There are two venues to trading cryptocurrencies: speculating on their prices using CFDs or buying the digital currencies, hoping they increase in value.
The variations between cryptocurrencies matter to traders because they provide crucial clues as to how supply and demand for and the coin will change over time, which affects market prices and how cryptocurrencies are exchanged.
Delivering coins plays a crucial role in determining market prices. All other things being equal, the rarer the coin, the more precious it should be. Bitcoin and bitcoin cash each has an upper limit of 21 million coins, while Litecoin and ripple have increased their estimated reserves of 84 million and 100 billion. If all the coins have been mined or issued, these coins would be deflationary while coins like ether – with no set limit – can be inflationary, depending on how much is ‘burnt’ or lost.
Coin supply varies over time as new coins are mined or discharged. Mining is the mechanism that verifies ‘boxes’ of transactions and releases new coins. Bitcoin is currently mined for each checked block at a rate of 12.5 new coins, with the reward halving approximately every four years (the last bitcoins will be mined around the year 2140). On the other hand, ripple coins were pre-mined by its creators and are currently published at a rate of one billion a month.
Despite having fewer implementations than many of its younger counterparts, the value of Bitcoin has risen in recent years and remains market capitalization’s largest cryptocurrency. This implies prestige remains a significant element in the valuation of cryptocurrencies. Media attention here is likely to be a significant factor, with negative news – following, for example, a big wallet hack – appearing to affect rates adversely.
Although Bitcoin, Bitcoin Cash, and Litecoin are isolated cryptocurrencies, wider networks with extended applications, ether and ripple exist. If the popularity of these networks rises, or mainstream businesses embrace them, demand for their underlying cryptocurrencies may grow.
As cryptocurrencies adoption accelerates, transaction speeds and their capacity to manage many transactions are likely to face increased scrutiny. Scalability may also be affected by blockchain size and safety, as these factors would affect mining profitability, associated network speed, and user willingness to buy and use coins. Therefore, traders should pay attention to software updates and forks to see how technology progresses to scaling.
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