If you have heard about crypto from a friend, on social media or through news articles and you are tempted to start investing, you are not alone. Digital assets such as bitcoin and ether have grown in popularity in recent years.
But understanding the technology, the risks and the best ways to invest can be challenging. The world of crypto is full of technical jargon and in many ways, digital assets do not behave like traditional assets like stocks and bonds.
However, it is never too late to learn. Bitcoin, ether and solana are the three most popular cryptocurrencies. Each has a different underlying technology and use case. Here’s how they differ, and how you can decide which one makes sense for your portfolio.
The basics of owning crypto
When you buy crypto, you are not buying shares in a company. But property doesn’t work like money in a bank account either. Instead, you pay for digital assets or fractions of those recorded in a blockchain – a digital ledger distributed across a network of computers.
Many beginners start buying crypto through an exchange or trading app. Those platforms hold crypto on your behalf, the same way a brokerage holds stocks. It’s worth it, but it also means you’re trusting a third party to protect your funds. That leaves them vulnerable to cyberattacks and platform defaults, such as when FTX crashes in 2022 and users can’t access their funds.
The alternative is to hold them, or move your crypto to your own wallet. This method gives you control over your crypto private key, the alphanumeric code used to authorize transactions and verify ownership of digital assets. Trading is a responsibility. Lose that key, and your money could be gone forever.
Crypto wallets fall into one of two categories. “Hot” wallets are always connected to the Internet and easy to use, making them common in everyday access. “Cold” wallets are offline devices designed for long-term storage and added security. Many investors use a combination of the two, with the former being used to hold and trade small amounts of crypto and the latter being used to store larger amounts.
Bitcoin, ethereum and solana
Before choosing between bitcoin, ether and solana, it is important to understand how they differ.
Bitcoin (BTC) is the original cryptocurrency, has the highest market capitalization and is considered a store of value primarily due to its scarcity (its supply is limited). Many investors treat it as a long-term holding, similar to how gold is used in traditional portfolios. It is rarely used for routine or complex applications.
Ether (ETH) is the native token of ethereum, a blockchain network that serves as a platform for decentralized financial applications. Owning ether allows you to interact with a wider ecosystem rather than just holding static assets.
Solana (SOL) positions itself as a fast, low-cost alternative to networks like ethereum. It is designed to process transactions quickly and with low fees, which has attracted developers who are creating new applications. That speed comes with trade-offs, including a short track record and technical risks.
Simply put, bitcoin focuses on storing value while ether focuses on enabling digital activity and solana emphasizes speed and stability.
Choosing between three cryptos
When deciding which digital asset to invest in as a beginner, a helpful starting point is to think in terms of purpose rather than price.
Bitcoin is one of the easiest cryptocurrencies to understand because its use is limited: It can be held as a long-term store of value. Being the most popular crypto in the market makes it a common entry point for investors, while its long history gives a sense – although not a guarantee – of relative stability within a volatile market.
Ether can be a bit complicated to understand, but it also has many uses. Its value is tied not only to supply and demand, but also to how much work is being done on its network.
Solana’s appeal is quick acquisition and low cost, making it attractive to developers and users who prioritize efficiency. But because it is a smaller, less established crypto, its long-term position is more uncertain than bitcoin. Beginners considering solana should be comfortable with that added layer of uncertainty.
Some investors split their crypto investments into multiple assets to accommodate different use cases. For example, you might hold bitcoin for its perceived stability, while offering small amounts in ether or solana for the growth associated with network activity. Just make sure you understand what you’re actually buying.
Crypto gives investors more control over how they manage assets. It can be bought, sold, loaned, traded for fiat currency or other crypto, and set aside to generate interest. But that greater freedom also means more responsibilities on your end to keep your assets safe.
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