to the internet, though solutions to use bitcoins offline are being researched
Ethereum was developed in 2014 by Vitalik Buterin and a few others. Ethereum was the world’s first programmable blockchain, allowing developers from all over the globe to create decentralized apps (DApps) and smart contracts.
Etherum is also a popular choice for traders, as it is offered at many of the best forex brokers. The altcoin is backed by an assortment of Fortune 500 companies too, which means it can be more stable than other coins. You should expect volatility, however, especially if another altcoin is surging. One of the biggest factors that can change the price of Ethereum is competition.
- Backed by Fortune 500 companies
- Widely adopted in a range of industries
- Highly sensitive to any news relating to the founder and competitors
Ripple is a type of cryptocurrency which works in two parts. First is the Ripple Network, a real-time currency exchange network, and settlement system. This system runs on the cryptocurrency XRP – Ripples. When you trade Ripple, you are in fact trading XRP or Ripples.
As the third-largest cryptocurrency in the world, Ripple is a good choice for all types of cryptocurrency traders. Its more secure than some other altcoins, as it’s been adopted by global financial institutions, such as BBVA and Cambridge Global Payments. That said, Ripple is majority-owned and tied to the company that created it. This means it isn’t decentralized and its price can be affected by news about its owners.
- Enables exchange of all sorts of digital assets at an incredible speed
- A good infrastructure that allows for a highly scalable and adaptable currency
- Not completely decentralized
Litecoin is similar to bitcoin and uses the same underlying technology with a few small differences in parameters. It was created by Charlie Lee in October 2011 to be the “silver” where bitcoin is “gold.” In other words, Litecoin uses all the top bitcoin innovations but takes a more lightweight approach.
Considering its similarities to Bitcoin, it makes sense that the same things which move the price of Bitcoin will affect Litecoin trading. Additionally, the price of Litecoin is heavily tied to the price of Bitcoin so you need to watch both markets to make successful trades. One major difference, however, is that Litecoin has a much wider supply. The maximum supply of Litecoin is 84 million, compared to the 21 million cap of bitcoins. This means that the market stays liquid.
- Fast transactions
- Mining is more energy-efficient than with bitcoin
- High liquidity
- Designed for lower value transactions where security isn’t such a concern
- Not offered by all cryptocurrency forex brokers
Tether is unlike many other types of cryptocurrency in that it is pegged to the US dollar. The idea was to create a stable cryptocurrency relative to the US dollar, which is why it’s known as a stablecoin. Tether is backed by a reserve, so it is less volatile than other cryptocurrencies.
As most traders are drawn to cryptocurrencies thanks to their high volatility, you may wonder what the purpose of trading a cryptocurrency that is focused on maintaining a price is at all. Tether isn’t your best option to make quick profits, but it is a great choice for a base currency when making crypto trades and for hedging.
- High level of stability because of the reserve and because it is pegged to the US dollar
- Very transparent as the company publishes its holdings every day and conducts regular audits
- Some concerns over how the company is conducting business
Bitcoin Cash was created in 2017 when the original Bitcoin split into two parts. The cryptocurrency was created to address some of the primary issues with Bitcoin, and so it offers much faster transaction times and lower commissions than BTC.
Bitcoin Cash is predominately used simply as a currency and not for investment. It is, however, offered as a trading instrument at a lot of forex brokers. To trade Bitcoin Cash successfully, you need to look out for the same factors that affect other cryptocurrencies; news releases, adoption by big companies and financial institutions, and new regulations. As Bitcoin Cash is competing against Bitcoin, you should also keep up with BTC news and analysis specifically.
Bitcoin Cash pros
- Fast transactions times
- Lower value than Bitcoin offering a lower barrier to entry for traders
Bitcoin Cash cons
- Limited investor confidence compared to bitcoin
NEO was the first cryptocurrency to be launched in China. It is comparable to Ethereum, in that it was created to support the creation of blockchain applications, however, it is not decentralized.
If you already trade Ethereum, trading NEO is a logical step as this type of cryptocurrency behaves similarly. Trading NEO also gives you a well-rounded global portfolio and can be a good hedging tool. As NEO was designed to work with Chinese regulations, it can be used to offset any losses in other cryptocurrency markets caused by regulatory news from the country.
- NEO has real-world applications
- Chinese government-friendly
- Only offered at a limited number of cryptocurrency forex brokers
Created in 2014, Dash is one of several types of cryptocurrencies that sought to overcome Bitcoin’s shortfalls. Dash offers incredibly quick transactions and anonymity. It also has a unique governing system and an active community.
When it comes to trading Dash, you need to pay special attention to competing coins, namely Bitcoin and Bitcoin Cash. The price of Dash may also change as it moves into the mainstream. If Dash becomes more popular, its demand will grow resulting in higher prices. It could also lose value, however, as long-term investors will look to cash-in.
- Faster transactions than Bitcoin and better privacy
- Continuously improving the underlying technology as it is a self-funding and self-governing system
- Increased privacy could lead to increased regulatory scrutiny
EOS is a cryptocurrency that powers the EOS.IO open-source blockchain platform developed by a private company called block.one. The EOS.IO platform launched in 2018 and EOS has since become one of the top 10 types of cryptocurrencies (by market cap).
The price of EOS can be affected by general cryptocurrency market trends and economic factors. However, since EOS supports a blockchain development platform, its value is also impacted by the adoption of the technology. As such, it’s also closely tied to the price of Ethereum.
- EOS cryptocurrency gives ownership of the network rather than being just a rental, making transactions free
- Ability to process a very high volume of transactions
- More user-friendly
- A high degree of competition
How should you choose a cryptocurrency coin to trade?
Like any financial asset, the key to trading different types of cryptocurrencies successfully is knowledge. The more you understand how cryptocurrencies work, the better your chance will be of making a profit. This also applies when choosing which crypto to trade. The first and most critical step is learning about the cryptocurrency you are interested in. You don’t need to know every technical detail, but you do need to understand as much as possible.
By learning more about specific cryptocurrencies, you’ll be more aware of the factors that make the price of a coin move. This can help to inform your technical and fundamental analysis and can result in successful trades.
One of the biggest benefits of trading cryptocurrencies as opposed to investing is that most brokers only offer a selection of already established coins. This means you aren’t inundated with options and you needn’t be overly concerned about ICOs and emerging coins.
Finding the right broker for your cryptocurrency of choice
When choosing a cryptocurrency broker, you should go about it just like you would for any other financial asset. You first have to determine if the broker offers the digital currency you are interested in. Some brokers offer a wide range of cryptos, while others only provide a few options.
Most of the time, cryptocurrencies are traded as CFDs (contracts for difference). Depending on your broker, however, you may be able to trade crypto currency pairs. This can include different types of cryptocurrency coins paired with fiat currencies, or pairs made up of two different cryptos.
When choosing the best broker for you, you also need to consider the trading conditions. This should include spreads, overnight fees, commissions, demo accounts, and so on. Leverage should also be a factor but remember that more leverage isn’t always a good thing. Cryptos are already quite volatile, so high leverage can sometimes do more harm than good.
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