What is a cryptocurrency? Should I buy Bitcoin, Ripple or Ethereum?

Bitcoin, the biggest and best-known cryptocurrency, is down more than 15 percent from this time yesterday, its market cap dropping from $239billion to $201billion today (January 16).

A single bitcoin token is now trading at about £8,700 ($12,000) compared to its high of £10,484 ($14,445) yesterday, according to CoinMarketCap.

This is nearly 40 percent lower than December’s all time high of £14,520 ($20,000).

Meanwhile, its next biggest rivals Ethereum and Ripple have also collapsed by about 15 and 24 percent respectively over the past 24 hours.

Due to their extremely volatile nature, cryptos have dominated the headlines in recent months and divided the financial community.

For those new to the digital currency market, here is a handy guide to cryptocurrency.

What is a cryptocurrency?
Put simply, a cryptocurrency is a decentralised virtual form of money that can be used to make purchases or be exchanged for other traditional and digital currencies.

One of the most appealing aspects of a cryptocurrency is that it employs a security system known as cryptography.

This makes it almost impossible to counterfeit, as well as allowing for completely anonymous transactions without the need for a bank.

Bitcoin became the first decentralised cryptocurrency when it was launched by the mysterious Satoshi Nakamoto in 2009.

Since then, thousands of alternative currencies have joined the market, including Ripple (XRP), Ethereum (ETH) and Bitcoin Cash (BCH).

According to CoinMarketCap, there are currently 1,450 different cryptocurrencies trading on more than 7,500 markets.

The total crypto market is worth nearly £421.5billion ($580.5billion), with bitcoin making up almost 35 percent of this figure.

Should you invest in cryptocurrencies?
The cryptocurrency market as a whole plunged today after news of Asian regulators looking to ban crypto trading sparked a mass sell-off.

Matt Greenspan, market analyst at eToro, said the massive drop could be attributed to dwindling trade in east Asia, arguing that speculators are growing “tired” of paying through the nose for digital currencies.

He said: "The volumes have been declining steadily both in Japan and South Korea over the last few days.

"This morning, the combined volume from these two top crypto trading countries dropped below 30 percent. Looks like they're tired of overpaying for cryptos and waiting for the market to even out."

Meanwhile, Peter Adeney, a financial advisor who operates under the pseudoname Mr Money Moustache, has warned against the “collective insanity” of the cryptocurrency market.

He said: “You should not invest in Bitcoin. The reason why is that it’s not an investment; just as gold, tulip bulbs, Beanie Babies, and rare baseball cards are also not investments.

“These are all things that people have bought in the past, driving them to absurd prices, not because they did anything useful or produced money or had social value, but solely because people thought they could sell them on to someone else for more money in the future.”

But Christopher Keshian, managing partner and co-founder of $APEX Token Fund, has a more optimistic view, arguing that increased regulation could help the crypto market in the long run.

He said: “The volatility of bitcoin - and other crypto currencies - is an expected, and important, part of the journey to becoming a mature asset class.

“We expect the volatility to continue throughout 2018 but fundamentally believe that bitcoin is still in a bull market.

“However, we also believe there will be a flight of capital away from speculative ICO investments with teams who have failed to execute on their roadmap and towards major currencies or assets, including Bitcoin.

“The crackdown in some parts of the world on crypto currencies is to be anticipated and welcomed.”