Bitcoin, Ripple, and the others – how well do you know cryptocurrencies?
When talking about cryptocurrencies, none are so dominantly recognisable as Bitcoin. However, if you venture more deeply into the phenomenon of digital currency, you will soon find many other cryptocurrencies in addition to Bitcoin, direct successors or currencies based on a similar concept, all offering new and interesting features; all looking for their place in the digital sun.
What are Altcoins?
Altcoins are cryptocurrencies other than Bitcoin.. Currently, you can find nearly 700 cryptocurrencies on the coinmarketcap.com website. The Bitcoin community perceives altcoins as unnecessary clones of the bitcoin, due to the nature of their open source programing allowing for very simple duplication. Minimal changes in parameters are enough to create a totally “new” currency. Branding and naming these currencies is therefore bound only by the limits of the imagination.
A large number of cryptocurrencies created this way are used mainly for the rapid prosperity of their makers, especially in cases of “pre-mined” currencies. If currency creators succeed in entering a currency on one of the stock exchanges where altcoins are traded, they can cause spectacular hype and demand for the new currency with appropriately targeted information and shrewd purchasing strategies. The price of the altcoin can rocket to artificially high levels.. If a sufficient number of takers willing to pay such a high price for crypto-stock invest, the currency creators sell them everything they have and profit heavily from their inexperience. This system is known as “pump and dump”. Speculators then have no one to sell their altcoins to, purchased at the highest price, so there is a rapid sell-off. This reduces the price of the new coin almost to zero, and thus the coin itself is sent into oblivion.
To be fair to all who are trying to imitate the success of Bitcoin, there are many who are looking for something to improve the cryptocurrency concept, and thanks to them, many interesting projects, cryptocurrencies, and altcoins are being formed.
What are the differences between altcoins and Bitcoin?
The basic Bitcoin parameters are clearly defined by mathematical algorithms. It is mainly about the method of creation of new units themselves, known as mining, a so-called proof of work. Miners provide the computing power for the Bitcoin network to be able to confirm transactions. The transactions are validated and subsequently confirmed within a so-called “blockchain”. The new blocks are added on average every 10 minutes. However, this is a quite a long time for payments in a real shop, for example. Few people would want to wait at a cash register for at least 10 minutes to confirm their payment.
The speed of confirmation is one of the parameters against which other cryptocurrencies seek to distinguish themselves; their algorithms providing the faster creation of new blocks and transactions.
Another parameter is the number of issued currency units. For Bitcoin, there are 21 million units, 15 million of which have been mined. No more of them will be ever in circulation. Altcoins often differ in the amount of final issue. For the operation of the currency itself, the total number of units is not so important.
The encryption algorithm used by any cryptocurrency is important. For Bitcoin, it is the SHA-256 encryption algorithm that is used. Some cryptocurrencies use the Scrypt encryption algorithm. This algorithm, in the case of Litecoin for example, enables efficient mining using graphics cards; this process being a thing of the past for Bitcoin. At a time when extremely powerful ASIC chips were kicking in, a large number of miners moved away from Bitcoin to cryptocurrencies employing the Scrypt encryption algorithm (e.g. Litecoin), while mining on graphics cards was still beneficial. However, even this is no longer the case, ASIC chips have spread and we can now say that they are a cause of decreasing interest in mining by individuals. Mining has become an industrial matter.
Let’s take a look at some of the typical altcoins and how they differ from each other.
This altcoin, abbreviated as LTC, is the second most famous cryptocurrency, and has many supporters and opponents. Compared with Bitcoin, it has a faster confirmation-of-transaction time by a factor of 4, and the number of units will also be 4 times higher than Bitcoin, totalling 84 million LTCs to be mined.
Litecoin is built on the Scrypt encryption algorithm and, as mentioned above, it was therefore very popular among small miners with graphics cards. It is now, however, a thing of the past. Developers of Litecoin are still facing reproach for not admitting the possibility of mining in other ways. In the eyes of opponents, the second problem with Litecoin is a lack of development compared to Bitcoin; its developers are not striving for innovation. On the other hand, however, Litecoin has avoided problems regarding increased attacks on Bitcoin networks, as developers have successfully implemented changes able to effectively prevent similar attacks.
Litecoin is often referred to as silver in relation to Bitcoin gold, and despite a large drop in value, it continues to hold the top three positions in the ranking of market capitalization of all cryptocurrencies.
Namecoin is one of the oldest altcoins, and is actually an exact copy of Bitcoin. It differs in the registration of additional information into the aforementioned “blockchain”, in particular, IP addresses with web domains belonging to them. Thus, Namecoin creates a DNS decentralized system in which the registration of a domain is paid for by NMC units, at the beginning as well as on a continuous basis.
Another peculiarity of Namecoins is that they allow for so-called merged mining. Simply, this means that they can be mined together with Bitcoins, without any additional cost, and thus improve the budget of BTC miners.
We cannot neglect a curiosity that shook the world of cryptocurrencies at the end of 2013. Initially, Dogecoin was been created as a coin for fun, a joke using Shiba Inu the dog as a logo mascot. A very strong community formed around the DOGE and its popularity and price, as a technical copy of the Litecoin shot to the top positions of the cryptocurrency rankings.
Currently, Dogecoin occupies the sixth place on coinmarketcap.com with a market capitalisation of USD 14 million. Their total issued amount is not defined as it is for the other cryptocurrencies. Blocks are added every minute. Thus, transactions are very fast and one day, maybe, we will see Dogecoin as a significant cryptocurrency in the field of micro-payments.
Ripple is an exception among cryptocurrencies, however, it is extremely successful. Actually, this is not a classic cryptocurrency, but rather a payment system with its own mathematical currency (XRP), which can be denominated in normal fiat currencies. A full description of the system would take many pages. Simply, we can say that Ripple works on the principle of bonded debts when settling the claims among several parties being ensured by XRP.
It is essential that Ripple has gone through a huge development since 2012, and thanks to the fact it supports “tokens” that may represent any currency actually, it has become a protocol implemented by large banking houses. Enormous resources have been released for its development and, as a clearing agent and distribution network between their branches, it is used by more and more banks, for example Fidor Bank and Commonwealth Bank of Australia.
Currently, Ripple as a currency is wrestling for second place within the market capitalisation rankings with Litecoin. Officially, over 33 billion XRP, in the current total amount of USD 153 million, have been mined.
Altcoins – yes or no?
The list of interesting altcoins and the descriptions of there properties could be much longer. We can name them NXT – Nextcoin or Ethereum. They represent concepts that are extremely interesting, while also developing a number of features with far more possibilities of use than Bitcoin itself. On the other hand, they are so complex that they are still rather used in developing projects with no relation to the market environment. Unlike Bitcoin, they do not serve as a means of payment and they have minimal liquidity.
For example, DASH (formerly Darkcoin), the protocol by which a mechanism for a far higher level of anonymity, compared to Bitcoin, is incorporated, stands against them. As a result, DASH has found great popularity among people who consider Bitcoin as very easily traceable. DASH has been used for purchases in dark-net marketplaces, and has been included into a portfolio of some of the bigger cryptocurrency stock exchanges.
In any case, we can say, altcoins will in all likelihood emulate the success of Bitcoin, whether due to their current usability, versatility and strong community, and current market capitalization. Certainly, some alternative currencies will find a stable usage. These will be a few approximations of current units, or, at best, dozens of the most innovative and practically usable currencies.