Bitcoin and its many peers have reached new levels of popularity over the past year, but they remain a mystery to many investors.
With new “coins” popping up all the time, it’s hard to keep track of what’s worth paying attention to and what might not be here to stay.
Meanwhile, major companies are jumping on the bandwagon: Tesla announced earlier this year that customers can buy vehicles with bitcoin. Square Digital Payments Platform
(SQ) and paypal
(PPYL)who also owns venmo transfer appnow it also allows customers to use cryptos.
Ranked by their US dollar market capitalization, the world’s largest cryptocurrencies are bitcoin, Ethereum, Binance Coin, XRP and Tether, according to CoinMarketCap.
Its market caps range from over $1 trillion to around $50 billion. But that tells us nothing about how they work and how valuable individual coins may be in a larger context.
Here is your guide to the biggest digital currencies today.
Bitcoin is the biggest and most recognized fish in the crypto sea, with a market cap of over $1 trillion.
Created anonymously in 2009, the digital currency is powered by blockchain technology, another buzzword of the last decade. Essentially, the blockchain is a decentralized accounting system where transaction records are stored. That’s a key difference between bitcoin and traditional fiat currencies like the US dollar or euro, which are controlled by central banks.
Bitcoin reached a record $63,000 per unit this month, making it by far the most valuable cryptocurrency.
Many bitcoin bulls call it a store of value, a label that has historically been reserved for safe investments like gold, and argue that the digital currency is a good investment to hedge against inflation.
It is also prone to wild swings in value, so it may not be the best choice for risk-averse investors. Just days after hitting its all-time high this month, had a sudden accidentfalling 14% in less than an hour.
Part of bitcoin’s value is determined by the finite number (21 million) of coins that can be created. Not all coins are in circulation, and bitcoin “miners” use computers to solve complex puzzles to create a new “block” on the chain. That process in turn is rewarded with bitcoin, although the reward is halved for every 210,000 blocks mined. These “halving” events in the past have led to volatility in the price of bitcoin.
The mining process consumes a lot of computing power and electricity, which has led to concerns about the environmental impact of bitcoin.
Ethereum is a blockchain based open source software, which has its own cryptocurrency called Ether. It is the second largest digital currency by market capitalization at almost $300 billion.
The software was created with the idea of expanding the use of blockchain beyond bitcoin and using it in broader applications, making it more than “just” a cryptocurrency.
The supply of ether is unlimited and new tokens are constantly being created through a mining process similar to bitcoin. It rose to an all-time high of more than $2,500, according to CoinDesk Data.
Ethereum was launched in 2015.
The third largest cryptocurrency with a market cap of nearly $90 billion, Binance Coin is a bit of a different beast.
Binance Exchange is the largest cryptocurrency platform by traded volume and created Binance Coin, or BNB tokens as a means of paying fees on its platform.
It is capped at 200 million tokens, but the tokens are regularly destroyed, or “Burned” — reduce total supply and stabilize its value over time.
Another way that Binance Coin is different is that it can only be exchanged for other cryptocurrencies.
More recently, Binance hired Brian Brooks, the acting head of the Office of the Comptroller of the Currency during the last years of the Trump administration, to run its US business.
XRP is the digital currency on the Ripple payment platform. The great thing about Ripple is that any currency, digital or otherwise, can be exchanged for another. That means users can pay someone in bitcoin without owning bitcoin, simply by using XRP as the bridge between the currency they own and the one the recipient wants to receive. This makes it a very fast payment method.
XRP also does not run on the blockchain but rather on a data structure called the HashTree, which makes it different from other digital currencies. It cannot be mined and its total number of coins is set to 100 billion.
Despite the finite supply, the unit cost per XRP token is still quite low, with its all-time high of $3.40, according to CoinDesk Data. Its market cap is just over $60 billion.
In December 2020, the US Securities and Exchange Commission. filed a lawsuit against Ripple, its CEO and its president, for the alleged illegal sale of unregistered securities worth $1.3 billion. Ripple CEO Bradley Garlinghouse rejected the premise of the lawsuit, calling it “an assault on cryptocurrencies in general” in December.
The lawsuit is a reminder that there is still a lot of regulatory uncertainty when it comes to cryptocurrencies, which could mean volatility for years to come as governments and institutions decide what to do.
Tether rounds out the top five of the largest digital currencies, with a market capitalization of nearly $50 billion.
It is an example of a so-called “stable currency” because it is pegged to the US dollar. This keeps Tether relatively stable compared to other cryptocurrencies, which can be very volatile. When it was first created in 2014, the value of each token was set at $1.
Tether’s all-time high was $1.32, according to data from CoinDesk.
Dogecoin started in 2013 as a joke based on a viral dog meme. Its market capitalization briefly grew to over $40 billion and it competes with Tether for the number five spot on the list of largest cryptocurrencies. Such are the times.
The digital currency popularity and the value has skyrocketed over the past year as the value of bitcoin rose and Tesla CEO Elon Musk repeatedly tweeted about it. This year alone, its value soared more than 7,800%, according to data from CoinDesk. It even briefly overtook XRP as the fourth largest cryptocurrency by market capitalization in April.
Dogecoin hit an all-time high in mid-April at $0.43. That’s right, the coin is still super cheap.
There are 129 billion coins in circulation now and new ones will be available to mine every year. That is what keeps the value of each currency relatively low, especially compared to bitcoin, which is a scarce resource in comparison.