There are thousands of cryptocurrencies out there and each one is slightly different. Whether it's the technology, the team, or something as mundane as the branding, each cryptocurrency has its own upsides and downsides. So, how can you possibly compare multiple cryptocurrencies? In this guide to comparing cryptocurrencies, we'll lay out a simple framework to help you find the best coins for your criteria using our research platform Coinpaprika - but first, what are those criteria?
With any comparison, it's essential that you start with meaningful criteria. Before you can choose these criteria, you need to know how you plan to use cryptocurrencies. From our experience, the two most popular applications for cryptocurrencies - and the two we'll focus on today - are currency and investment.
A currency is a medium of exchange that you can use to transfer value, whereas an investment is an asset purchased with the idea that it will grow in value as time passes. Once you've chosen one of these applications, you can scroll on to see our suggestions for comparing them.
To effectively compare cryptocurrencies as currencies, you have to ask yourself what makes the ideal currency. There are some subjective factors, such as decentralization, but everyone can agree that a good currency is characterized by:
Speed - Transactions are fast. There's no waiting around while you wait for lengthy confirmations, which means the currency is practical even at the coffee shop. It's up to you to decide what speed is satisfactory, but we think cryptocurrencies can start to get impractical if transaction times reach as much as a minute. To compare the speed of various cryptocurrencies, we suggest you read our article "How Long Does It Take to Transfer Bitcoin."
Low cost - Transactions don't cost most, or, better yet, transactions are totally free. This means you can send money to your heart's content, without any painful fees to chip away at your balance. The fee you expect from your cryptocurrency can depend on how you use it. If you're buying million dollar properties, a hundred dollar fee might work just fine. For day-to-day use - say, buying a cup of coffee - even a few cents can be too much.
Liquidity - It's easy to buy and sell the currency, since there's a large supply and demand. As a result, the value of the currency stays true to its price. You can check the liquidity of various cryptocurrencies by the looking at the Volume column on our coin research platform Coinpaprika. The bigger the better, but anything beyond $100 million per day is plenty.
Stability - The price of the currency isn't jumping up and down like crazy. You don't have to worry about trying to trade it or time the market - you can simply use it as and when you please. There are some clever indicators for measuring the stability of cryptocurrencies, but the easiest approach is to choose a cryptocurrency on Coinpaprika and glance over its price charts. If stability is one of your biggest concerns, consider a stablecoin like Tether.
Adoption - The currency is used by a significant number of people across the world. You can actually spend it, instead of exchanging it for other currencies first. Adoption can be a difficult factor to gauge. You'll have to keep your eyes open and see which cryptocurrencies are being accepted where.
Ease of use - There's a whole host of applications and tools to help you use the currency. Anyone is capable, and you don't have to worry about making costly mistakes. For most cryptocurrencies, ease of use isn't a problem any more. However, it's worth double-checking if a cryptocurrency has its own functional mobile wallet before you dive in!
Other criteria - Beyond these basic criteria, you need to ask if you're looking for any specific features or qualities, the most popular one being decentralization. If not, it should be pretty easy to compare cryptocurrencies as currencies with this rubric!
There is a whole new set of criteria if you are looking to find cryptocurrencies which will grow in value as investments as time passes. In this case, it doesn't really matter whether the coin is stable or easy to use, as long as the price is going up! Beyond a growing price, here are some investment criteria to consider:
Value proposition - The investment is supported by some value proposition which will cause it to grow in value. There's an incentive for buying in. It's not easy to determine the value proposition of a cryptocurrency, but if you're going to invest based on a project's fundamentals, you'll need to do so. This comes with time and research!
Technical analysis - The price chart for the investment shows multiple indicators or patterns that suggest it will rise in price, and few indicators or patterns that suggest otherwise. Technical analysis is a tough skill, but it's another way to choose cryptocurrencies that could grow in price even if you know nothing about a project's fundamentals.
Team - The team behind the investment has multiple successful projects behind them and the enthusiasm to ensure the project succeeds. There are a lot of scams and schemes in the cryptocurrency space, but these can easily be avoided if you stick to projects with transparent, well-intentioned teams. You might even make some money!
Security - There are tools or systems in place for keeping the investment safe. In the cryptocurrency space, almost everything comes in the form of a token. It's often your responsibility to hold these tokens, so make sure there's an infrastructure you can use to keep it secure.
If you're looking to compare cryptocurrencies for other applications - perhaps you want a token to fuel the Internet of Things or a protocol on which to build Decentralized Apps - there will, of course, be a separate set of criteria you need to determine for yourself.
In any case, we recommend the same comparison approach we used here: choose an application, determine your criteria for that application, and evaluate them individually!