The proliferation of cryptocurrencies can be attributed to several factors, each contributing to the diverse and expanding digital currency landscape. First and foremost, the decentralized nature of blockchain technology, which underpins most cryptocurrencies, allows for the creation and management of digital currencies without the need for central authorities. This has led to an environment where innovation thrives, and developers can create bespoke solutions tailored to specific needs or communities.
Another significant factor is the desire for privacy and security. Different cryptocurrencies offer varying levels of anonymity and security features, catering to users with different priorities in these areas. Furthermore, the potential for high returns on investment has attracted both developers and investors, fueling the launch of new projects and tokens aiming to capture market interest and value.
Additionally, the use of cryptocurrencies extends beyond mere financial transactions. They are integral to the functioning of decentralized applications (dApps) and smart contracts, running on blockchain platforms like Ethereum. This utility aspect drives the creation of new cryptocurrencies to serve unique functions within the ecosystem, from facilitating fast and low-cost transactions to enabling complex decentralized finance (DeFi) operations.
In essence, the multitude of cryptocurrencies reflects a rapidly evolving sector characterized by technological innovation, a push for improved financial systems, and the broad application of blockchain technology across various domains.
The world of cryptocurrencies is pretty young, given the fact that the first digital currency, Bitcoin (BTC), appeared in 2009. However, during the following years, hundreds of new cryptos, so-called altcoins, started appearing. The market exploded in terms of the variety offered to users looking for cryptos that offer different functionalities, from fast transactions to full privacy.
This proliferation of digital coins raises the question: Why are there so many cryptocurrencies?
In this article, we’ll answer that question in detail and take a brief look at some of the most popular cryptocurrencies and their characteristics.
How Many Cryptocurrencies Are There?
There are around 20,000 cryptocurrencies in existence. This number is continually growing, reflecting the rapid pace of innovation and diversification within the blockchain and digital currency space.
The exact number fluctuates almost daily due to the emergence of new projects and the discontinuation of others.
Cryptocurrencies vary widely in their purposes, underlying technologies, and market adoption, ranging from well-known names like Bitcoin and Ethereum to a vast array of lesser-known altcoins and tokens designed for niche applications.
The dynamic nature of the cryptocurrency market, coupled with the ease of creating new digital assets on blockchain platforms, contributes to the ever-expanding count of cryptocurrencies.
This proliferation underscores the vibrant and evolving landscape of digital finance, highlighting both the potential for innovation and the challenges of market saturation and regulation.
What Are The Most Prominent Cryptocurrencies?
BTC is the first and most popular cryptocurrency in the world. It has the highest market capitalization and is definitely the most traded digital asset available. Bitcoin went a long way from being worth almost nothing when it was launched by Satoshi Nakamoto in 2009, to a value of thousands of USD per coin a decade later.
Bitcoin has introduced the concept of decentralized, digital cash based on blockchain technology, which offers lightning-fast transactions that are totally secure from scams. Apart from this, BTC introduced an authentic alternative to fiat money when it comes to storing value.
Bitcoin vs Altcoins: What’s the Difference?
The initial rise of Bitcoin’s popularity in the years after 2009 motivated numerous developer teams and programmers to create hundreds and even thousands of new cryptocurrencies, popularly referred to as altcoins.
Not all altcoins have the sole purpose of being an alternative to fiat money. In fact, using them as digital cash is only one aspect, only one potential utility of altcoin functionalities.
Most developer teams behind altcoin projects tend to offer users special functionalities that differentiate their cryptocurrency from other altcoins.
Below are some of the most popular altcoins on the crypto market:
Ethereum (ETH) is the second most popular cryptocurrency in the world, right after BTC. It was launched in 2015 by Vitalik Buterin as an innovative blockchain-based ecosystem that offers much more than just a cryptocurrency (Ether). The ETH blockchain enables users to conduct smart contracts with each other written directly in the Ethereum programming code.
These smart contracts are self-executing agreements that are highly versatile and can be used in various real-world use cases such as healthcare, data storage, logistics, and even art and entertainment.
The main advantage of smart contracts is that they can facilitate the development of decentralized applications (DApps) which don’t use centralized, mainstream technological resources like solutions based on Google or Microsoft platforms. Instead, DApps offer developers full autonomy and control over their applications, facilitated by the Ethereum blockchain and ETH programming languages such as Solidity. This makes ETH especially popular among start-ups and tech enthusiasts.
Ripple (XRP) doesn’t have a classic blockchain. Instead, it runs on a distributed consensus ledger that utilizes a network of servers as validating points for transactions. XRP is ideal for business transfers between companies that need to move large sums of money internationally.
Ripple uses an advanced digital payment protocol that allows money transfers regardless of currency. Its network can process up to 1,500 money transfers per second, which is an enormous amount compared to other popular cryptos.
Charles Hoskinson, one of the founders of Ethereum, left the project after a disagreement with the rest of the team and went to launch Cardano (ADA) with a group of crypto enthusiasts, mathematicians, and engineers.
After extensive research that involved over 90 scientific papers regarding blockchain technology, they launched Cardano as a fully sustainable cryptocurrency based on a proof-of-stake algorithm. Some predictions say that it is possible Cardano will surpass the popularity of ETH at one point because of the advanced smart contract functionalities that offer more flexibility than Ethereum.
Litecoin (LTC) was one of the first altcoins, launched in 2011, just two years after BTC, by Charlie Lee, a former Google programmer and crypto enthusiast. LTC based its blockchain heavily on the Bitcoin network, but it aimed to improve some of the key solutions of BTC by producing new blockchain blocks faster. This enabled a faster fluctuation of funds and a better transfer confirmation rate.
The Bitcoin blockchain has a block size limit of 1MB. This means that 1MB of transaction data can be stored in a single blockchain block. A considerable part of the BTC community disagreed with this policy, and this is why, in 2017, Bitcoin Cash (BCH) was created as a hard fork of Bitcoin.
BCH has an increased block size of 8MB which allows a far larger number of transactions to get processed within one block, making the fluctuation of funds more flexible than classic BTC transfers. Even so, BCH didn’t manage to even remotely reach the popularity of Bitcoin, but it’s still very popular among users that want to facilitate quick and frequent cash transfers.
Stellar Lumens (XLM) are the native crypto of the Stellar platform. It is in many ways similar to Ripple, which is no surprise since one of the founders of XLM is Jed McCaleb, a member of the initial Ripple developer team. XLM is mainly used as a means of facilitating cross-border payments between companies and enterprises that want to move large amounts of money quickly and reliably.
Stellar Lumens are more focused on connecting financial institutions around the world than Ripple, and they are a great payment method for companies that don’t have the time to wait on bank transfers, paperwork, and unnecessary bureaucracy. Large transfers involving central banks can take days or even more than a week if there are several intermediaries involved. This is where the Stellar network excels in facilitating international transactions quickly, saving companies valuable time and resources in the process.
Among numerous altcoins, Monero (XMR) stands out because it is focused on user privacy and secure transfers. This crypto was launched in 2014 by a developer team that came up with the idea to create a cryptocurrency that would offer users full privacy from government institutions and agencies, enabling them to freely transfer funds without worrying about the safety of their identity and other sensitive, personal information.
XMR uses a special system of ring signatures that fully protects sender and receiver privacy. If someone would try to uncover the identity of a sender or receiver, it would literally be impossible, as the Monero blockchain creates numerous crypto signatures for each transfer, but only one of them is real, and it can’t be isolated in real-time, thus making the system impenetrable by cyber attacks.
While Monero is a great crypto for protecting privacy, it is also rumored to be used by people and groups that engage in illegal activities, exactly because of the top-notch security and privacy it provides.
NEO is popularly referred to as an Ethereum competitor ecosystem from China, developed by programmer and crypto enthusiast Erik Zhang. The goal of NEO is to become a globally accepted digital platform with its specific blockchain called Onechain. It provides all the functionalities of the Ethereum network such as smart contracts, DApps, and fast money transfers.
One of the advantages of NEO compared to other cryptos is that, similarly to ETH, it can seamlessly be integrated with various programming languages, providing developers and programmers with flexible development assets on a reliable blockchain network.
Binance Coin (BNB) is the native coin of Binance, one of the largest cryptocurrency exchange platforms in the world. The platform has numerous functionalities that range from the buying and exchanging of cryptos and its own crypto wallet, all the way to its own currency.
BNB is widely accepted, and it has a high market cap, giving special benefits to Binance platform users, who get lower transaction fees on the platform when they use BNB, as well as numerous other benefits.
Dogecoin (DOGE) is an example of the unpredictability and volatility of the crypto market. This coin was launched in 2013 as a joke meme crypto. Still, its popularity exploded in 2021, reaching a 54 billion USD market cap at one point, which illustrates how people can’t predict what crypto will actually achieve widespread use and popularity.
DOGE was regarded as a joke coin for years before it started being extremely popular and totaling a market cap far above some of the most valuable companies in the world.
So, Why Are There So Many Cryptocurrencies?
There are several reasons why we have so many cryptocurrencies. As you will see below, the stage has been set for this momentous event.
- Technological Innovation and Blockchain – At the heart of the cryptocurrency boom is blockchain technology. Blockchain’s decentralized, secure, and transparent nature allows for the creation of digital currencies without central oversight. Innovations in blockchain technology have enabled developers to launch new cryptocurrencies with enhanced features, such as improved transaction speeds, reduced costs, and increased scalability. Open-source projects further drive this innovation, allowing communities to contribute to and fork projects, leading to the birth of new cryptocurrencies.
- Market Demand and Investment Opportunities – The cryptocurrency market is significantly driven by investor interest and the potential for high returns. Early investors in Bitcoin and Ethereum reaped substantial profits, sparking a gold rush mentality among developers and investors alike. This speculative nature fuels the launch of new projects, as creators aim to capture market interest with unique value propositions.
- Diverse Use Cases and Functionalities – Cryptocurrencies serve a multitude of purposes beyond simple transactions. For instance, utility tokens power decentralized applications (dApps) by providing users with access to specific functionalities, while security tokens represent digital ownership of an asset. The rise of decentralized finance (DeFi) and non-fungible tokens (NFTs) has further expanded the use cases for cryptocurrencies, necessitating the creation of specialized tokens to support these ecosystems.
- Privacy and Security Concerns – With growing concerns over privacy and security in digital transactions, certain cryptocurrencies have emerged to address these issues. Projects like Monero and Zcash offer enhanced anonymity features, appealing to users seeking privacy. The constant battle against hacking and fraud in the digital space also drives the development of new cryptocurrencies with advanced security features.
- Decentralization and Financial Inclusion – Cryptocurrencies offer a pathway to financial inclusion for the unbanked and underbanked populations by bypassing traditional banking systems. Digital currencies like Stellar and Ripple aim to facilitate global transactions with low fees, promoting financial accessibility.
- Challenges and Regulatory Environment – The regulatory landscape significantly impacts the development and adoption of cryptocurrencies. Regulatory scrutiny varies globally, with some countries embracing digital currencies and others imposing strict regulations. This dynamic environment influences the creation of new cryptocurrencies, as developers navigate legal frameworks and seek to comply with or innovate around regulatory requirements.
Here’s a Question: Are There Too Many Cryptos?
The question of whether there are too many cryptocurrencies is subjective and depends on one’s perspective on the evolving digital currency landscape.
On one hand, the vast number of cryptocurrencies—around 20,000—reflects a rich environment of innovation, competition, and specialization within the blockchain ecosystem. This diversity allows for the development of tailored solutions addressing specific needs, from enhancing privacy and security to facilitating efficient cross-border transactions and enabling decentralized finance (DeFi) platforms.
On the other hand, the sheer volume of cryptocurrencies can lead to market fragmentation and confusion among investors and users. With so many options, distinguishing between viable, long-term projects and those with less substance or potential becomes increasingly challenging.
This saturation can dilute the impact and value of more legitimate currencies, potentially hindering widespread adoption and trust in the cryptocurrency market. Moreover, the environmental impact of maintaining numerous blockchain networks, especially those relying on energy-intensive consensus mechanisms, raises concerns about sustainability.
Ultimately, while the proliferation of cryptocurrencies demonstrates the dynamic and innovative nature of the field, it also presents challenges that need addressing to ensure the healthy growth and acceptance of digital currencies in the broader financial ecosystem.
A Few Words Before You Go…
The various cryptocurrencies on the market are produced with the different needs of people, companies, and entrepreneurs in mind. Some people look to cryptocurrencies as a means of facilitating highly secure transactions that don’t leave any chance for their privacy to get compromised, like in the case of Monero. Other users, such as companies, need convenient cryptos for making large cross-border transactions and, therefore, look for assets like Ripple or Stellar Lumens.
Individuals may just want to have a convenient method for transferring cash and making payments and, therefore, look for crypto such as BTC, Litecoin, or Bitcoin Cash, while developers want smart contract functionalities provided by the likes of ETH, ADA, or NEO.
With the variety of cryptocurrencies available, users can find assets meeting their specific needs, whether for privacy, quick transactions, smart contracts, or investment. Current market caps and trading volumes for these cryptos can be tracked on platforms like Coinmarketcap.