How to pick the right cryptocurrency
There are now over 1,300 different cryptocurrencies competing for your attention! This makes choosing the right one a daunting decision. Here is my guide to picking the most trustworthy cryptocurrencies. This is not investment advice. It’s the process I use when considering whether to purchase a particular cryptocurrency.
Categorize the cryptocurrency into either the “Bitcoin” vs “Not Bitcoin” group
If the cryptocurrency that you are considering is “Bitcoin” (there is only 1 Bitcoin and it is traded as BTC), then congratulations! You have now made the safest and most valuable selection in cryptocurrency investing. Bitcoin has the most developers working to improve it, is the most decentralized, is the most secure, has no centralized leadership, was open and public from day 1, and has the best track record for being a store of value. Bitcoin is the original cryptocurrency that solved the problem of digital scarcity over the internet, and it is changing the world.
If the Cryptocurrency is in the “Not Bitcoin” group, you have some work to do
- Review the history of how the cryptocurrency was created. Was it created by taking a copy of Bitcoin? Were the early investors or developers given privileged access to the cryptocurrency? What were the terms? It’s common for altcoins to “pre-mine” the currency and divide large portions among the creators and early investors before releasing the official rules by which everyone else must abide. How many tokens were “pre-mined?” What percentage of all of the tokens are out in the public (what’s the liquidity)?
- Who is in charge? If you can answer this question, the long-term viability of the cryptocurrency is seriously questionable! If Bitcoin gets big enough that it begins to challenge established currencies for global adoption, the “leaders” in the cryptocurrency space will be easy targets for coercion and law enforcement. Ask yourself “what would happen to the cryptocurrency if [leaders name] was compromised?”
- Is the Altcoin centralized or decentralized? If you can answer question 2, then the cryptocurrency is likely centralized. This means that you may be signing up for something like a “paypal” or a “venmo” style of cryptocurrency. The rules of centralized cryptocurrencies can be changed and updated by the central authority without broad consensus from their community (like central bank issued currencies).
- What is the “mission statement” of the cryptocurrency? If the mission statement is to “replace” or “fix” Bitcoin, stay far, far away. Remember, Bitcoin has by far the most (and most tenured) developers contributing to its improvements, and cryptocurrency development is brand new computer science. Trusting wealth to untested developers is a recipe for getting burned.
- Will the advertised technology eventually be added to Bitcoin? Confidential transactions, smart contracts, and cheaper/faster transactions are 3 of the big selling points that Altcoins can currently accomplish better than Bitcoin, but all of these features are going to be added to Bitcoin in a way that does not impact its decentralization. What will happen to these altcoins when these features are added to Bitcoin?
There is a lot of advertising money being spent on hawking the newest and greatest “Bitcoin killing” cryptocurrency. Keep in mind that a true cryptocurrency should be designed as a digital asset, and not as a consumer product or proprietary currency. Altcoins are nothing new, and hundreds of them have made attempts at usurping Bitcoin. None of them have succeeded so far.
Additional Resources:
My guide to getting started with Bitcoin: https://medium.com/@philgeiger/a-gentle-introduction-to-bitcoin-c8f6e55855c1
Find a Bitcoin ATM near you to try it out: CoinATMradar
USD Exchanges/Bitcoin banks: Coinbase, Gemini
Euro Exchanges: Bitonic, Bitstamp
Be your own bank on your phone or computer with a BTC wallet: Android — Samourai, Mycelium, iOS- Breadwallet, from a computer — Electrum