5 distinguishing features of Cryptocurrencies

Bitcoin, Ethereum, Polygon, Solana, and so many more cryptocurrencies out there. The common man is investing in whichever the internet talks most about. According to a report by CNBC, only 16.9% of crypto investors “fully understand” the value and potential of cryptocurrency while only 33.5% of buyers have “emerging” to no knowledge about the thing they are investing in.

There is a common saying among the investors and traders, “I have invested only the part of the money, I am ready to lose”. So many of the investors are betting on this buzzword only in the hope to lose money.

While this might or might not help earn multifold returns in the short run. In the long run, one should know what is the basic difference between cryptocurrencies in the market. There can be many factors distinguishing one from another. Let’s look at the 5 most basic ones-

1. Usecase: While cryptocurrencies were primarily invented to act as a medium of exchange and replace fiat currency, over time they have become an integral part of the entire decentralized world. From executing smart contracts to minting NFTs to the Metaverse, it is the cryptocurrency that makes it all possible. But not every coin or token performs every task in the space. Coins are ever-evolving and so every new coin that comes up in the market has a chance to be better than the existing coins. Like Bitcoin, the first successful cryptocurrency does not hold much of a utility and is only considered a store of value while Ethereum launched afterward can execute Smart Contracts and also conduct NFT minting

2. Support: Cryptocurrencies were originally meant to be independent but to make it more acceptable and less volatile (for which it is looked down upon) some cryptocurrencies can be backed by actual currencies or commodities. These kinds of coins are popularly known as Stablecoins, because of the relatively more stability it provides compared to the first-invented coins like Bitcoin or Ethereum

3. Consensus mechanism: One of the defining features of decentralized technology is that it does not involve middlemen or trusted bodies to keep a check on whether the transactions taking place are genuine or not. To address this, blockchain technology has something called the consensus mechanism through which the transactions are verified. Different protocols use a different mechanisms. While Bitcoin uses Proof of Work (PoW), Ethereum uses the Proof of Stake (PoS) mechanism and Solana uses the Proof of History (PoH) mechanism

4. Cost: For getting the transactions in the blockchain network verified, a small fee called the gas fee has to be paid. These verifiers are popularly known as miners. This cost highly depends on the consensus mechanism the network uses. Costs can be as high as USD 40 in the case of Ethereum to as low as 0.0025 cents for Solana. It can be far lesser in case of some meme coins

5. Speed: It takes time to verify a transaction based on the consensus mechanism the network uses. While some may take a few minutes others can take lesser than a second. Ethereum that uses PoS only makes 15-20 transactions per second while Solana uses PoH mechanism which can complete around 50,000 transactions per second.

I hope this clears some of your doubts regarding the fundamental difference between cryptocurrencies. For more such content follow me here- https://instagram.com/miss_informed21?utm_medium=copy_link