By Sergei Grigoriev,  Executive Director, Eurotrader
By Sergei Grigoriev, Executive Director, Eurotrader

Beyond Bitcoin: Discussing the benefits of other cryptocurrencies

Cryptocurrency is a constantly evolving financial service, currently gaining more traction than ever within the trading world. After an investor accidentally ‘threw away’ their millions in Bitcoin, followed by its plummet in value after Elon Musk’s announcement that Tesla would no longer accept it as a payment method, 2021 has already seen its fair share of virtual payments making the financial headlines. 

Bitcoin might be the currency getting all the coverage and leading the market in popularity and active investors, but there are plenty of other lucrative virtual payment platforms and currencies to be aware of that are only growing in popularity. Ethereum and Litecoin have too gained traction among traders and, although currently lagging behind Bitcoin, they are showing no signs of slowing down. This article explores some of the benefits of alternative cryptocurrencies and key considerations for finding the right investment.

Building on blockchain

Most cryptocurrencies run on a decentralised ledger, called a ‘blockchain’. The clue is in the name when it comes to how blockchain operates. Data comes together to form a block, which is added to the ledger, joining other ‘blocks’ to form a chain. This process enhances transactional security, as each new activity is encrypted using previous data plus the new sequence, creating unique signatures. Hosting transactions over the blockchain also has a positive effect on hacking security as no one actually ‘owns’ or controls the technology or the platform – rather, users all have an element of shared control. It is a peer-to-peer electronic transaction system.

Why are cryptocurrencies so desirable?

Much like its common blockchain host, cryptocurrency is attractive for its cybersecurity credentials. There is no trust involved, as no one else controls and holds your stock. Although we’ve all heard the news of people accidentally ‘throwing away’ their crypto, there is actually no tangible currency to lose or misplace, removing one of the risks of physical cash.

Much like the security risk aversion, you’re also removing the transaction fees associated with cash investments by ‘cutting out the middle-man’. In traditional financial transactions, there are several steps between money sent and money received – and these steps can be costly.

Brokerage fees and commissions are just a few outgoings that businesses and consumers come to expect when investing or transferring substantial sums. However, the direct nature of crypto transfers eliminate these third-party or middle-man fees. Transactions are seamless and instant and, unlike traditional investments, what you see is exactly what you get.

Built for modern transactions

The financial landscape is constantly growing and evolving, and currencies and transfer systems must be able to keep pace.

Speed and scalability are among crypto’s key benefits and are completely individual to each virtual currency. Bitcoin boasts an ability to process seven transactions per second, and Litecoin is even faster, at a maximum of fifty-six transactions per second.

Much like traditional transactions, there is always a limit to what is possible. However, using crypto to transfer significant funds is ultimately faster than traditional transfers or currency conversion, as the nature of a digital currency lends itself to automation and efficiency. 

Small payments through debit and credit cards may operate faster than cryptocurrency can, but for larger transactions – like those typically expected of financial investments – the blockchain processes funds at increased speeds. And this is not to mention the simplicity of the transaction compared with manual alternatives.

The future of online payment

Since its creation over a decade ago, Bitcoin has been the most heavily discussed cryptocurrency, but more than ever, we’re seeing the emergence of new, alternative currencies. This may be attributable to traders aiming to diversify their crypto portfolio. They will invest in more than just one or two types of currencies – the nature of crypto stocks causes fluctuation, so holding a long position on just one currency leaves traders at risk of losses.

As investment has taken off, it has driven up the supply and diversification of the cryptocurrency market, with an increasing number of traders looking to tap into the rewards on offer from becoming an early investor. Plus, as the nature of crypto as a digital currency lends itself to online transactions, this demand is only set to increase, with virtual currencies poised for ubiquity, not just for ambitious investors, but in daily life as a legitimate payment model. 

Cryptocurrency
There are considerable pros and cons to both cryptocurrency and cold, hard cash

Replacing cash, or working together?

It may seem obvious, but there are considerable pros and cons to both cryptocurrency and cold, hard cash.

As it stands, it’s inconceivable that crypto could ever completely replace cash, if not for the simple reason of convenience. There is no physical way to transact, like with a debit card or Apple Pay, for example. The transaction speed of crypto is, although impressive for larger-scale payments, not nearly quick enough for day-to-day cash exchanges.

Then, there is the additional hurdle of gaining widespread demand and traction among the general public to make crypto a sole financial reality.
However, the scalability of cryptocurrency is significantly more attractive than traditional cashflow. This is where crypto provides the real-world convenience that makes more widespread adoption a possibility – providing benefits beyond just those available to clued-up investors. 

While cryptocurrencies may not currently be able to replace existing currencies, it seems they could work harmoniously in providing different payment benefits for consumers and businesses, for whom speed and convenience is a necessity.

Payments solution giant Visa now partners with a number of companies (including the likes of PayPal, Coinbase, BitPay and Binance) to instantly receive converted crypto to be spent as fiat currency at all Visa-supported businesses. Visa, being a market leader in processing crypto transactions, is now even settling funds for these merchants in stable coins.

Beyond Bitcoin…

Currently, Bitcoin is strides ahead of other cryptos in terms of its popularity in active investors and market cap, which currently sits around $1 trillion. This is not to say other currencies are not catching up though, with the popularity of alternative digital currencies now higher than ever. Ethereum is Bitcoin’s closest competitor, with a market cap of $500 billion.

Since Bitcoin’s launch in 2009, the creation of other digital currencies has been consistently increasing. Some are completely different to Bitcoin in terms of their functionality and operation, whereas others are simply a similar product but tailored for specific functions.

Take Ethereum, for example. While it uses the same blockchain ledger as Bitcoin and has many aligning benefits in decentralisation and security, the system itself is different and operates as such, with one added benefit of Ethereum being its speed. 

Litecoin, on the other hand, is modelled similarly to Bitcoin. As its name suggests, it is simply a ‘lighter’ version of the reigning cryptocurrency – sometimes referred to as the silver to Bitcoin’s gold.

There are, however, cryptos that run on alternative systems and differ more significantly from Bitcoin. Take Ripple, for example. This is a centralised crypto that is often a platform used for global monetary exchange, with the aim of making these transactions instant and cheap. 

Generally, cryptocurrencies eliminate the extra time and cost to payments and make them free of governmental regulation – however, Ripple is one of the exceptions, as its most common use is by banks and other intermediaries.

Diversifying your portfolio

So, if you want to look beyond the realm of Bitcoin, where do you turn? It’s clear that in the last decade particularly, the digital currency market is expanding and evolving at a rapid pace but identifying the right investment can be harder than ever, either as an experienced investor or a first-time trader. The natural first step is looking at the unique benefits provided by each currency. For example, those opting for advanced scalability and an intensively secure network will likely turn their attention to Ethereum.
 
Ethereum’s decentralised ledger is valued for its impressive security, relying on two separate verification processes, Smart Contracts and ‘dApps’.
 
Other alternatives to Bitcoin boast their own unique benefits. Litecoin, for example, is incredibly scalable and efficient. Transactions are up to four times faster than Bitcoin, and its scalability of up to 56 transactions per second is faster than that of Bitcoin and Ethereum put together.

Litecoin is cheap and transactions are fast, which no doubt appeals to a particular sector of the trading market.

What are the drawbacks of other currencies?

While there are plenty of emerging cryptocurrencies boasting many benefits to potential traders, it’s hard to ignore the fact that Bitcoin remains the most popular and attractive option to investors.

This is simply because it was the first digital currency, meaning it is the most widespread and trusted cryptocurrency. Not only is Bitcoin’s blockchain ledger now a trusted and widely accessible infrastructure, but Bitcoin has the largest userbase and most use cases – making it the biggest crypto draw, with the highest potential prices and rewards on offer. It is for these reasons that alternative currencies are struggling to keep pace and make the same impact seen by Bitcoin as the ground-breaking first foray into the cryptocurrency sphere.

Choosing the right investment

All cryptos have their drawbacks and benefits. What traders need to ask themselves is what they are looking for in their investment and how much risk they’re willing to accept in search of reward. It’s difficult to say whether one digital currency is simply better than any other, but investors can always make this decision based on what is the most relevant for themselves and their ambitions. Over the last decade, the range of crypto on offer has boomed, giving traders more autonomy in their choices.

Research is key to any investment, though – regardless of trading experience – and those looking to expand into the cryptocurrency market, or simply diversify their existing portfolio, should work with an expert for peace of mind over a successful and secure trading career.

Engaging with cryptos via CFDs

As an alternative to buying the currency, some traders and trading platforms opt for CFDs (contract for differences). Instead of owning the stock or asset itself, you speculate on the market’s movements. If you correctly predict the market direction, whether this be the rise or fall, you can earn money without actually needing to buy into the asset itself.

The growing interest in crypto has given rise to CFD trading among retail traders. With CFDs, traders can tap into the volatile crypto market. What’s more, it provides an opportunity to be more responsive towards market news and act on market sentiment following events such as, for example, China’s crackdown on cryptocurrencies. The high volatility has led to crypto CFD trading attracting traders who usually engage with other markets. Cryptocurrencies are also subject to more exponential trends than, say, forex trading. This heightened interest has led to more CFD trading platforms and retail brokers offering cryptocurrency trading pairs. Traders can trade crypto-fiat pairings, such as Bitcoin Cash USD (BCHUSD) without the need for a crypto wallet or ownership of cryptos themselves. 

Another longer-term option is to trade stock CFDs of companies that are closely associated with crypto trends, such as Coinbase, PayPal, Square and Visa. This provides another avenue to engage with crypto activity without having to purchase a physical coin.