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Cryptocurrencies use a number of different algorithms and are traded in different ways.
Here are the main characteristics that you should consider.
Market Capitalization and Daily Trading Volume
A cryptocurrency's market capitalization is the total worth of all coins currently in circulation. A high market capitalization can indicate a high value per coin or simply a lot of available coins. Perhaps more important than market capitalization is daily trading volume: the value of the coins that exchange hands every day. A high daily trading volume relative to the market capitalization indicates a healthy economy with many transactions.
Verification Method
One of the major differences between cryptocurrencies is their verification method. The oldest and most common method is called proof of work. To gain the right to verify a transaction, a computer has to expend time and energy solving a difficult math problem. The trouble with this method is that it requires a massive amount of energy to operate. Proof-of-stake systems attempt to solve this problem by letting the users with the largest share of the currency verify the transactions. These systems require less processing power to operate and claim faster transaction speeds, but concern over security means that few coins use an entirely proof-of-stake-based system.
Retailer Acceptance
A cryptocurrency isn't much use if you can't buy anything with it. That's why it's important to know who accepts a currency before you invest in it. A few cryptocurrencies are widely accepted, even boasting partnerships with major retailers. Most, however, have more limited acceptance, and some can only be exchanged for other cryptocurrencies. Some coins simply aren't designed to be exchanged for goods and are built for other purposes.
Cryptocurrencies are an exciting new development in the world of finance. No one is quite sure yet where the technology will lead, but the fact remains that these new currencies offer possibilities that traditional cash can't.
Chuck Reynolds
Contributor
