The Ultimate Bitcoin Investment Guide

With thousands of cryptocurrencies to choose from, investing in the volatile world of crypto is not for the faint-hearted. The best cryptocurrency to invest in depends on your individual goals.

Bitcoin and Ethereum are in a league of their own as the two best cryptocurrencies to buy. Bitcoin, the first cryptocurrency, is the largest by market capitalisation, with a valuation of about $1.3 trillion, or roughly 53% of the overall market. Ethereum, the second-largest cryptocurrency, is the native token on the widely-used Ethereum blockchain, accounting for nearly 18% of the total cryptocurrency market.

Other cryptocurrencies worth considering include Binance Coin, Solana, XRP, Dogecoin, Toncoin, Cardano, and Avalanche. These coins have unique features and use cases that make them attractive investment opportunities.

However, it's important to remember that investing in cryptocurrency is a high-risk venture. Before investing, conduct thorough research and carefully consider your financial goals and risk tolerance.

Bitcoin's value and scarcity

Bitcoin is the first scarce digital object the world has ever seen. It is scarce like silver and gold, and can be sent over the internet, radio, satellite, etc. In economics, something has value if it checks the following two boxes: scarcity and utility. Scarcity means that something has a finite supply. In the case of bitcoin, the cryptocurrency has a set cap of 21 million bitcoins.

Bitcoin has unforgeable costliness because it costs a lot of electricity to produce new bitcoins. Saifedean Ammous talks about scarcity in terms of the stock-to-flow (SF) ratio. He explains why gold and bitcoin are different from consumable commodities like copper, zinc, nickel, and brass because they have a high SF. Bitcoin currently has a stock of 17.5 million coins and a supply of 0.7 million per year = SF 25. This places bitcoin in the monetary goods category like silver and gold.

The hypothesis in this study is that scarcity, as measured by SF, directly drives value. A look at the table above confirms that market values tend to be higher when SF is higher. The likelihood that the relationship between SF and market value is caused by chance is close to zero.

Many analysts note that this set cap makes bitcoin more desirable than other assets, even gold. That's because, unlike with gold, there's no need to worry about a digital gold rush. A treasure trove of bitcoin won't ever be "discovered", causing the crypto's price to crash with an influx in supply.

Bitcoin's price has skyrocketed as it's become a household name. In May 2016, you could buy one bitcoin for about $500. As of August 6, 2024, a single bitcoin's price was around $55,175. That's a growth of 10,935%.

Ethereum's smart contracts and decentralised applications

Ethereums Smart Contracts and Decentralised Applications

Ethereum is a blockchain platform that facilitates the creation and automation of decentralised applications (dApps) and smart contracts.

Smart Contracts

Smart contracts are a type of Ethereum account with a balance that can be the target of transactions. They are programmed to execute specific functions when certain conditions are met. For example, a smart contract for sports betting can be created to store funds/bets for a particular game and distribute the bets once there is a winner.

Smart contracts are deployed to the Ethereum network and run as programmed. They are immutable and cannot be deleted or changed by default. They are also irreversible, meaning interactions with them cannot be reversed.

Anyone can write and deploy a smart contract to the network, but they must be coded in a smart contract language and there must be enough ETH to cover the cost. Ethereum has developer-friendly languages for writing smart contracts, such as Solidity, which is influenced by C++ or JavaScript.

Decentralised Applications (dApps)

Decentralised applications are the front-end or UX of smart contracts. They are a growing movement of applications that use Ethereum to disrupt or invent new business models.

DApps have their backend code (smart contracts) running on a decentralised network instead of a centralised server. They use the Ethereum blockchain for data storage and smart contracts for their app logic.

DApps might feel like regular apps, but they have special qualities because they inherit Ethereum's superpowers. Once deployed to Ethereum, dApp code cannot be taken down and anyone can use the dApp's features. They are also free from censorship and are backed by cryptography.

To try a dApp, you'll need a wallet (to connect or log in) and some ETH to pay the transaction fee.

Binance Coin's high speed and low cost

Binance Coin: High Speed and Low Cost

Binance Coin (BNB) is a cryptocurrency that can be used to trade and pay fees on the Binance exchange platform, one of the largest crypto exchanges in the world. BNB offers high speed and low-cost transactions, making it a strong competitor to Ethereum.

History

BNB was launched in 2017, initially as a token to provide special benefits to users of the Binance exchange, such as lower fees, exclusive access to initial coin offerings, and cashback. In 2019, BNB moved away from the Ethereum network and migrated to the Binance-developed blockchain, the Binance Smart Chain (now called the BNB Chain). This blockchain supports high transaction speeds and can handle large amounts of traffic.

Current Uses

Today, BNB forms the backbone of the BNB Chain ecosystem, which offers high speed and low-cost transactions. BNB can 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 Ethereum or Bitcoin.

Price History

The price of BNB has seen significant growth since its launch. In 2017, the price of BNB was just $0.10. As of late August 2024, its price had risen to around $476, representing a gain of 475,746%. BNB's all-time highest price was $686.31, recorded on May 10, 2021.

Advantages

The low costs and high throughput of the BNB Chain mean it can service much greater demand than many competitors. Additionally, owning BNB provides benefits on the Binance exchange platform, such as discounted fees.

Disadvantages

BNB is a highly centralized token, as it is controlled and managed by Binance. This reduces the freedom available to its community. BNB's success is also closely tied to Binance, which has faced regulatory scrutiny in several countries, including the UK, Japan, and Germany.

While Binance Coin offers high speed and low-cost transactions, potential investors should carefully consider its advantages and disadvantages, as well as the overall risks associated with investing in cryptocurrencies.

Solana's proof of history consensus mechanism

Solana's proof-of-history (PoH) is a novel consensus mechanism that uses a cryptographic function called a Verifiable Delay Function (VDF) to generate timestamps for each block in the blockchain. This VDF is designed to be computationally intensive, making it challenging for attackers to manipulate the timestamps. The timestamps are then used to order the blocks, ensuring their immutability.

PoH is designed to work alongside other consensus mechanisms like proof-of-stake or proof-of-work, enhancing the security and efficiency of the blockchain network. By using PoH, Solana achieves high transaction throughput, with the network capable of processing over 50,000 to 65,000 transactions per second.

PoH eliminates the need for a trusted time source as anyone can independently verify the timestamps generated by the VDF. It also reduces the risk of "replay attacks", where attackers attempt to replay transactions from one blockchain onto another.

The core innovation of the Solana Network is PoH, which creates a historical record that proves an event occurred at a specific moment. Each Solana validator maintains its own clock by encoding the passage of time in a simple SHA-256, sequential-hashing VDF. This differs from other blockchains, which require validators to communicate and agree that time has passed.

The Solana data structure chains messages together, providing a cryptographic proof of the relative order and time of each message in the historical record. This allows the network to ignore local clocks and gradually accommodate all potential network delays. This is why Solana can achieve such fast confirmation times, providing an effective experience without sacrificing security or decentralisation.

Anatoly Yakovenko, co-founder of Solana Labs, explains that a reliable clock simplifies network synchronisation. When this occurs, the resulting network is exponentially faster, with the only constraint being its bandwidth. PoH allows every node in the network to rely on the recorded passage of time, speeding up the blockchain compared to systems without clocks, such as Bitcoin and Ethereum.

Dogecoin's passionate online community

Dogecoin, the first "meme coin", was created by software engineers Billy Markus and Jackson Palmer as a joke to satirize the hype around cryptocurrencies at the time. However, it quickly developed a passionate online community, reaching a peak market capitalization of over US$85 billion in May 2021. Dogecoin's community is centred around the idea of Do Only Good Everyday, with members supporting each other, being kind, teaching others about cryptocurrency, fundraising, having fun, making memes, and being absurd.

Dogecoin's community has been involved in numerous charitable initiatives, including fundraising for the Jamaican Bobsled Team to attend the Sochi Winter Olympics, sponsoring NASCAR driver Josh Wise, and funding clean water wells in Kenya. They also started an initiative named "SaveDogemas" to help those who lost funds in a hack on the Dogewallet platform.

The Dogecoin community has received endorsements from several notable figures in the crypto community and celebrities such as Elon Musk, Snoop Dogg, Gene Simmons, and Vitalik Buterin.

Dogecoin's popularity has also led to its adoption by businesses, with the NBA's Dallas Mavericks allowing customers to purchase tickets and products with Dogecoin, and Watford Football Club featuring Doge on their shirts.

Frequently asked questions