© Unsplash quantitatives-4PljbcYIzyE-unsplash.jpg Cryptocurrencies are a digital-only form of financial exchange that use cryptography as a means of security. They are not physical currencies in the same way as, say, pounds or dollars.
Bitcoin, the original cryptocurrency, made its debut over a decade ago and has paved the way for the creation of thousands of rival cryptocurrencies.
Crypto top 10If you're unfamiliar with the world of crypto, here are the top 10 largest cryptocurrencies in terms of market capitalisation. Often shortened to 'market cap', this figure represents the total value of each coin that's in circulation.
The law of supply and demand means that market cap figures are continually subject to change. For the purposes of the list below, the figures relate to 1 November 2022 and are necessarily approximate.
The abbreviation after each cryptocurrency, BTC for example, relates to its ticker symbol - a means of identification for trading purposes.
Note: investing in cryptocurrencies is not for everyone. The UK's financial watchdog, the Financial Conduct Authority (FCA), issues regular warnings to consumers about the crypto industry. The FCA reminds would-be traders that cryptoassets are unregulated and high-risk, which means people "are very unlikely to have any protection if things go wrong, so people should be prepared to lose all their money if they choose to invest in them".
1. Bitcoin (BTC)The original cryptocurrency, Bitcoin was first mooted in 2008 by an anonymous individual, or group of people, using the pseudonym Satoshi Nakamoto. Its invention was a breakthrough in cryptography.
As with most cryptocurrencies, Bitcoin runs on a blockchain - a piece of software that acts as a digital ledger that logs transactions distributed across a network comprising thousands of computers.
Because additions to the distributed ledger must be verified by solving a cryptographic puzzle - a process known as 'proof of work' - Bitcoin is kept secure from fraudsters.
Despite becoming a household name, Bitcoin's price has oscillated wildly in recent years. At the time of writing, a coin was worth around £23,814 having peaked at just over £51,000 in November 2021. In 2016, a single Bitcoin could be bought for around £370.
2. Ethereum (ETH)Ethereum is both a cryptocurrency and a blockchain platform and is popular with programme developers because of its potential applications.
These include so-called 'smart contracts' that automatically execute when conditions are met, as well as non-fungible tokens - or NFTs. NFTs are digital assets that represent real-world objects, such as unique works of art.
Ethereum is another cryptocurrency that has experienced tremendous growth. For example, from April 2016 to date, its price has risen from £8 to £1,678.
3. Tether (USDT)Unlike some of its cryptocurrency rivals, Tether is a type of 'stable coin'.
Stable coins attempt to peg their market value to an external reference. For Tether, this means it's backed by established 'fiat' currencies such as UK pounds, US dollars or the euro and hypothetically keeps a value equal to one of those denominations.
Tether's value, the theory runs, ought to be more consistent than other cryptocurrencies. It tends to be favoured by investors who are wary of the extreme volatility associated with other coins.
4. Binance Coin (BNB)Binance Coin is a version of cryptocurrency where users can trade and pay fees on Binance, one of the world's largest crypto exchanges. Fees paid on the exchange in Binance Coin receive a discount.
Launched in 2017, Binance Coin has moved on from only facilitating trades on the Binance exchange. It can now be used for trading, payment processing, and even booking travel arrangements. It can also be traded or exchanged for other forms of cryptocurrency, such as Bitcoin or Ethereum.
In 2017 a coin was priced at under 10p, but this month it has been trading around the £275 mark.
5. US Dollar Coin (USDC)US Dollar Coin (USDC) is another stable coin. It's redeemable on a 1:1 basis for US dollars, backed by dollar denominated assets held in segregated accounts with US-regulated financial institutions. USDC is powered by Ethereum and can be used to complete transactions worldwide.
6. XRP (XRP)XRP aims to be a fast, cost-efficient cryptocurrency for cross-border payments.
Created by some of the same founders as Ripple, a digital technology and payment processing company, XRP can be used on that network to transact exchanges of different currency types, including fiat currencies and other major cryptocurrencies.
7. Dogecoin (DOGE)Dogecoin began as a joke in 2013, but rapidly evolved into a prominent cryptocurrency thanks to a dedicated community and creative memes. Unlike many other cryptos, there is no limit on the number of Dogecoins that can be created, which leaves the currency susceptible to devaluation as supply increases.
Dogecoin's price in 2017 was £0.00016. By April 2023, its price stood at around 7p.
8. Cardano (ADA)Later to the crypto scene, Cardano is notable for its early embrace of 'proof-of-stake' validation.
This is the second (along with 'proof-of-work', see Bitcoin above) of two major consensus mechanisms that cryptocurrencies use to verify new transactions, add them to the blockchain, and create new tokens.
This method hastens transaction times and reduces energy usage and environmental impact by removing the competitive, problem-solving aspect of transaction verification that exists via platforms such as Bitcoin.
Cardano also works like Ethereum to enable smart contracts and decentralised applications, powered by ADA, its native coin.
9. Polygon GBP (MATIC-GBP)Polygon used to be known as Matic Network. With the ticker symbol (MATIC) it is an Ethereum token that powers the Polygon Network, a scaling solution for Ethereum. Polygon's aim is to provide faster and cheaper transactions on Ethereum using blockchains that run alongside the Ethereum main chain.
10. Solana (SOL)Developed to help power decentralized finance (DeFi) usages, decentralized apps (DApps) and smart contracts, Solana runs on a unique hybrid proof-of-stake and proof-of-history mechanisms to process transactions quickly and securely. SOL, Solana's native token, powers the platform.
When it launched in 2020, SOL's price started at £0.57. By April 2023, its price was around £20.46.
Frequently asked questionsWhat are cryptocurrencies?
A cryptocurrency is a type of currency that only exists in digital form. Cryptocurrencies are increasingly being used to make online purchases, side-stepping the need of going through a third-party such as a bank. They are also used for investment/speculation.
What's the difference between trading cryptocurrencies and traditional shares?
Buying a share in a company means you own a tiny piece of the corporation concerned. Shares also confer on the holder the right to vote on key decisions that a company makes – from its direction of travel, to how much it pays its executive board.
If a company folds, shareholders may be entitled to compensation once creditors that are higher up the pecking order have been paid off.
In contrast, buying a cryptocurrency only grants the holder ownership over the token itself. If a cryptocurrency loses values, that's it. There is no extra layer of compensation for the holder.
There are several key differences between shares and cryptocurrencies worth bearing in mind:
How do you buy crypto?
You can buy cryptocurrencies through a number of exchanges such as Coinbase.
Do you have to pay taxes on cryptocurrencies?
Find out here how HM Revenue & Customs taxes cryptoassets such as cryptocurrencies.
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