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Cryptocurrencies

Ripple, the blockchain for banks

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Ripple (XRP), also known as the Ripple Transaction Protocol, is a cryptocurrency and real-time gross settlement system designed to make financial transactions simpler and easier.

Launched in 2012, Ripple was designed not merely to function as a cryptocurrency, but an all-in-one payment processing and remittance system for banks, businesses, and consumers. (1)

Ripple was created with the express purpose of replacing existing payment infrastructure with a model that is decentralized, open source, and accessible to all. Additionally, Ripple allows users to create various types of custom cryptocurrency, fiat currency, and other types of currency via its token system. (2) (3)

Ripple has been adopted by numerous banks, financial institutions, and other major banking organizations due to its reliability, flexibility, and functionality. (4)

Ripple is an effective and worthwhile investment for anyone looking for an all-in-one cryptocurrency and payment processing system.

Overview

Development on Ripple began in 2004, inspired by the RipplePay.com system created by Canadian web developer Ryan Fugger. Fugger designed RipplePay.com with the intent of creating a decentralized monetary system that allowed users to invent their own currencies for any purpose they wanted. (5) (6)

Developers Jed McCaleb (who later found Stellar), Arthur Britto, and David Schwartz saw RipplePay.com and sought to expand it through the use of Bitcoin’s blockchain technology, fulfilling Fugger’s dream. (7)

Ripple was conceived as a solution to several problems Bitcoin possessed: excessive electricity usage, slow transaction speed, and excessive centralization. Unlike Bitcoin, Ripple would verify transactions through a community-wide consensus instead of relying on miners. (8)

After being joined by developer Chris Larsen in 2012, McCaleb, Britto, and Schwartz obtained Fugger’s consent to continue developing RipplePay.com into a full-fledged cryptocurrency and monetary system. Ripple would launch that same year. (9)

Forming the corporation OpenCoin (later renamed Ripple Labs), Ripple’s developers focused their efforts on creating the Ripple Transaction Protocol, a system that allows instant, direct transfers of money between two separate parties. The protocol was compatible with everything from the U.S. dollar and other currencies to airline miles. (10) (11)

To accomplish this, Ripple was programmed to rely on a central ledger that is maintained by a number of servers that continuously compare and verify transaction records. (12)

To facilitate transactions, OpenCoin created XRP, a cryptocurrency that allowed users of the Ripple protocol to transfer money without the wait times and fees of traditional banking networks. Ripple also linked Bitcoin to their system, allowing people to use the Ripple protocol to send a payment in any currency to a Bitcoin wallet. (13) (14)

In 2013, Ripple Labs released Ripple’s reference server and client as open source software, allowing anyone to contribute to Ripple’s future development. (15)

Beginning in 2014, Ripple shifted their focus to the banking market, with hopes that their system could replace the existing, outmoded systems that banks rely upon to make transactions. (16)

That year, Munich-based Fidor Bank became the first bank to adopt the Ripple Transaction Protocol. Cross River Bank in New Jersey and CBW Bank in Kansas would also adopt Ripple that year. (17) (18)

In December of 2014, Ripple announced a partnership with Earthport, a global payments service whose clients include Bank of America and HSBC. Since then, more banking clients have joined the Ripple system, including Western Union, the Commonwealth Bank of Australia, and the Royal Bank of Canada. (19) (20) (21) (22)

In 2015, the Financial Crimes Enforcement Network fined Ripple Labs $700,000 due to violations of the Bank Secrecy Act. Ripple Labs responded by adding AML transaction monitoring to the Ripple protocol to bring it into compliance with U.S. law. (23)

In recent years, Ripple Labs has expanded globally, opening offices in Australia, the U.K., and Luxembourg, and more and more banking institutions have begun using Ripple in some fashion. (24) (25) (26)

In Ripple, transactions take place when users make cryptographically signed transactions that can be done using either XRP or a fiat currency of their choice. XRP transactions are monitored through the use of Ripple’s internal ledger. (27)

While Ripple originally lacked real-world enforcement of transactions, its integration with numerous banks and payment systems gives it a credibility and security that many cryptocurrencies lack. (28)

Ripple derives its name from the fact that transactions between parties require trust; if two users have not established a trust relationship, the transaction will “ripple” throughout the network until it finds a path in which each link is between those who do have a trust relationship. (29)

Due to its use by many banks and financial institutions, Ripple brings a level of security, stability and trustworthiness that few cryptocurrencies can match, making it a popular option for investors and traders.

Mining

Unlike most cryptocurrencies, Ripple cannot be mined due to its unique design.

In contrast to Bitcoin and other cryptocurrencies, where miners are responsible for processing transactions on the network, Ripple transactions are processed through a system-wide user consensus. Thus, mining is unnecessary to maintain the integrity of the network. (30)

Additionally, Ripple’s designers created 100,000,000,000 XRP when Ripple first came online, and they have steadfastly refused to make more. They have also been criticized for the way in which the currency was originally distributed, with the founders retaining 20 percent of all XRP in circulation. (31) (32)

Because it is impossible to mine Ripple, the currency has had a deeply polarizing response from cryptocurrency enthusiasts, with Bitcoin fans deriding it for being “pre-mined.” (33)

The inability to mine Ripple has limited its use and growth to a certain extent. It is unknown if Ripple’s designers plan to allow mining or to issue new XRP in the future.

FAQ

1. What is Ripple? Ripple is a currency exchange, real-time gross settlement system, and remittance network that is powered by blockchain technology. More than just a cryptocurrency, Ripple aims to be a system to support global financial transactions via a decentralized worldwide network in a fashion similar to Ethereum. Ripple is built on XRP, a cryptocurrency that is used to enable the network’s various functions. Due to the all-encompassing nature of Ripple, many financial institutions have begun adopting it in various forms.

2. What makes Ripple different from Bitcoin or Ethereum? Like Ethereum and unlike Bitcoin, Ripple is not simply a cryptocurrency, but is a fully-functioning financial services platform that can be used for a wide variety of functions. In contrast to Ethereum, which is primarily designed as a computing platform, Ripple was designed from the outset to perform financial functions such as remittances and more. This has led to its adoption by many banking institutions and has given it a stability that is not present in other cryptocurrencies, which were not designed with existing financial laws in mind.

3. Who created Ripple? Ripple was conceived in 2004 by Canadian software developer Ryan Fugger. Fugger created a website called RipplePay.com whose purpose was to allow users to invent currencies for any purpose that they desired. Some years later, RipplePay.com was noticed by developers Jed McCaleb, Arthur Britto, and David Schwartz, who realized that it could be greatly enhanced through the use of blockchain technology, the missing link in Fugger’s original vision. With Fugger’s consent, the developers launched Ripple as we know it in 2012. This deployment of Ripple was noted for the Ripple Transaction Protocol, which greatly expanded RipplePay.com beyond its original scope. Beginning in 2014, Ripple began targeting the financial sector, realizing that its technology could be used to make financial transactions more secure and efficient. As such, Ripple has been adopted by banks worldwide to a degree that other cryptocurrencies have not.

4. Who controls Ripple? Ripple is far more centralized than other cryptocurrencies, with Ripple Labs maintaining a leading role in its development as well as a controlling share of XRP, the platform’s cryptocurrency. However, in 2013, Ripple Labs released Ripple’s client and reference server as open-source software, allowing anyone to take part in Ripple’s future development.

5. What is the Ripple Transaction Protocol? The Ripple Transaction Protocol, also known as the Ripple Payment Protocol, is the unique means by which transactions on the Ripple network occur. In contrast to other cryptocurrencies that use blockchain consensus to process transactions, Ripple uses “trust relationships” to guarantee transactions against fraud. Transactions between two individuals on the Ripple network require a preexisting trust relationship in order to proceed. If two users have not established a trust relationship already, the transaction will “ripple” through the network until it finds a linear path in which everyone involved has a trust relationship, allowing the transaction to occur. This ripple effect is where Ripple derives its name from, and is based on Islamic banking principles, in which banking is conducted through mutual trust relationships instead of through charging interest. The Ripple Transaction Protocol also eliminates the need for mining, as transactions are processed on their own instead of requiring miners to generate new blocks.

6. What is XRP? XRP is the cryptocurrency that powers Ripple, in the same way that Ether powers Ethereum. Like Ether, XRP can be bought, sold, and traded like any cryptocurrency, but it also has a large number of functions that other cryptocurrencies lack.

7. What makes XRP valuable? Like any currency, XRP’s value is determined by whether people find it useful. Due to Ripple’s versatility as a financial services platform, many banking institutions have adopted Ripple in order to enhance the quality and breadth of their services. This has given XRP a value and strength that few cryptocurrencies can match.

8. Where does XRP come from? When Ripple was launched, 100,000,000,000 XRP were created for use in transactions. Unlike other cryptocurrencies, XRP cannot be mined and there are currently no plans to increase the amount of XRP in circulation, with pleas to Ripple Labs to create additional XRP falling on deaf ears. Some cryptocurrency users have criticized Ripple Labs for this approach, as well as for the way in which XRP was distributed upon Ripple’s launch, with the system’s founders retaining 20 percent of all extant XRP. XRP is sometimes referred to as “pre-mined” because of this.

9. How does one obtain XRP? Like other cryptocurrencies, XRP can be purchased from exchanges or as part of financial transactions. Uniquely among top cryptocurrencies, XRP cannot be mined due to the Ripple Transaction Protocol making mining unnecessary. Transactions are otherwise conducted in a similar fashion as other cryptocurrencies, with XRP being stored in wallets and transferred through the use of wallet addresses. To receive XRP, you must give your wallet address to the person who is sending it to you, and to send XRP, you must obtain their wallet address. Wallet addresses appear as a random string of letters and numbers and can also be rendered as QR codes that can be scanned by smartphones or tablets.

10. What are the upsides of using Ripple? As mentioned above, Ripple is backed by numerous financial institutions, such as the Royal Bank of Canada and Western Union. This gives it a security that other cryptocurrencies lack, given their quasi-underground status. Because Ripple was intended to be adopted by banks from the beginning, it does not face the legal rigmarole that other cryptocurrencies have when it comes to government regulation. Ripple can also be used to generate custom tokens in a fashion similar to Ethereum, allowing developers to adopt Ripple for a wide variety of purposes. For example, Ripple has been used to trade frequent flyer miles, cell phone minutes, and even other cryptocurrencies such as Bitcoin. The sheer versatility of Ripple means that new uses for it are being invented every day, allowing it to carve out a unique space in the cryptocurrency ecosystem. On top of this, Ripple retains the advantages that other cryptocurrencies possess, such as low transaction fees, payment freedom, worldwide availability, and decentralization. Finally, Ripple is one of the fastest cryptocurrencies available, many times faster than Bitcoin, which has aided its adoption by global financial institutions.

11. What are the downsides of using Ripple? Ripple’s biggest problem is its limited and finite supply of XRP. Despite pleas from the Ripple community, Ripple’s developers have adamantly refused to create more XRP, which has led to deflationary and supply problems. The fact that 20 percent of XRP was distributed to Ripple’s founders upon creation has put further pressures on the monetary supply. Additionally, the fact that Ripple cannot be mined eliminates a major incentive to use it. Many cryptocurrency fans have shunned Ripple for these issues, which have proven to be an obstacle to its adoption even as it grows in popularity among financial institutions. Ripple Labs has also gotten in legal trouble before; it was fined by the Financial Crimes Enforcement Network in 2015 for violating the Bank Secrecy Act, and it was sued in 2018 for alleged fraud in attempting to create what was called a “never-ending initial coin offering.” These legal problems have created bad publicity for Ripple that have hurt its growth. Another issue with Ripple is that XRP transactions can be frozen by the system, which is what happened to founder Jed McCaleb when he tried to sell $1 million worth of XRP some years ago. The idea that XRP transactions can be halted by a third party runs counter to the spirit of cryptocurrency and has further fueled criticism of Ripple.

12. What are some ways Ripple is used? Ripple has gained popularity as a mediator in fiat currency exchange. Many currencies cannot be directly exchanged with each other and are required to use the U.S. dollar as a middleman, exchanging money for dollars and then the dollars with the desired currency. Ripple fulfills the same function, but at a considerably lower cost than the U.S. dollar. Ripple has also been used to speed up international financial transactions thanks to its speed of four seconds per transactions, which is not only faster than other cryptocurrencies, it is faster than regular banking systems. Finally, because Ripple allows users to create custom tokens that are backed with XRP, it has been used as a means to create custom currencies for easy transactions. For example, collectors of vintage action figures can create a currency using Ripple to represent the figures, making the process of buying and selling them much simpler.

13. Is Ripple safe? No computer system is 100 percent safe, but Ripple’s purpose as a financial services platform meant to be used by banks means that it has a level of security that most cryptocurrencies lack. From the outset, Ripple was meant to exist within the confines of existing financial law, meaning that it conforms to the same regulations that traditional banking institutions do. While recent legal troubles with Ripple Labs are a cause for concern, Ripple’s widespread adoption in the banking industry has lent it an extra patina of security that it will retain for the foreseeable future.

14. Is Ripple a scam? Many cryptocurrency fans have derided Ripple for its centralized nature (relative to other cryptocurrencies), its lack of support for mining, and some of the other actions of its founders. However, because Ripple has adhered to traditional financial regulations from the outset, it has not suffered many of the problems that other cryptocurrencies have. While Ripple will not replace Bitcoin or other, more traditional cryptocurrencies, its usefulness as a financial services platform has given it a certain longevity.

15. If Ripple is more advanced than Bitcoin, why don’t people use it instead of Bitcoin? Ripple and Bitcoin have two entirely different functions. Bitcoin is intended to function purely as a currency, a means of storing value and allowing financial transactions to occur between users. Ripple is designed as a financial services platform to make transactions easier and more secure. While Ripple is considerably more feature-rich than Bitcoin, this richness of features can be disconcerting to individuals who simply want to use cryptocurrency to invest and make transactions. Bitcoin’s simplicity is precisely what allows it to maintain relevance even when systems like Ripple that are technically more advanced are developed. Additionally, Ripple faces an uphill battle in terms of adoption among many vendors due to the radical differences between it and other cryptocurrencies. Ripple’s static supply of XRP and its lack of support for mining have earned it the derision of many cryptocurrency fans, which has helped limit its adoption in certain sectors. Even to this day, far more merchants accept Bitcoin than XRP, which gives the former a certain heft in the cryptocurrency market. At the end of the day, whether a currency has value is determined by how useful it is to the general public. So long as Bitcoin and Ripple remain useful to a large enough number of people, they will both retain their value and carve out their own niches in the economy.

16. Can I make money with XRP? Like with any investment, Ripple does not guarantee a profit to those who invest in it. However, given Ripple’s enduring popularity and its adoption by banks, it has a certain profit potential that other cryptocurrencies don’t. The versatility of the Ripple network means that users are constantly finding new uses for it, which has helped propel it into the ranks of the world’s most traded cryptocurrencies. It is up to you to determine whether Ripple’s advantages as an investment outweigh its flaws. As always, you should do your research before making any big financial decisions, and you should always invest prudently and cautiously.

Recap

Ripple is a cryptocurrency that offers a suite of security and convenience features that few if any other cryptocurrencies possess. Its consensus-based transaction system frees it from reliance on miners and gives it a stability when it comes to sending or receiving money.

Additionally, Ripple’s compatibility with mainstream fiat currencies gives it a flexibility that most cryptocurrencies lack. The sheer number of financial institutions using Ripple for their transactions has further buttressed its reliability.

Because mining Ripple is impossible, the currency may turn off some cryptocurrency users who are looking to make money with minimal effort.

However, those who are looking for a reliable cryptocurrency and transaction system built into a single package will definitely want to check Ripple out.

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Cryptocurrencies

Ranking the best cryptocurrencies of 2020

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If you are interested in cryptocurrency investing, you’ll obviously want to know which cryptocurrencies (also known as altcoins) you should buy.

While most people are familiar with Bitcoin, there are literally thousands of cryptocurrencies on the Internet, each with differing features and profitability. As a result, first-time crypto users can get lost in the dizzying array of investment options out there.

Many cryptocurrencies are not worth your time because they lack utility, are scams, are barely used, or a combination of the three. Because of this, you’ll want to know what cryptocurrencies are worth investing in and how to identify a good cryptocurrency.

In general, when looking for a cryptocurrency to invest in, you should consider what features it has and how widely it has been adopted by major technology firms, banks, and other notable institutions. Cryptocurrencies that succeed do so because they fulfill unique market niches, providing people with utility and functionality that they otherwise would not have. Initial coin offerings (ICOs) are also worth tracking.

This is our list of the best cryptocurrencies to invest in. While by no means exhaustive, these are cryptocurrencies that we believe offer the best value for your money and the largest growth potential.

10. Litecoin (LTC)

Litecoin is one of the oldest cryptocurrencies still in circulation and has maintained its market share by offering a number of upgrades over Bitcoin, such as improved transaction times.

Launched in 2011, Litecoin distinguished itself from Bitcoin by offering faster transactions via its shorter block generation times. It also boasts faster, more efficient mining than Bitcoin, and was also the first major cryptocurrency to implement Segregated Witness (SegWit) technology, which further reduced transaction times as well as greatly lowered fees.

Because Litecoin originated as a fork of the Bitcoin Core client, its programming is similar to Bitcoin, allowing many merchants and exchanges to offer it as a form of payment. This has helped it maintain a place in the cryptocurrency ecosystem despite increased competition from newer coins.

Litecoin’s age and history of reliability makes it an investment option for those who are worried about taking risks on newer, unproven coins.

9. Cardano (ADA)

Cardano is an Ethereum-esque smart contract platform and virtual machine that is noted for its decentralized consensus system and proof-of-stake algorithm.

Cardano sets itself apart from Ethereum through its Recursive InterNetwork Architecture (RINA). This allows for faster transactions and greater security compared to Ethereum. Several major clients have been attracted to Cardano for its security and computational ability; for example, Greece has begun using it to verify student diplomas.

Because Cardano’s features are unique and its potential has been acknowledged by several major firms, it is worth keeping an eye on.

8. Ripple (XRP)

Ripple is a cryptocurrency and gross real-time settlement system aimed for use by banks and businesses.

More than a cryptocurrency, Ripple is designed to make transactions simpler by allowing rapid exchanges between users and providing a level of computer-based, automated security that is more effective than traditional methods. Because of this, many banks have begun implementing Ripple to replace their outmoded payment settlement systems and upgrade their security.

Ripple has been criticized by cryptocurrency enthusiasts for a number of perceived flaws, such as its centralized nature and the fact that it cannot be mined. However, as a stable investment that has been endorsed by major banking institutions, Ripple is worth a look.

7. Stellar (XLM)

Stellar is an open-source cryptocurrency platform designed to make international monetary transactions simpler and easier.

Based on the Ripple protocol, Stellar is targeted at users who seek to make transactions and exchanges between various fiat currencies. The Stellar platform allows users to make an exchange between any fiat currency in the world. This is exceptionally useful for individuals in the developing world who might otherwise have difficulty exchanging their local currency.

Because of Stellar’s security, reliability, and open-source nature, banking institutions in the developing world have taken an interest in using it to add much needed stability to their services. It has also caught the eye of major corporations such as IBM. These factors make it worth considering as an investment.

6. EOS (EOS)

EOS is a smart contract platform that has gained attention by eliminating transaction fees and rapidly increasing transaction speeds, to the point where it can conduct millions of transactions per second.

A major obstacle when using cryptocurrencies is that they are much slower than traditional payment methods. While credit/debit card transactions are usually instantaneous, cryptocurrencies such as Bitcoin are limited by the fact that miners need to individually process transactions. To speed up transactions, users can elect to pay fees, but as more users join the blockchain, fees increase sharply to deal with the added load.

EOS purports to solve both of these problems through the use of multi-threaded technology, allowing for faster transactions via the use of multiple computer cores. EOS also functions as a computing platform in the same fashion as Ethereum, allowing for the development of decentralized websites such as Steemit, a blogging platform similar to Medium but powered by the EOS blockchain.

Because of these features, EOS has garnered considerable attention from app developers and major corporations, making it worth your time and money.

5. Bitcoin Cash (BCH)

Bitcoin Cash is a fork of Bitcoin that offers most of the same functionality as its mother currency, with the added benefit of improved transaction times.

Bitcoin Cash arose due to a disagreement among Bitcoin users as to how to respond to the increasing amount of transactions on the Bitcoin blockchain. Bitcoin transactions were limited by the cryptocurrency’s relatively low block size, which severely curtailed the number of transactions that could be performed per second. As Bitcoin’s popularity grew, the low block size led to slower transaction times and higher fees, a situation that was untenable.

A number of Bitcoin users sought to remedy the problem by increasing Bitcoin’s block size, which would allow for more transactions per second. Many opposed this, however, arguing that increasing the block size would run counter to Bitcoin’s original purpose. The disagreement led to a hard fork in 2017, in which the Bitcoin blockchain divided into two blockchains: Bitcoin and Bitcoin Cash.

Bitcoin Cash, while not as valuable or popular as Bitcoin, has gained traction among many users due to its faster transactions. Because it is almost identical to Bitcoin, many exchanges and merchants were able to begin offering Bitcoin Cash immediately upon its inception. Some Bitcoin purists dislike Bitcoin Cash and derisively refer to it as “Bcash,” implying that it is a knockoff unworthy of the Bitcoin name.

While Bitcoin Cash has not caught on in the same way that Bitcoin has, it has showed surprising staying power since its inception and is worth considering as an investment.

4. Monero (XMR)

Monero is a cryptocurrency that has become popular due to its anonymity features, allowing users to make transactions in total privacy.

With its inception, Bitcoin was initially touted as more anonymous than credit/debit card transactions, due to the fact that personal information about the users is not incorporated into Bitcoin transactions. While it’s true that Bitcoin is less invasive than traditional online commerce, it is not fully private due to the fact that all transactions are publicly logged on the blockchain. If you know the wallet address of a particular individual, you can track all of that person’s transactions online.

Monero solved this problem by adding additional layers of security. When Monero transactions are made, each transaction is processed with a group of others, making it far more difficult to link transactions to individual users. Monero also uses enforced privacy on all transactions, making it impossible for a user to make an insecure or public transaction.

These features have made Monero popular among black market users and those who are concerned about privacy, causing Monero to become one of the most popular cryptocurrencies in the world. Monero is more difficult to obtain than other major cryptocurrencies due to its use on the dark web, but is worth investing in because of its privacy features and unique applications.

Monero is also one of the best coins for prospective cryptocurrency miners, because unlike other coins, it can easily be mined with home computers. Indeed, Monero is designed to be mined primarily with consumer hardware instead of dedicated mining rigs, privileging average users over those who own expensive equipment.

3. CHAINLINK (LINK)

CHAINLINK is an Ethereum-based cryptocurrency and computing system that has gained considerable attention in recent years for its functionality.

CHAINLINK has become popular due to the fact that it is the first cryptocurrency that has solved a major problem in smart contract development: the use of “oracles.” An oracle is a piece of middleware that interacts with resources that are located outside of a blockchain, meaning they are vital to the execution of smart contracts. For example, if you order an insurance policy on a physical item delivered to your house using a smart contract, the oracle is responsible for informing you when the object will arrive and providing compensation if it is late, stolen, or vanishes in transit.

Smart contract technology is currently being adapted for use in insurance contracts, gambling, securities, and many other functions, including paying employees and subcontractors. The problem with existing oracle technology is it is centralized on the Ethereum blockchain, creating a major security flaw that can be exploited by hackers.

CHAINLINK has solved this issued by creating a network of decentralized oracles that allow smart contracts to access outside data without a single entry point for hackers to abuse. For this reason, CHAINLINK has been adopted by Google, a number of banks, and other major institutions. CHAINLINK has also been endorsed by Nick Szabo, the inventor of smart contract technology.

CHAINLINK’s value has increased rapidly since its inception, with interest spiking after it was adopted by Coinbase, the most popular cryptocurrency exchange in the world, in 2019. Due to the unique role it plays in the cryptocurrency ecosystem and its widespread adoption by developers and corporations, CHAINLINK is a cryptocurrency that is worth keeping your eye on.

2. Ethereum (ETH)

The second-most popular and traded cryptocurrency after Bitcoin, Ethereum has gained attention due to its functionality as a computing platform, allowing developers and institutions to automate many important functions.

More than a cryptocurrency, Ethereum is distinguished from Bitcoin by offering a full-service computational platform that has been used to develop apps and computer programs. The Ethereum Virtual Machine (EVM) has been adopted by numerous banks and other corporations as an integral part of their day-to-day operations.

Ethereum is also known for its use of “smart contracts,” an automated means of engaging in financial or other transactions without the need of human intermediaries. Smart contracts have been used for everything from online casinos to bank security to video games due to their reliability, transparency, and fairness.

Finally, Ethereum allows for the creation of independent tokens on its network, allowing private entities to create their own cryptocurrencies for internal or personal use, backed by the reliability of the Ethereum network. Indeed, a number of other popular cryptocurrencies began as Ethereum tokens before launching their own blockchains, speeding the rate of cryptocurrency and software development, as well as lowering the overall cost.

These features and more have made Ethereum a pillar of cryptocurrency investing, with many private entities and corporations seeking to use its features for various tasks. While more complex to use than Bitcoin, Ethereum’s popularity and utility have made it a favorite among many investors.

1. Bitcoin (BTC)

The original cryptocurrency, Bitcoin has remained strong in the face of competition due to its ease of use and popularity.

As the first major cryptocurrency, Bitcoin is widely accepted among both online merchants and real-world shops, making it possible to use it for many of your purchases. Indeed, many major cities now have Bitcoin ATMs, which allow you to deposit or withdraw money from a Bitcoin address without needing a computer or mobile device.

Bitcoin’s popularity means that it is the easiest cryptocurrency to acquire, since virtually all exchanges carry it, and it can also be obtained through decentralized exchange systems such as LocalBitcoins. While some cryptocurrencies such as Ethereum or Monero have superseded it in terms of features, Bitcoin’s ease of use and reputation of reliability have helped it maintain an overwhelmingly large share of the cryptocurrency market.

The dominance of Bitcoin is so overwhelming that shifts in its price have a significant effect on almost all other cryptocurrencies, meaning that even investors who have no interest in holding Bitcoin should still keep an eye on the Bitcoin market.

If you aren’t interested in following the particulars of the cryptocurrency market but still want to invest, holding Bitcoin is the easiest way to do so. With its value having exponentially increased in the decade since it launched, Bitcoin is a proven investment, one that will maintain relevance in the years to come as cryptocurrency becomes an integral part of the world economy.

FAQ

1. What is an altcoin? An altcoin is any cryptocurrency other than Bitcoin. The term arose due to Bitcoin’s popularity and dominance of the cryptocurrency market. In the time since Bitcoin’s launch, numerous altcoins with various features and functions have been created, with countless more to come in the future.

2. What is an initial coin offering (ICO)? An initial coin offering is when a newly-launched cryptocurrency offers coins for purchase as a means of promotion. The term is derived from initial public offering (IPO), when a company that chooses to become publicly traded starts offering shares of stock to the general public. ICOs are used to engender interest and profit in a cryptocurrency, but they also serve an additional purpose of allowing the cryptocurrency to function in the first place. Since cryptocurrencies operate on consensus decision-making, a certain number of users are required in order for the blockchain to perform transactions. For example, coins that use a proof-of-work algorithm require miners to generate new coins and process transactions between users. ICOs offer prospective investors the ability to get in on a promising new cryptocurrency and make a profit.

3. What is mooning? Mooning is when a cryptocurrency experiences a sudden increase in value. This can occur due to a number of different factors. For example, many ICO investors buy coins with the hope that they will moon shortly after launch, allowing them to sell at a profit. Individual coins can moon due to news events, a sudden increase in trading, or other reasons. One notable example is when CHAINLINK mooned following its addition to the Coinbase exchange in 2019, causing its value to surge from less than $1 to $5 over the course of several days.

4. What is HODLing? “HODL” stands for “hold on for dear life” and refers to a cryptocurrency investing strategy in which users accumulate coins without selling them. HODLers choose to do this because they believe the coins they are buying will dramatically increase in value over the years, and thus they hope to earn major gains from their investments by waiting, in contrast to swing traders who buy low and sell high over the course of days, weeks, or months. HODLers point to the massive increase in Bitcoin’s value since its launch as proof that their strategy is a viable one. HODLing is also a good strategy for those who want to make money from cryptocurrency without investing too much time in it, since it doesn’t require you to constantly check coin prices or follow the news. Having said this, there is no such thing as a sure investment, and there is also no guarantee that HODLing a particular coin will result in a future windfall. As with all investing, it carries its own set of risks.

5. What is the difference between proof-of-work and proof-of-stake? Proof-of-work and proof-of-stake are the most common methods that cryptocurrencies use to generate new coins. Coins that use a proof-of-work algorithm require computers on the network to mine new coins. Mining is a process by which computers solve complex math equations for the blockchain, the process of which creates new coins and facilitates existing transactions. In exchange for lending their computing power to the blockchain’s operations, miners receive a portion of newly generated coins commensurate to the amount of processing power they contribute. Coins that use a proof-of-stake algorithm require users to “stake” coins in the blockchain, generating new coins and preventing the staked coins from being used. In exchange for this, users who stake coins receive a portion of new coins in proportion to the amount of coins they stake. This process is similar to how a savings account works; bank customers who allow their money to be kept in a savings account receive interest as a reward for helping the bank maintain its operations.

6. How do I determine which cryptocurrencies are best to invest in? Because there are thousands of cryptocurrencies on the Internet today and because of the changing nature of the cryptocurrency economy, it is impossible for any one article, website, or book to exhaustively guide you to all of the best investments. However, when seeking out cryptocurrencies to buy, you should use a number of key metrics. Ask yourself if the cryptocurrency has a unique purpose or market; the most popular cryptocurrencies are used because they fulfill certain needs. Examine its development process and how reliable its creators are. Read white papers and determine if the coin has future potential. Look up opinions of other experts; if major cryptocurrency figures endorse an altcoin (such as Nick Szabo’s support of CHAINLINK), this may be an indicator that it is worth buying. Finally, trust your gut. There is no such thing as a guaranteed profit in any kind of investing, including cryptocurrency, and you should weigh your options carefully and avoid taking risks. If you’re not comfortable with an investment, it’s better to be safe than sorry.

7. How do I determine which cryptocurrencies are best for mining? Mining carries greater start-up costs than investing due to the fact that it typically requires users to purchase miners, expensive computer equipment that is dedicated to mining. In general, a good cryptocurrency for mining is one that offers plentiful rewards with a minimum of investment. For example, Bitcoin is a poor choice for budding miners because its deflationary structure and age mean that the only way to mine it is to own entire warehouses full of equipment. In contrast, less popular currencies such as Dash can still be mined, while Monero stands out among cryptocurrencies by allowing home computers to mine it more easily compared to dedicated mining rigs. Additionally, the differing algorithms used by cryptocurrencies means that miners can only mine certain types of coins, while some cryptocurrencies cannot be mined at all because they use a proof-of-stake algorithm instead. Another factor in mining cryptocurrency is electricity. Because miners are energy hogs, depending on the cryptocurrency you choose to mine and your location, your increased energy bill may wipe out any revenue you get from mining. Research cryptocurrencies, mining, and your local energy prices before you make any decisions.

8. Why are there so many different altcoins? Blockchain technology has many different applications, and altcoins have arisen in order to take advantage of its possibilities. For example, Ethereum, one of the most popular altcoins, functions as a computing platform and allows programmers to develop unique apps. Monero’s privacy functions are appealing to those who want to conduct transactions in anonymity. Blockchain technology is relatively new and many developers and corporations want a piece of the pie, and the sheer number of altcoins on the Internet reflects this.

9. Can I become rich from buying cryptocurrency? There is no such thing as a guaranteed way to make money in investing. While many individuals have made money from cryptocurrency investing, anything is possible in the future. As a general rule, you should always do your research before investing and you should never invest money that you can’t afford to lose. Following these principles will allow you to avoid disasters.

10. Are cryptocurrencies safe? This question depends on what cryptocurrency you are using. While the most popular cryptocurrencies have strong security measures, this cannot necessarily be said for newer, less well-known coins. Additionally, there is no such thing as a computer system that is 100 percent hack-proof. Once again, you should always do your research and be aware of the risks before you make any big moves.

Recap

The world of cryptocurrency can seem daunting for newbies. With an array of different altcoins and exchanges, the choices at your disposal are seemingly limitless and daunting.

However, with careful research and a keen eye, you can find cryptocurrencies that are worth investing in, using for day-to-day transactions, or mining.

The cryptocurrencies listed in this article are by no means a complete list, as there are many more altcoins out there that are worth your time. However, they’re a good starting point for first-time cryptocurrency users.

By doing your research and remaining aware of the risks, you can find investment and mining opportunities that fit your needs and goals.

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Cryptocurrencies

Cardano, a top smart contract cryptocurrency

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Cardano (ADA) is a blockchain smart contract technology platform known for running the Ada cryptocurrency.

Launched in 2017, Cardano aims to be an all-in-one cryptocurrency platform featuring smart contracts, side chains, multi-party computation, decentralized applications, metadata, and countless other functions.

Similar to Ethereum, Ripple, and Stellar, Cardano seeks to be far more than a cryptocurrency: its goal is to function as a complete technology and financial platform, meeting the needs of 21st century finance.

While still relatively young, Cardano’s rapid development, suite of features, and technological pedigree have caused it to become one of the hottest cryptocurrencies. Interest in Cardano is only sure to increase once more of its features come online.

Crypto investors with an interest in smart contract platforms would do well to check Cardano out, because it promises a number of innovations that will allow it to possibly outcompete Ethereum, Ripple, and other competitors in the market.

Overview

Cardano was launched on September 27, 2017 by Input Output Hong Kong (IOHK), a blockchain development firm led by Charles Hoskinson, best known as the co-founder of Ethereum. (1) (2)

Cardano is primarily distinguished from Ethereum by its use of a Recursive InterNetwork Architecture (RINA), which allows for faster transactions and more security compared to other smart contract platforms. (3)

Similarly to Stellar, Cardano also uses a system of decentralized consensus in order to maintain order on the blockchain and verify transactions. All machines connected to the Cardano network participate in vetting transactions, making it impossible for any one actor to take control of the network and misuse it. Any machine connected to the Cardano network can participate in this process, though as with Stellar, not all machines will be treated equally. (4)

As part of its decentralized consensus model, Cardano uses the Ouroboros proof-of-stake algorithm to verify the integrity of transactions. Cardano designates anyone who participates in the verification of transactions as a “slot leader,” whose job is to generate new blocks in the blockchain. Anyone who owns a Cardano Ada coin is automatically regarded as a slot leader. (5)

Most notably, Cardano features a unique ledger design that was created to increase the flexibility of smart contracts utilized on the network. Cardano’s ledger separates account values from the logic behind why values are moved from one account to another, which distinguishes it from virtually every other cryptocurrency, where both entities are lumped together. This promises to make Cardano one of the best platforms for arranging sensitive financial transactions. (6) (7)

In addition to all these innovations, IOHK is currently developing a virtual machine for Cardano, along the lines of Ethereum’s EVM, which will increase the platform’s computational ability. Cardano is also implementing Plutus, a smart contract programming language designed to secure buyers and sellers from security breaches. Future updates will allow users to create apps in other programming languages, such as C, Java, and JavaScript. (8)

IOHK has stated that their primary objective with Cardano is to develop a platform that makes it possible to implement banking systems in areas where they have traditionally been too expensive to implement. Several practical implementations of Cardano have already been achieved. For example, Greece’s national education and research network has begun using Cardano to verify student diplomas. (9) (10)

While Cardano is still quite young, its pedigree as a creation of Ethereum’s co-founder, its existing features, and its ambitious development schedule have made it a cryptocurrency to watch. If you have an interest in smart contract platforms, Cardano is worth adding to your portfolio.

Mining

Like Ripple and Stellar, it is not possible to mine Cardano, but it is possible to increase your stash of it by using its unique architecture.

Cardano’s proprietary cryptocurrency Ada (named after Ada Lovelace, one of the inventors of the computer) uses a proof-of-stake algorithm instead of a proof-of-work algorithm like Bitcoin and most cryptocurrencies. This means that new coins are generated on the network not through mining, but through the coins that are already existent. (11)

What this means is that anyone who owns Ada coins and is connected to the Cardano network via a Daedalus wallet (the official wallet of Cardano) can receive additional Ada without doing anything. Even better, some Ada holders can receive transaction fees if their personal stash is large enough. It’s akin to receiving interest in a savings account, with the caveat that a user must keep their Daedalus wallet online in order for it to work. (12)

Effectively, this means that any Cardano holder can participate in the growth of the Ada supply and also make money without having to invest in expensive computer hardware.

FAQ

1. What is Cardano? Cardano is a decentralized smart contract platform powered by blockchain technology and utilizing the ADA cryptocurrency. Cardano’s purpose is to serve as an all-purpose computing and currency solution, incorporating application development, smart contracts, metadata, and many other features. While still under development, Cardano has already attracted attention from major players due to its existing offerings and future potential.

2. What makes Cardano different from Bitcoin or Ethereum? As a smart contract platform, Cardano has more in common with Ethereum than Bitcoin, which is merely a cryptocurrency. Cardano’s main difference compared to Ethereum is that it uses Recursive InterNetwork Architecture (RINA), which makes transactions much faster and more secure.

3. Who created Cardano? Cardano was launched in 2017 by Charles Hoskinson, one of the co-founders of Ethereum. Development is managed by Hoskinson’s company, Input Output Hong Kong (IOHK), and was intended as a means to launch banking systems in areas of the world where they have traditionally been too costly or risky to implement. While initially similar to Ethereum, Cardano quickly distinguished itself by offering a low-cost, independently verifiable banking system that cannot be tampered with or is otherwise at risk of human error or corruption.

4. Who controls Cardano? Development of Cardano is handled by Input Output Hong Kong. Unlike other platforms such as Stellar, Cardano is not open-source.

5. How does Cardano work? In a fashion similar to Ethereum and other blockchain-powered platforms, Cardano uses a decentralized consensus process in order to verify transactions. All machines that are connected to the Cardano network are responsible for processing transactions, meaning that individual actors cannot hijack the network or otherwise take advantage of it. As part of this process, Cardano uses the Ouroboros proof-of-stake algorithm to check the integrity of all transactions. The Cardano network uses the term “slot leader” to describe any machine that participates in the verification process. Any user that owns Ada (Cardano’s native cryptocurrency) is eligible to become a slot leader and participate in the governance of the network. In addition to this, Cardano features a unique smart contract system which separates account values from the logic behind why those values are transferred between accounts, a sharp contrast from platforms like Ethereum where both of these entities are merged together. Because of this additional security feature, Cardano

6. What is Cardano used for? As mentioned above, Cardano’s original purpose was to make implementing banking systems less cumbersome and expensive. It has already seen a number of practical implementations; for example, Greece’s educational authorities use Cardano to verify student diplomas. IOHK is also developing a virtual machine for Cardano similar to the EVM system used by Ethereum, which will considerably strength the computing power of the network. In addition to this, IOHK plans to add a new smart contract programming language called Plutus that will further insulate users from security breaches, and it is also working on adding compatibility with more traditional programming languages such as C and Java. IOHK’s intent is for Cardano to serve as an all-purpose transactional and computing platform, which is what has drawn interest from crypto enthusiasts and serious banking clients.

7. What is Ada? Ada is the base token of the Cardano network, similar to how Ether is the base cryptocurrency of Ethereum and XRP is the base cryptocurrency of Ripple. Similar to other cryptocurrencies, Ada is kept in wallets and can be bought, sold, or traded via exchanges and direct transactions.

8. What makes Ada valuable? All currencies, including normal fiat currencies and cryptocurrencies, have value because people see them as valuable. Cardano’s potential as a computational and smart contract platform has given Ada value in the cryptocurrency community, and its practical applications have also drawn considerable attention.

9. Where does Ada come from? New Ada tokens are generated via a proof-of-stake mechanism, whereby existing Ada holders pool their computational power to ensure the network’s continued operation and receive newly generated coins in return. Machines who contribute to the Cardano network in this manner are called “slot holders” and all those who hold Ada coins are eligible to participate in the network’s governance. This is a stark contrast with Ethereum, where new coins are generated via mining, and Ripple, where the supply of XRP is fixed and unchanging.

10. How does one obtain Ada? Ada can be bought, sold, and traded via exchanges and direct transactions. To receive or send Ada, you must possess a wallet, a digital tool that is designed to store an infinite amount of Ada. Wallets can be found for free online and also come in hardware form. Wallets are identified on the Cardano network through wallet addresses. In order to send Ada to another user, you must possess their wallet address; the reverse is true if you wish to receive Ada. Wallet addresses are rendered as a series of numbers and letters, though as with other cryptocurrencies, they can also be generated as QR codes that you can use with a smartphone or other mobile device. If you already possess Ada, you can obtain more by staking your Ada via the Cardano network. While staked tokens cannot be moved or sold, you will receive additional Ada in proportion with the amount of Ada you have staked to the network. Think of it like a savings account, where you earn interest in proportion to the amount of money you have saved.

11. What are the upsides of using Cardano? As a smart contract platform, Cardano has greater utility and versatility than cryptocurrencies like Bitcoin, who lack its additional features. Cardano boasts a number of features that differentiate itself from other smart contract platforms such as Ethereum, most notably its separated contract validation system and Ouroboros proof-of-stake technology. For individuals who need to make sensitive financial transactions, Cardano’s focus on security makes it an attractive option, and its transaction speed is considerably faster than Ethereum’s due to its unique architecture. The implementation of the Plutus language will add a further layer of security and also potentially make Cardano a more appealing platform for those interested in smart contract transactions. Finally, as a cryptocurrency platform, Cardano possesses all the advantages that cryptocurrencies bring, such as low transaction fees, payment freedom, and worldwide availability.

12. What are the downsides of using Cardano? As a cryptocurrency platform, Cardano suffers all the problems associated with cryptocurrencies, such as constantly changing value, sluggish transaction speeds compared to more traditional banking methods, and a lack of acceptance among merchants. Cardano is not as well-known as other major cryptocurrencies and platforms such as Ethereum and Bitcoin and is subsequently more difficult to use. In addition to this, many of Cardano’s features are not fully implemented, meaning that much of its value is theoretical. Technological changes in the future may lead to Cardano becoming much different than its creators’ original plans, a factor that should be considered when investing in the platform. Finally, Cardano cannot be mined, which is a demerit for more hardcore cryptocurrency users.

13. Is Cardano safe? No currency or financial instrument is 100 percent safe. Investment carries an inherent risk; you are using some of your money to fuel growth in a business or asset with the hope that you will see a return on what you spent. Cardano’s attractiveness as an investment is fueled by its enhanced security protocols compared to other cryptocurrencies as well as its future potential, such as its implementation of a virtual machine and its use as a low-cost, low-risk banking platforms. While Cardano shows opportunity for growth, the future is unpredictable and many of its proposed developments may not work out as planned. This means that, like any other investment, there are no guarantees with Cardano. Before investing in any cryptocurrency—or indeed investing in anything at all—you should carefully consider the risks. By doing your homework and going into investing with a clear mind, you will be able to minimize your risk potential and improve your chances of earning a return on what you put in.

14. Is Cardano a scam? As noted above, Cardano’s security protocols have allowed it to avoid the scandals that have affected Ethereum, Ripple, and similar platforms. Cardano’s adoption by governments and financial institutions show that it possesses a level of trustworthiness that make it a worthwhile investment. While there is no telling how the platform might evolve in the future, Cardano’s basic structure gives it a value and security that few cryptocurrencies can rival.

15. If Cardano is more advanced than Ethereum and other cryptocurrencies, why don’t people use it instead? Cardano serves a different purpose than other cryptocurrencies. In contrast to Bitcoin, which is merely a store of value, Cardano offers a full-service computational and smart contract platform, making it attractive for developers and other individuals beyond investors. As for Ethereum, Cardano’s additional security features make it ideal for those who are concerned about security and privacy when it comes to their financial transactions. Finally, many of Cardano’s features are not fully implemented yet, meaning that some investors will favor more developed platforms such as Ethereum. This could change in the future as Cardano is improved by IOHK, but for now, Cardano occupies a separate niche in the cryptocurrency world, which is why it can coexist alongside other currencies and smart contract platforms.

16. Can Ada be mined? Ada cannot be mined due to the fact that Cardano uses a proof-of-stake system to generate new coins. Many cryptocurrencies such as Bitcoin use a proof-of-work system, in which computers solve math equations and process blockchain transactions in exchange for a share of new coins generated, a process colloquially known as “mining.” Proof-of-stake cryptocurrencies generate new coins by having existing coin holders stake their coins in the network to process transactions, receiving new coins in proportion to the amount of tokens that they stake. This considerably lowers the barrier to earning money with Ada, since you don’t need expensive computer hardware in order to generate new coins; you simply need a Cardano wallet with Ada that has been staked. However, because Cardano generates new coins in this fashion, you cannot mine Ada as a result.

17. Can I make money with Cardano? Cardano’s adoption by banking institutions indicates that major financial players consider it a worthwhile investment. While there are no guarantees of profit when it comes to investing, by researching carefully and not making any rash decisions, you can make money by investing in Cardano. An additional consideration is that many of Cardano’s promised features have not come online yet, and the value of Ada will likely increase when they do. Always do your homework before you make any financial decisions.

18. How is the price of Ada determined? Like any other currency or commodity, Ada’s price is governed by the law of supply and demand. The value of Ada and other cryptocurrencies is somewhat volatile due to the fact that supply is limited due to the fact that new coins are generated through a proof-of-stake mechanism. However, Cardano will retain a certain degree of value so long as other people find it to be a useful platform.

19. Could Ada ever become worthless? There is no such thing as a currency or commodity with an eternal, unfixed value. Numerous currencies have become worthless over the centuries due to government malfeasance, economic collapse, and other factors. As such, there will always be a risk that Ada’s value could drop to zero. Ada is currently valuable due to the fact that investors and financial institutions find it to be an attractive platform, but that could change in the future due to various unknown factors. As such, you should take this into consideration when making your investment decisions.

Recap

Smart contract cryptocurrencies represent the next generation of crypto: beyond merely serving as stores of value, they function as entire financial and banking systems unto themselves. Ethereum and Ripple have led the pack when it comes to smart contract cryptos, but Cardano is quickly catching up due to its advanced features.

Cardano’s unique programming language and use of decentralized consensus has helped build it into a robust smart contract system, offering security and speed beyond that of Ethereum and Ripple. Without a centralized authority to dominate the blockchain, Cardano’s growth is only limited by its userbase, which is exploding every day.

Most importantly, Cardano’s proof-of-stake algorithm makes it one of the easiest ways for long-term crypto investors to grow their bag. Without having to invest in ASIC miners or purchase expensive computers, Cardano users can participate in the network’s growth, verify transactions, and make a tidy profit all at the same time. Few cryptocurrencies can match this level of benefits to their users.

Cardano’s major demerit is that it is not very old and is untested to a certain degree. However, the currency has proven itself through both its suite of features and the unique ways that people have found to use it.

If you have an interest in smart contract cryptocurrencies, looking into Cardano is worth your time. It promises to be one of the leading currencies in its market and potentially a pillar of world finance in the future, so it behooves you to get involved now.

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Cryptocurrencies

Stellar, the protocol for the future of money

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Stellar (XLM) is an open-source value exchange protocol and cryptocurrency designed to make exchanging money simple and easy.

Founded in 2014 and based on Ripple, Stellar has since forked into its own project with an entirely separate network and modus operandi. Stellar’s primary purpose is to function as a real-time gross settlement and remittance system, making financial transactions simple and easy and backing them with the power of the blockchain.

Since its founding, Stellar has taken its place alongside Ripple, Ethereum, and other similar cryptocurrencies to provide an all-in-one network for exchanging money and value, giving it a stability and resiliency that many cryptocurrencies lack.

For these reasons, Stellar is a worthwhile investment for your crypto portfolio.

Overview

Stellar was founded in 2014 by Jeb McCaleb, one of the creators of Ripple and the creator of eDonkey, an early peer-to-peer file sharing protocol that preceded Napster, LimeWire and similar services. McCaleb is also known as the founder of the now-shuttered Bitcoin exchange Mt. Gox, though he sold it to Mark Karpelès not long after creating it. Stellar’s development is headed by the nonprofit Stellar Development Foundation. (1) (2)

Initially based on the Ripple protocol, Stellar introduced a number of changes to its code that fundamentally diverged it from Ripple. Not long after Stellar’s foundation, it was forked from Ripple and became its own entity. In response, the Stellar Development Foundation created a new consensus algorithm for the network, bringing it online in 2015. Stellar and Ripple have since diverged so much that there is no compatibility and almost no code shared between the two platforms. (3) (4)

Similarly to Ripple, Stellar is not simply a cryptocurrency, but is designed as an all-in-one network for financial transactions. Stellar exists as a software protocol on financial servers and uses the Internet to form a global network for exchanging money. Unlike Ripple, which is centralized and proprietary, Stellar is an open-source platform that utilizes an open ledger which anyone can view and contribute to. (5)

Stellar’s central ledger is changed whenever users on the network engage in transactions. Utilizing Stellar’s central consensus protocol, transactions are monitored and changes to the ledger are made according to agreement among all servers connected to the Stellar network. This is a fundamental difference from Ripple in that no one entity or individual can take control of the Stellar network, since agreement on ledger changes must be obtained from all parties involved in Stellar. (6) (7)

This open-source approach to transaction validation gives Stellar more flexibility than Ripple, since any machine connected to the Stellar network can participate in the validation of transactions, though not all machines will be treated equally. Additionally, Stellar is much friendlier towards third-party developers than Ripple, encouraging creators to design their own add-ons and projects for the Stellar network and helping to raise money for their work. (8)

Stellar’s open-source nature has made it a hit among financial institutions in the developing world who are seeking stable and reliable platforms to build on. For example, the banking software company Oradian has begun using the Stellar network to connect and coordinate operations between microfinance institutions in Nigeria, while other similar partnerships have since been unveiled in India, sub-Saharan Africa, and the Philippines. (9) (10)

Stellar has also gained traction in the developed world as an alternative to Ripple and traditional banking mechanisms. In 2017, Stellar and IBM formed a partnership designed to increase the speed of the Stellar network and improve the efficiency of transactions. IBM also seeks to use Stellar to develop a new “cross-borders payment solution” to make transferring money around the world an easy and painless process. (11) (12)

Stellar is also distinguished from Ripple by its inflationary structure. While Ripple works to keep the amount of currency in circulation stable, Stellar automatically increases its money supply by one percent each year. This rate of increase is hard-coded into the system and cannot be modified by miners or any other entity. (13)

It’s because of all this that Stellar has become a worthwhile investment option for cryptocurrency traders interested in “smart contract” currencies. Like Ethereum and Ripple, Stellar’s framework for financial transactions gives it a strength that gives it extra credibility in the world of traditional finance.

Mining

Like Ripple, it is not possible for individuals to mine Stellar.

At the inception of the Stellar network, 100 billion Stellars were created. The only way that additional Stellars can be made is through the aforementioned inflationary structure, which caps the increase by one percent each year. This inflation happens automatically on a weekly basis, with the new Stellars created distributed throughout the network via direct voting. (14)

Because of this, mining Stellar is impossible; the only way to obtain Stellar is to buy it via an exchange, buy it via the Stellar network directly, or receive it as a result of inflation voting.

FAQ

1. What is Stellar? Stellar is a decentralized digital-to-fiat currency transfer protocol. Its original purpose was to facilitate money transfers between different currencies in a quick and inexpensive fashion. The Stellar network uses Lumens as its native token, similar to how Ethereum uses Ether or Ripple uses XRP. Stellar has since been embraced by various services who seek to offer multi-currency payment systems.

2. What makes Stellar different from Bitcoin or Ethereum? Stellar is similar to Ethereum in that it is designed to be a fully-fledged payment system and not merely a currency. In this, it is distinguished from Bitcoin in that it has a large number of functions beyond merely serving as a medium of exchange. Stellar is specifically designed to function as an intermediary for fiat currency transfers, making it an able tool for those who want to deal in multiple currencies easily.

3. Who created Stellar? Stellar was founded in 2014 by Jeb McCaleb, who is best-known for his role in founding Ripple. He was also responsible for creating eDonkey, a peer-to-peer file-sharing protocol similar to Napster, as well as the once-famous Bitcoin exchange Mt. Gox, though he sold the exchange to Mark Karpelès shortly after its founding. Initially similar to Ripple and sharing code and functionality with the platform, the two have since diverged considerably. Stellar is an open-source platform that allows any developer to contribute to its advancement. Additionally, in contrast to Ripple’s centralized system for verifying transactions, Stellar uses a ledger system that is more in line with Bitcoin and other cryptocurrencies that operate on a consensus model.

4. Who controls Stellar? The development of Stellar is officially helmed by the Stellar Development Foundation, a nonprofit. However, as an open-source platform, independent developers can freely contribute to Stellar if they wish. Additionally, Stellar operates on a consensus model, with changes to the system only possible if a majority of users consent to them. This makes Stellar more similar to decentralized crypto platforms such as Ethereum.

5. Why was Stellar created? Stellar’s original purpose was to serve as a middleman for fiat currency exchanges. Given the increasingly interconnected world economy, demand has increased for easy, low-cost exchange services, particularly among residents of developing economies who work for foreign clients. However, converting currencies can be difficult and costly, particularly when it comes to less-popular currencies that do not play a large role in international finance. Stellar was developed as a means to allow individuals to convert from one fiat currency to another without paying expensive fees or enduring long transaction times. This friendliness to finance in the developing world has made Stellar popular among banking institutions in poorer and less-developed countries. For example, the Stellar network is now utilized for microfinance transactions in Nigeria, the Philippines, and other developing countries. Given the often-shaky nature of finance in the developing world, Stellar lends a stability and trustworthiness that is badly needed in these countries. Stellar’s currency exchange functionality has also attracted the attention of international finance and technology firms, with IBM seeking to use the Stellar network to develop cross-border payment platforms that make transferring money around the world a simple process.

6. What are Lumens? Lumens are the base cryptocurrency of the Stellar network, akin to how XRP serves as the base cryptocurrency of Ripple. Like other cryptocurrencies, Lumens can be bought, sold, and traded at exchanges and via wallets.

7. What makes Lumens valuable? Lumens are valuable because people find utility in them, same as any other currency, fiat or crypto. Stellar’s usefulness as a cross-currency trading platform has helped Lumens become a valuable commodity in the cryptocurrency economy.

8. Where do Lumens come from? Upon the launch of the Stellar network, 100 billion Lumens were created. Additional Lumens are created through an inflationary structure in which the overall supply increases by one percent each year. This process is initiated once per week, and the new Lumens are distributed throughout the network via a direct voting process. This is another crucial difference between Stellar and Ripple, the latter of which has a fixed and unchanging supply of currency in circulation.

9. How does one obtain Lumens? Similarly to other cryptocurrencies, Lumens can be purchased, sold, or traded. Unlike other cryptocurrencies, Lumens cannot be mined due to the fact that the only way to increase the Lumen supply is through the inflationary process. Lumens are kept in wallets, digital or hardware units that can contain an infinite supply of Lumens. Wallet addresses are used to identify individual wallets on the Stellar network and transfer Lumens between users. To send Lumens, you must obtain the wallet address of the person you are sending it to; to receive them, you must provide your wallet address to the sender. Wallet addresses are rendered as a series of numbers and letters, though they can also be generated as QR codes to expedite transfers using a mobile device.

10. What are the upsides of using Stellar? Stellar, as mentioned above, is tailored towards users who need to quickly and cheaply convert money from one fiat currency to another. If you need to make frequent exchanges between various currency pairs, Stellar is an ideal platform to use. While similar to Ripple in many respects, Stellar’s open-source nature and its decentralized control structure give it an antifragile nature that make it better for certain types of computing and financial tasks. Finally, Stellar possesses many of the existing advantages of cryptocurrencies, including low transaction fees, worldwide functionality, and total payment freedom.

11. What are the downsides of using Stellar? As a cryptocurrency platform, Stellar suffers from many of its downsides, such as a lack of acceptance among merchants, sometimes-slow transactions due to the necessity of blockchain verification, and constantly fluctuating value. Additionally, as a relatively new platform, many of Stellar’s promised features have yet to be implemented or have only been implemented in a basic form. Because of the unpredictability with which the Stellar platform may evolve, the network may exist in an entirely different form years down the line. Finally, Stellar cannot be mined, which is a turnoff for some power crypto users.

12. What are some ways that Stellar is used? Due to its original function as a middleman for fiat currency transactions, Stellar is frequently used as a platform to exchange various types of fiat currencies. While Ripple has also been used for this purpose, Stellar’s decentralized, open-source structure makes it far easier to implement the platform for use in developing countries, where options to convert currency are far more limited. As mentioned above, financial and technology giants have also begun using Stellar in order to speed and simplify cross-border payment processing in a manner similar to more conventional platforms such as TransferWise. Due to Stellar’s relative newness, new uses for the platform are still being theorized and developed.

13. Is Stellar safe? No currency or financial system, including crypto and fiat, is 100 percent safe from abuse. However, Stellar has introduced a number of innovation that arguably make it safer than Ripple, from which it is descended. Decentralized control of the Stellar network makes it virtually impossible for individual actors to take control of Stellar due to the fact that network consensus is necessary in order to introduce major changes. Open-source development also allows a faster rate of innovation compared to Ripple, as users are able to contribute to the platform’s advancement instead of waiting for updates to be pushed forward by the Stellar Development Foundation. It is in part because of this that Stellar has avoided some of the scandals that Ripple has been involved in, including being fined for violating the Bank Secrecy Act in 2015. While the future of Stellar is not guaranteed, thus far it has been proven to be a reliable store of value and transaction system.

14. Is Stellar a scam? As mentioned above, Stellar has avoided many of the problems that have plagued Ripple, most of which stem from Ripple’s centralized control and opaque development process. Stellar’s widespread adoption among financial institutions in the developing world is precisely because it provides a level of banking security that is often hard to come by in these countries. While there is no telling how the platform will continue to evolve in the future, at the moment, Stellar has proven itself to be a trustworthy means of exchange.

15. If Stellar is more advanced than Bitcoin and other cryptocurrencies, why don’t people use it instead of Bitcoin? While Stellar may technically boast superior functionality in some areas compared to Bitcoin, Ethereum, or Ripple, it ultimately serves a different purpose. Pure cryptocurrencies such as Bitcoin are not designed to facilitate financial transaction or aid banking security; they are intended purely as a source of value and exchange. Stellar is designed not merely to be a currency, but to be an all-in-one network for the facilitation of cross-border payment exchange. This means that it will inevitably be used by those who are looking for different features and functions than other cryptocurrencies can offer. Ultimately, Stellar serves a different function than other cryptocurrencies that lack its feature set, and this means there will be a place for all of these currencies in the crypto ecosystem for the near future.

16. Can Stellar Lumens be mined? Unfortunately, no. This is because Stellar does not use a proof-of-work system for creating coins, in which miners are responsible for processing transactions. Uniquely, Stellar also does not use a proof-of-stake system either. Instead, additional Lumens are created through a process known as inflation voting. The Stellar network automatically increases the supply of Lumens by one percent each year, a process that occurs automatically each week in order to prevent rapid inflation and devaluation of the currency’s value. Systems that are connected to the Stellar network are eligible to receive additional Lumens through a voting process that occurs automatically. It is unlikely that this system will be changed, meaning that inflation voting is the only way to receive new Lumens, aside from purchasing them directly.

17. Can I make money with Stellar? It is possible to make money with any investment provided you do your research and make prudent decisions. Stellar’s adoption as a cross-border payments system has fueled much of its popularity, particularly with financial institutions in the developing world. It also possesses a number of inbuilt advantages over Ripple, namely its lack of centralization and its open-source nature. However, there is no such thing as a guaranteed payoff; all investments, including cryptocurrency investments, carry risks. To safeguard yourself, you should determine beforehand what your investment goals are and never invest money that you can’t afford to lose. If you go into it with a clear head, you can use the Stellar network to make money.

18. How is the price of Stellar Lumens determined? Like all currencies and commodities, Lumens are governed by the law of supply and demand. Due to Stellar’s unique system of increasing the monetary supply via inflation voting, Stellar Lumens have a more consistent price than other cryptocurrencies, though they are still subject to the peaks and valleys that are common in crypto investing. As mentioned above, however, Stellar Lumens will retain value so long as investors and financial institutions believe that Stellar has inherent value.

19. Could Stellar Lumens ever become worthless? Yes, due to the fact that many currencies and commodities have suddenly lost their value over the centuries. No currency that has ever existed has ever maintained a fixed, unchanging value; currencies retain value so long as users find them valuable. While Stellar Lumens have accumulated considerable value in the short time that Stellar has been active, there is no guarantee of what might happen in the future, so take that into consideration when making your investing decisions.

Recap

Stellar may have begun life as an offshoot of Ripple, but its developers have taken it in a decidedly different direction, establishing it as one of the hottest commodities in the “smart contract” tranche of cryptocurrencies.

Stellar provides the advantage of a robust computer network with which to process and tabulate financial transactions, coupled with a decentralized structure that makes the network impossible to hijack or hack. Stellar provides solid technical and economic backing for a wide variety of projects, particularly those reliant on open-source software and solutions.

Furthermore, the Stellar Development Foundation’s support for third-party development has helped the currency grow by leaps and bounds, allowing it to compete with Ripple’s superior marketing and centralized structure.

For cryptocurrency investors, Stellar is worth keeping an eye on for these reasons. Smart contract cryptos such as Stellar, Ethereum, and Ripple represent a new evolution in blockchain technology. Beyond serving as a store of value and a transaction mechanism, cryptocurrencies like Stellar provide all the necessary tools and infrastructure to serve as financial platforms in and of themselves.

It is because of this that Stellar is a worthy investment for crypto investors looking to diversify their portfolios. Few cryptocurrencies can match the stability, reliability, and potential for growth that it has.

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