What cryptocurrencies have in common
Cryptocurrencies are created utilizing blockchain technology, which use a distributed ledger to create, track, and administer digital currency. Consider it a running digital receipt of all money transactions, complete with a list of who owns which currency and how much.
This “receipt” is regularly checked by a decentralized network of computers, assisting in the prevention of fraud and maintaining the currency's proper functioning and accounting.
Cryptocurrency is “mined” by powerful computers known as miners, who perform difficult mathematical operations to generate coins. They also earn coins by executing cash transactions.
There are thousands of cryptocurrencies, and any number might be produced using comparable blockchain technology. Although the FBI and IRS are getting better at tracing transactions and shutting accounts, cryptocurrency allows users to move money semi-anonymously.
Key differences among three popular cryptocurrencies
Cryptocurrencies can be formed for a variety of reasons, and each one may occupy a different area of the crypto universe. The table below summarizes several important distinctions between Bitcoin, Ethereum, and Dogecoin, each of which serves a specific function and has a limited quantity of coins.
Purpose of the cryptocurrency
Each of these three cryptocurrencies was developed for a specific reason. Notably, Dogecoin was a spoof on Bitcoin's burgeoning popularity and the doge meme, depicting a charming Shiba Inu. Meanwhile, Bitcoin and Ethereum were established for more serious goals, such as actual transaction facilitation or serving as a store of value.
Market capitalization
The market capitalization of each is calculated by multiplying the total number of coins in circulation by the current trading price, and there is a significant difference. According to CoinMarketCap, Bitcoin is the largest, with Ethereum a distant second and Dogecoin among the top ten. Traders congregate around the most popular cryptocurrencies, and volume falls precipitously below the top 20.
While these currencies are popular among traders, Bitcoin has emerged as the mainstream currency. Bitcoin is becoming more accessible, with several ways to buy or store the currency that rely on current platforms like PayPal or Robinhood. Of course, traders can also use popular apps to purchase a variety of cryptocurrencies.
Coin issuance
It's also worth noting how many coins each cryptocurrency may issue. Many traders have drawn to Bitcoin due to its strict issue cap of 21 million. If money continues to pour into Bitcoin and demand rises, the price will almost certainly rise over time. While this is excellent for traders, it makes Bitcoin less useful as a money.
In contrast, Ethereum's issuance is limitless, but it follows a set schedule, which may impede the production of new currencies. Meanwhile, Dogecoin manufacturing is limitless, which is part of the joke. The currency's value skyrocketed in 2021, increasing from around a half-penny a coin on Jan. 1 to more over $0.60 in May, despite the currency's infinite supply. However, the coin trended lower through the course of 2021 and far into 2022.
Bottom line
If you're thinking of trading cryptocurrencies, you should know that they're not all created equal. Some characteristics, such as Bitcoin's limited issuance, may make a currency more appealing than others, at least over time. However, cryptocurrency is driven by sentiment in the near term, so even something designed as a joke and with unlimited supply may rally strongly if a wave of enthusiasm rolls in. “Wow,” as a popular doge meme may say.