Cryptocurrency, blockchain and bitcoin have been among the most popular buzzwords of 2020. This trend shows no sign of letting up, which is self evident due to the fact that the crypto market contains more than 4,000 (!) different kinds of cryptocurrency, and some of them present outstanding high-risk investment opportunities.
One of the more prominent characteristics of all cryptocurrencies in general is their price volatility. This is driven by several factors:
- Media attention – As a new cryptocurrency hits the headlines, an influx of new traders rushes in. This leads to a rise in its value. Then, some traders engage in profit-taking, other panic and a rush to sell, leading to a drop in price.
- Impending regulation – The “specter” of regulation can make cryptocurrency traders anxious, therefore initiating a bearish market tendency.
- Currency idiosyncrasies – Individual currencies are influenced by many factors. The most common reason for a value boost is the backing from the financial sector, but other factors like security, ease-of-use, etc. also play a part on specific coins.
On the other hand, due to the fact that the cryptocurrency field is in a state of constant flux, new currencies appear overnight, prices rise and fall, technological innovations are adopted, and – recently – big tech companies and financial institutions show willingness to start using cryptocurrency. New startups, like First , offer new possibilities for handling and using cryptocurrencies. Moreover, new currency exchanges and trade platforms like diem explorer Transactions make it easier to trade and profit from crypto.
So the question is: “Which cryptocurrencies should you know in 2021?”
With so many coins out there, it’s often difficult to decide where to begin. So here are the top cryptocurrencies (according to their overall risk-to-reward potential) you should know in 2021.
- Bitcoin (BTC)
The original cryptocurrency. It is undoubtedly the most famous of them all, as well as the one with the biggest market cap (approaching 1 trillion $ and counting). Bitcoin is currently the most widely adopted currency. It is the de-facto “gold standard” of the cryptocurrency market, though it is not the most advanced.
On one hand, it is large and unwieldy, but on the other hand, and precisely due to these factors, it is very resistant to 51% manipulation attacks. Moreover, its widespread adoption is by itself an asset, offering liquidity between other minor altcoins. For those wishing to invest in cryptocurrency, bitcoin remains the most liquid option.
- Bitcoin Cash (BCH)
A direct “descendant” of Bitcoin. It was created as a “hard fork”, to address a technological problem that started to slow down Bitcoin transactions. Its creation was the result of a “philosophical” difference within the Bitcoin community, where one side considered Bitcoin as a value storing system, while others wished to develop it for use as a medium of exchange.
Bitcoin Cash nowadays is still less popular than its older version, but it offers several advantages, like having 8 MB blocks, allowing faster and more frequent transactions, lower fees, and greater scalability. These abilities can be great assets in future development for use in the “real world”.
- Litecoin (LTC)
Litecoin was created with the intention of fixing the complexity problem that Bitcoin presents to many potential users; hence its name…. It was introduced in 2011, adopting core features of Bitcoin, with several “twists”. For example, it was 3 to 5 times faster than Bitcoin, and – even more impressive – it didn’t need specialized hardware and “ginormous” computing power for mining the coin. Both these facts constitute attractive options.
As of February 2021, Litecoin is already among the top ten cryptocurrencies by market cap, which looks promising in terms of long range value.
Furthermore, it’s safe to say that Litecoin benefits from being closely associated with Bitcoin. As its founder declared, it is “digital silver to Bitcoin’s digital gold”.
- Ether (ETH)
Ether is the cryptocurrency of the young Ethereum blockchain (established in 2015), that has benefitted both from its superior technology, as well as due to its ability to create “smart contracts.”
It differs fundamentally from bitcoin in several aspects:
- It’s more advanced technologically;
- It does not pretend to be “digital gold” standard – it runs on smart contracts instead;
- It can act more like a digital wallet;
- It is much faster that bitcoin – transactions that take 15 minutes to clear in bitcoin take only 15 seconds to clear in Ethereum.
These factors make Etherum very useful for real-world usage, instead of just storing value. If we take into account that, as of Jan 2021, Ethereum boasted over 700,000 wallets in use, it is clear that it is destined to grow.
- XRP (XRP)
XRP is defined by its creators – Ripple Labs – as a “digital asset built for payments”. It adheres to the same basic blockchain ideal of being an open-source, permissionless and decentralized blockchain technology (although it is still managed and administered by Ripple Labs).
It was introduced in 2012 as an instrument for facilitating inter-bank transfers. The XRP currency boasts immense speed, and, according to its specifications, can settle transactions in 3-5 seconds. Due to the fact that it can dispense with a central intermediary it became a useful instrument for bridging two different currencies quickly and efficiently.
XRP enjoys the backing of financial institutions and centralized payments processors – which provide the ability to negotiate with large banks, perform trades quickly and control policies. The XRP is already used by many financial institutions as a more secure alternative to the SWIFT network, thus giving it a real-world application; this a tremendous advantage for investors.
- Diem (Formerly known as Libra)
Diem began as a Facebook initiative called Libra, but has recently been renamed as Diem. It will have the backing of the Diem Association – a 27-members association of which Facebook is one. The coin has not been launched yet, but it will also offer a digital wallet as part of its services.
Diem differs from “regular” cryptocurrencies by several factors:.
- It is meant to complement existing fiat currencies, not to replace them.
- It is “pegged” to a currency or a commodity like gold, which means it is more like a “stablecoin” than pure deregulated cryptocurrency.
Diem has enormous potential due to the fact that:
- It will benefit from Facebook’s gigantic user base – who will suddenly be given access to an easy-to-use digital currency;
- It enjoys the backing of big financial institutions and other companies – from venture capital firms to spotify…
- The payments system is to be accessible to anyone with an entry level smartphone and data connection.
A number of companies have not waited for Diem to be released and are already offering early bird opportunities. First, for example, is developing apps for an easy way to accept payments and is providing the diem explorer Transactions, a Diem trade platform.
- Binance Coin (BNB)
Binance Coin was created in 2017. Initially, it used the ethereum blockchain until it moved to its own exchange.
The Binance platform – DEX (launched in February 2019) – is actually a decentralized platform, allowing users to buy and sell binance coins as well as to convert other cryptocurrencies back and forth. Binance DEX offers low trading fees and augmented safety and security. It also claims to be extremely user-friendly.
This capability has turned the Binance DEX (as of february 2021) into one of the biggest cryptocurrency exchanges by volume, and has boosted its popularity. As a further inducement, the Binance DEX offers a discount to users paying their transaction fees with BNB; the goal of this offer is to keep users on the platform, thus helping sustain the Coin’s growth.
Binance Coin can be used in trading, for transaction fees on the Binance Exchange, credit card payments, payment processing, travel booking, investment, loans, etc.
Polkadot, the “flagship project” of the Web3 Foundation, is the next generation of the blockchain protocol, thanks to its ability to connect several types of blocks to one network.
The idea behind this application was to incentivize global computer networks to operate in a blockchain environment, where users will be able to initiate and operate their own blockchains as well. Polkadot is trying in fact to create a blockchain working environment.
Unlike some other cryptocurrencies, Polkadot has no maximum quantity of coins. Another area where it differs from many blockchain coins is in that it does not require mining, using staking instead – which uses a lot less energy.
Polkadot boasts several innovative technologies:
- Relay Chain – responsible for the network’s shared security, consensus and cross-chain interoperability.
- Parachains – Sovereign blockchains each having their own tokens and functionality for specific use cases.
- Parathreads – like parachains, but with a pay-as-you-go model.
- Bridges – connecting parachains and parathreads to communicate with external networks like Ethereum and Bitcoin.
Why should you consider investing in cryptocurrencies in 2021?
Many people, institution managers and influencers already think that cryptocurrencies, as well as the blockchain technology behind them, are pointing the way to the future of finance. Digital currencies are undoubtedly superior in many ways to traditional fiat currencies, and investors should keep in mind the following benefits:
- High transaction speed
- Lower fees.
- Low minimum investment barrier
- Asset diversity