Cryptocurrency is digital money. This virtual currency is secured by cryptography, making it nearly impossible to counterfeit.
In a recent conversation with my neighbor, she told me about her investment in XRP (Ripple) cryptocurrency. She seemed pretty well informed as to its risks and potential. Now, she does like to gamble and play bingo, so it seemed a likely match for her to invest in altcoin. She finds it fun and exciting to check the ebb and flow of the activity. But this got me thinking about cryptocurrency in general. In my line of work as a security analyst, I tend to limit my focus on bitcoin and the negative connotation associated with it, ransomware. So I thought it might be fun to look at the variety of cryptocurrency out there and highlight some of their differences.
But first, I’ll try to define cryptocurrency as basically and simply as possible. And trust me, I am no expert in this area.
Your money, government based and issued, is held in banks. The consumer will need to access this physical form of value in order to transfer it to other people. Cryptocurrencies rely on technology for development. This process makes the currency decentralized (no single entity is in charge of it) in a distributed ledger through blockchain technology. A blockchain stores the encrypted blocks of data and chains them together. A ledger records changes that help to preserve the integrity of the asset. Each block in the chain contains a cryptographic hash. Adding a block to the chain involves hashing the data in the block header in order to achieve a result of a certain target value.
Cryptocoin gets its value based on the involvement of its community. A number of factors affect its value; supply and demand, number of nodes (active wallets in the community), mass adoption or hacking scandals, production costs and regulation.
So what are the different e-currencies? There are over 4,000 cryptocurrencies in existence so I’ll just cover a few here.
- Bitcoin – Most widely known and dominant in the market. Uses mining as a way to produce more e-coins and rewards. Value is volatile.
- Ethereum (ETH) – Open-source blockchain technology. Also creates non-interchangeable tokens connected to digital works of art and other digital items sold as digital property.
- Litecoin (LTC) – Similar to Bitcoin but has a faster block generation rate.
- Cardano (ADA) – ‘Proof-of-stake‘ cryptocurrency. Aims to provide interoperability of blockchains, voter fraud and legal contract tracing.
- Polkadot (DOT) – Also proof-of-stake and offering interoperability among other blockchains by allowing customized side chains to connect.
- Monero (XMR) – Secure, private and untraceable. Proof-of-work mechanism.
If you decide to invest in cryptocurrencies it would behoove you to do your homework. E-currency is a volatile market and not a good fit for everyone. Do some research before adding one of these cryptocurrencies to your portfolio.
Resources
You Have Cryptocurrency Questions. We Have Answers.
What Gives Cryptocurrency its Value?
A Complete List of Available Cryptocurrencies