Looking Beyond Bitcoin: Ethereum & Other Cryptocurrencies

You've heard of Bitcoin, but there are other cryptocurrencies that are also gaining popularity. Ethereum, Litecoin, Altcoin, Dogecoin. What are the differences?

https://tickertapecdn.tdameritrade.com/assets/images/pages/md/Cryptocurrency types and risks for investors
5 min read
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Key Takeaways

  • Though bitcoin remains the largest and most widely traded cryptocurrency, there are more than 2100 others
  • Types include transactional, utility, and platform cryptocurrencies
  • Learn how TD Ameritrade clients can apply for an ErisX cryptocurrency trading account via the thinkorswim platform

Bitcoin typically commands much of the spotlight on the world’s cryptocurrency stage, and for good reason: it’s by far the largest by market capitalization, and it’s the one most actively traded. But there are many other crypto fish in the sea. Ethereum, Litecoin, Ripple, and Zcash are just a few of the other crypto tokens and coins (often referred to as “altcoins”) changing hands every day.

So many cryptocurrencies to ponder—more than 2,100 currently worldwide, according to CoinMarketCap—with a variety of uses and cheeky names (TurtleCoin, HappyCoin, HempCoin to name a few). But where to start for an investor who wants to learn more?

Researching a few of the broader cryptocurrency categories is a good place to dive in, market professionals say. You might consider learning a few basics of Bitcoin as well as blockchain, the distributed ledger technology on which it and many other cryptocurrencies are based. It’s also important to understand how cryptocurrencies trade and their many risks.

Remember: The term “cryptocurrency” can be misleading because it doesn’t necessarily capture the differences in technology, incentives, and structure among various coins and tokens, says Phil Glazer, an investor with Maschmeyer Group Ventures, a San Francisco–based venture capital firm.

Although “cryptocurrency” conveys certain attributes that define some coins—such as a means of storing value and paying for things—the term “fails to capture the nuances and capabilities of other coins,” Glazer wrote in a recent blog post. In fact, there are several different types of cryptocurrencies. Let’s take a look at the top categories.

1. “Currency,” “Transactional,” or “Store of Value” Cryptocurrencies (Bitcoin, Bitcoin Cash, Litecoin)

Probably the most familiar of the major categories, these cryptocurrencies are used as a means of exchange for goods and services. They’re similar to traditional fiat currencies, such as the U.S. dollar, in that their price at any given moment reflects the value people attribute to it. A key difference, however: many see transactional cryptocurrencies as a way to eliminate the need for government-issued currency.

2. “Utility” Cryptocurrencies (Ethereum, Filecoin, Ripple)

Utility cryptocurrencies are designed for a specific task. They represent “something new,” Glazer says, by creating an infrastructure on which to build a means of storage or verification.

For example, Ethereum allows users to facilitate transfer of ownership through “smart” contracts, in which a token is attached to, and thus verifies, legal documents and other agreements. Another utility cryptocurrency, Filecoin, creates a decentralized storage network, providing users a new way to store and retrieve data.

3. “App” or “Platform” Cryptocurrencies (Augur, Ethereum, NEO)

These cryptocurrencies are designed for specific applications—to eliminate middlemen or create markets—and are often built on top of utility cryptocurrencies (some consider Ethereum a platform cryptocurrency). Augur, for example, is a decentralized prediction market built on top of Ethereum where users can find and place bets on elections or sports outcomes, Glazer notes.

Some market professionals break down cryptocurrencies into additional categories, including “privacy” cryptocurrencies, fintech cryptocurrencies, and application-specific “coins.” There are also cryptocurrency-based futures contracts.

What about specific cryptocurrencies that aren’t as big as Bitcoin, but still may be worth following?

According to financial researcher Prableen Bajpai, there are at least six “important” cryptocurrencies other than Bitcoin: Dash, Ethereum, Litecoin, Monero, Ripple, and Zcash. The following are brief descriptions of each, based in part on a recent article by Bajpai, along with the currency’s market capitalization as of April 2019, according to CoinMarketCap figures.

A Shifting Regulatory Environment

Now that you have a better sense of how cryptocurrencies work and how they differ, keep in mind the many, many risks. First, authorities are still getting the regulatory infrastructure in place regarding cryptocurrencies. 

Interested in trading cryptocurrency?

TD Ameritrade clients with an open equity brokerage account can now apply for an ErisX cryptocurrency trading account1 via the thinkorswim platform. The cryptocurrencies currently available to trade for TD Ameritrade clients via the ErisX exchange include: Bitcoin, Bitcoin Cash, Ethereum, and Litecoin. To learn more about cryptocurrency trading at TD Ameritrade, visit this page.

“The most important thing to remember,” says Jim Sinegal, a financial services analyst with Morningstar, “is that you are 100% responsible for the security of your holdings.” He likens cryptocurrency markets to “venturing into a bad neighborhood with a pocketful of cash to spend. You might get robbed at any time; you could end up with counterfeit goods.”

Plus, the prices of Bitcoin, other cryptocurrencies, and any related securities can be quite volatile. It’s possible the entire value of your investment may be lost. If you don’t think you can handle the price swings—financially or emotionally—you may want to steer clear. 

Want to learn more about the basics of investing in Bitcoin and blockchain? Watch this short video below.

Investing Basics: Bitcoin and Blockchain
2:47
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Key Takeaways

  • Though bitcoin remains the largest and most widely traded cryptocurrency, there are more than 2100 others
  • Types include transactional, utility, and platform cryptocurrencies
  • Learn how TD Ameritrade clients can apply for an ErisX cryptocurrency trading account via the thinkorswim platform
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1 All cryptocurrency trading accounts will be established with ErisX, a state licensed money services provider, which will serve as principal and custodian. ErisX Accounts will be subject to the ErisX Client AgreementErisX Privacy Policy, and ErisX Digital Currency Risk Disclosures. TD Ameritrade Futures & Forex LLC will serve as an authorized agent of ErisX, providing trading and client support services. Designation as authorized agent can be revoked by ErisX at any time. TD Ameritrade Futures & Forex LLC and ErisX are separate and unaffiliated firms, and each is not responsible for the products or services of the other. ErisX Accounts are neither protected by SIPC nor FDIC insured.

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Cryptocurrency trading is subject to unique and significant risks.  Please read the TD Ameritrade Futures & Forex Cryptocurrency Risk Disclosure Statement before trading in your ErisX account.



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