Know your digital coins: options for digital wallets

Investing in cryptocurrencies is daunting, with about 4000 in existence, but there are established options.

Ethereum is proving an attractive bitcoin alternative for investers. Souce: Bloomberg

Investing in cryptocurrencies is daunting, with about 4000 in existence. Most altcoins have negligible value, are devised to demonstrate blockchain technologies or to service a particular sector. Do your homework and you may find a gem. Many of the more mainstream cryptocurrencies have risen sharply this year. Here are established options.

Bitcoin

Bitcoin’s strength is its increasing acceptance. Tesla’s decision to permit payment by bitcoin and reports that MasterCard will embrace it is a case in point. Beware that Facebook’s upcoming Libra currency and Amazon’s future cryptocurrency may steel much of its thunder. Ross Buckley, KPMG-KWM professor of disruptive innovation at the University of NSW, says he regards bitcoin as a bubble that will be burst by coming central bank digital currencies. Originally bitcoins were worthless; you’ll now need $60,000 to buy one. There’s a limit of 21 million bitcoins, which will help maintain its value.

Ethereum

Ethereum is a cryptocurrency with a purpose and it’s bringing in great returns: 146 per cent in a year. It was trading at about $150 in March last year, but now you will pay $2305 for one. Unlike bitcoin, the ethereum supply is not capped. Many investors put their faith in ethereum due to the sophistication of the ether platform. Professor Buckley said its blockchain platform coupled well with its payments system: “You’ve got a blockchain-based currency interacting with a blockchain-based application and that makes some sense.”

Litecoin

Litecoin has been billed as the silver to bitcoin’s gold. It was devised by a former Google engineer who copied the bitcoin code, then increased the supply of coins and varied the mining algorithms so that litecoins are created faster. Like bitcoin, litecoin will have a limited supply: about 84 million coins. At around $240 a coin, it’s a more affordable investment than bitcoin and has returned a healthy gain of 48 per cent in the year to date. Litecoin is allied with the not-for-profit Litecoin Foundation that promotes blockchain and a fast payments system.

Bitcoin cash

Bitcoin cash technically is what bitcoin should be. It was developed in 2017 as a “hard fork” to bitcoin by miners concerned at the increasing problems of scalability with bitcoins over time. Transaction processing was hampered by the number of transactions and the small block size. Bitcoin cash has a bigger block size and manages transactions faster. However, it remains a pretender to the throne without the huge investment backing of the original bitcoin. There are mixed views about its longer-term success. At about $700, it is more affordable and offers modest gains.

Dogecoin

Dogecoin was created in 2013 as cryptocurrency satire. It was a joke around a dog internet meme being the signature branding of currency (rather than the queen or US president). It gained celebrity status, was purposed as a cryptocurrency for donations to causes and for tipping online, and gained notoriety. Elon Musk’s tweet about dogecoin this week saw its price spike from well below 1c to 9c. It may be a joke but a year-to-date return of 1173 per cent is serious.

Chainlink

There are altcoin options that make gains below the radar. Chainlink is one. In a year it has risen from around $3 to $35, offering a great return to anyone who jumped aboard. There are predictions of chainlink heading to over $US100. There is also technical value to chainlink: a link between smart contracts and real-world data, and a view that chainlink might have a future in gaming.