2021 saw dramatic announcements regarding cryptocurrency and blockchain technology.

Several one-of-a-kind digital artifacts were sold as non-fungible tokens, known as NFTs. Miami hosted this year's Bitcoin conference, the largest such event since the pandemic started. Elon Musk, long a crypto coin proponent, suddenly turned his back on bitcoin but reversed his position less than a fortnight later, sending cryptocurrency markets awhirl.

However, the most earth-shattering news came from the inventor of the world wide web, Sir Tim Berners-Lee. Through Sotheby's, he is auctioning off the internet's original source code as an NFT.

The internet revolutionised the world, making possible things that, just 40 years ago would have fallen in the realm of science fiction. Things like decentralised ledgers that operate on consensus and ethereal money.

The pace of these developments has been astounding.

Now here we are, living digital lives in tandem with our real ones. And, just as in real life, everyone's looking for the next big virtual thing. Could cryptocurrencies be it?

Superprof investigates the top five cryptocurrencies: how they work, why they rate so highly and why investing in them is a fantastic idea.

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How Bitcoin Works

Let's start with Bitcoin because it is the cryptocurrency that started it all.

On the first day of 2009, Satoshi Nakamoto released his open-source code for the Bitcoin blockchain. Three days later, the very first block was mined. To this day, nobody knows just who Satoshi is; suffice to say that his brainchild set off a new era of financial and investment opportunity.

The mysterious Satoshi was subsequently honoured by having a denomination of currency named after them. A Satoshi is worth one-millionth of a bitcoin.

Bitcoins are not the only cryptocurrency
For many, bitcoin is synonymous with cryptocurrency but bitcoins are only one of many. Photo credit: Ivan Radic on VisualHunt

In a related article, we went into great detail to explain how bitcoin can be used, even to pay for everyday purchases. In this segment, let's instead cover how the foundation underpinning cryptocurrencies (and NFTs and smart contracts!) works.

Let's say the blockchain is notified of a transaction waiting to be processed:

  1. Party A wants to buy something from Party B.
  2. The proposed transaction generates a notification or alert; that notification is what constitutes a block
  3. every operator (node) in the network verifies the transaction, essentially giving their consensus
  4. the block is added to the already-existing chain
  5. the funds are allocated from Party A's account to Party B's

At its simplest, that is how the blockchain works but that's only half of the equation. The other half consists of mining the blockchain.

As new transactions take place, the notification sent to the nodes comes in the form of a maths problem. The first miner to solve that problem must notify the network so that they can verify it. Upon verification, that miner is rewarded with a few bitcoin.

You may have heard about miners looking for the next block (in the blockchain). They're not scouring the network, looking for new transactions to validate; they are looking for the solution to the maths problem.

The work of solving these maths problems is particularly intensive; they are not the type you can solve with a slide ruler or graphing calculator. Miners invest a great deal of cash in computer hardware to arrive at the ultra-high processing speeds needed to make mining possible.

Individual mining can be quite expensive; it's difficult to make such a venture profitable on your own. That's why many work in mining pools, where they can combine their resources.

The Bitcoin blockchain was the first-ever. Since its inception, many other innovators have made use of the technology to launch their own coins and blockchains. Let's check some of them out.

By the way, don't worry about intellectual property theft. Remember that the code is open-source; anyone can use it and some have improved on it.

Price Predictions for Cardano

Only four years after Bitcoin went live, another programmer/coder wrote a white paper describing an expanded use of blockchain technology. Vitalik Buterin's venture attracted other enthusiastic coders, one of whom was Charles Hoskinson.

We'll talk more about Vitalik and Ethereum in a mo...

Mr. Hoskinson was fully on board with all of Mr. Buterin's ideas except keeping the venture's non-profit status. That wedge was sufficient to split him from the Ethereum team just months after the work had started in earnest.

Whatever Hoskinson's thoughts and feelings were about the split is unknown; what matters is that he was soon recruited to help form a new venture, IOHK. That research and engineering entity focused on blockchain and cryptocurrencies; out of that project came Cardano.

Unlike Bitcoin's limited contract capability, Cardano is more flexible in affording users versatile smart contracts. These are transactional devices that allow for the release of funds on a specified date or when certain conditions are met.

Cardano is a very flexible crypto platform
Cardano offers ultimate flexibility for investors and cryptocurrency traders. Photo credit: wuestenigel on VisualHunt

Another of Cardano's progressive aspects is its multi-layer blockchain structure.

The settlement layer is where transactions take place as described above. That's where crypto-enthusiasts buy, sell and transact in Cardano's coin, Ada. They can trade in many other cryptocurrencies, too. The computational layer is where smart contracts and other applications are managed.

Note that Bitcoin's blockchain also has dual layers; their second layer is called Rootstock. 

Cardano is, in many ways, different from other cryptocurrency ventures; for one, because the creators did not publish a white paper before launching their blockchain. However, what really sets Cardano apart is its proof of stake consensus system, which uses far less energy than proof of work systems.

As described above, bitcoin mining is intensive work, not just for the miners but in energy consumption. That particular aspect is gaining a lot of negative attention, especially considering the current climate worries.

That's one reason why Cardano is on an upswing. Could you predict how far Cardano will go? Let us know in the comments section.

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How Much Tether is Worth

Bad actors are a major concern to the cryptocurrency world because one of the technology's greatest assets, confidentiality, is also one of its greatest liabilities. That's why the market was so slow to react in Bitcoin's early days. Back then, it essentially had the reputation that the dark web does today.

Likewise, all of the scandals this cryptocurrency has been embroiled in don't necessarily help Tether establish itself as a worthwhile investment.

The crypto-savvy know a good thing when they see it, though. They look beyond all of the bad press. New technologies such as hardware wallets mean that anyone can store their crypto coins safely, away from potential bad actors.

Also, Tether is a stablecoin, meaning its value is pegged to a fiat currency. Thus, when you buy USDT - their coin's designation, you are assured of the same value as when you purchased it: buy $10 worth of Tether, receive $10 when you cash out.

There is some controversy surrounding that claim that you should know about before investing, though.

Still, as long as you're well informed and take all the necessary steps to protect your investment, you too could trade in the cryptocurrency that, last year alone, showed a growth rate of 144%.

How to Buy the Binance Coin

Every cryptocurrency has its unique aspects; for Binance, it's that their coin is a function of their system. Unlike bitcoins or other currencies, the end goal is not trading or spending the coins; they are an excellent investment.

The best place to buy the Binance coin, identified as BNB is on the Binance exchange. As a bonus, this exchange allows members to pay their trading fees in BNB.

Binance commands a huge share of the market - it may just be the largest exchange market cap this year. One reason for that is its dual blockchain system. 

The Binance chain was built on Ethereum's blockchain but, soon, Binance opted to build their own. Its focus was blazing fast transaction capability; unfortunately, it lacked many features that would make it more flexible in terms of usage. That's why the second blockchain was built.

Decentralised finance (DeFi) is the next big wave in the crypto world and Binance means to capitalise on it through their Binance Smart Chain. Launched in 2020, their BSC is designed to adapt to all of the innovations the DeFi concept will call for.

If you've ever needed a reason to buy Binance coins, that level of ingenuity would be it.

Buterin liked the name ether so he named his crypto coin that way
Vitalik Buterin chose his platform's name because it contains the word 'ether'. Photo credit: Ivan Radic on Visualhunt.com

How UK Investors Buy Ethereum

For many UK crypto-enthusiasts, Ethereum is the be-all and end-all blockchain. It provides a safe environment to trade in cryptocurrencies of all types and also allows smart contracts.

If you were interested in buying Ethereum, you would first need to set up an account, either on a cryptocurrency exchange or on their platform. There, you may choose between two types of account: user and contract. Both accounts allow the account holder to maintain a balance of ether but only user accounts may conduct transactions.

So, if you want to get in on Ethereum's possibilities, you have to decide what you're going to do once you establish your account. Once you've got that sorted and upload some identification - yes, you still have to prove you are you, even in cyberspace, you may then fund your account. 

A few aspects of buying cryptocurrency, Ethereum included, are no-brainers. You should only transact on reputable exchanges, select a wallet best suited to your needs and don't invest more than you can afford to lose.

If you're uncertain  which options would suit you best, you may consult with a broker or dealer. Or you could gain all the knowledge you need from a Superprof cryptocurrency tutor.

By the way, you might be interested to know that Sir Berners-Lee will sell the internet source code on Ethereum. If he chose this blockchain to manage the sale of his revolutionary brainchild, that's a sure sign Ethereum is trust- and investment-worthy, isn't it?

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Sophia

A vagabond traveler whose first love is the written word, I advocate for continuous learning, cycling, and the joy only a beloved pet can bring. There is plenty else I am passionate about, but those three should do it, for now.