5 Major Forms of Cryptocurrencies
Bitcoin is the original cryptocurrency, introduced in 2009 by a mysterious/anonymous man known as Satoshi Nakamoto. Bitcoin, like other cryptocurrencies runs on blockchain technology. The blockchain is a type of public ledger that logs transactions and manages the supply of “coins”. Bitcoins are actually just entries on that public ledger created through the “mining” process. When a mining computer solves a complex mathematical problem, a new block of coins is created and the “miner” is rewarded with newly created bitcoin, which can then be divided and traded as desired. The total possible supply of bitcoin is limited to 21 million and about 17 million exist so far. As time goes by, the mining process becomes more and more complex so the market is not flooded.
Blockchain technology is what enables cryptocurrencies to exist and thousands of other coins have since been introduced, the most successful of which seek to improve upon perceived weaknesses or shortcomings of bitcoin. These are the top competitors of bitcoin:
Bitcoin Cash is a hard fork of the original bitcoin, meaning the two cryptocurrencies share the same transaction ledger history prior to the fork which took place in August of 2017. The fork was a new iteration of the bitcoin code that addressed concerns of many in the community that transaction fees were becoming too high and processing time for payments was taking too long as greater adoption of bitcoin occurred. The fork meant that anyone who owned bitcoin at the time of the fork was automatically given ownership of the same amount of bitcoin cash as well. The dollar prices of bitcoin and bitcoin cash are not pegged to each other in any way and bitcoin cash as of this writing has consistently traded well below bitcoin.
Meant to be the “silver” to bitcoin’s “gold” litecoin was introduced in 2011 by Charlie Lee. Litecoin was also designed to be faster and more accessible than bitcoin. As bitcoin mining became more complex and took ever more processing power, litecoin was introduced with simpler algorithms so that ordinary computers could be used for the mining process. It is also designed to be more plentiful at 84 million in total ultimate supply. Litecoin’s larger supply should keep it relatively cheaper than bitcoin and therefore more suited to smaller, every day transactions.
Ripple was introduced in 2012 for a very different purpose. Building upon similar technology, Ripple is designed for trading and settling larger transactions in any currency or store of value, for a small fee of ripple, which is the token or coin of that network. Those tokens are what trades on cryptocurrency markets. There is no mining process for Ripple. Instead, a flat supply of 100 billion XRP (ripple) already exists. The majority of this supply is held in reserve with the company that created it. Designed for larger transactions in anything from foreign currencies to even airline miles, it is possible for a significant amount of foreign exchange and banking to be done using ripple in the future. The vision behind ripple is that someday real estate or other major business contracts could be settled on the ripple network. In fact, several major banks such as Royal Bank of Canada, UBS and Santander were early supporters of Ripple.
Dash was introduced in 2014. By then, bitcoin was 5 years old and Dash developers had noticed two key areas they wanted to improve upon. Thus, the coin they created has much faster speeds of transaction settlement and better privacy features.
Ether is the name of a token created on the Ethereum network. Ethereum is much more than a cryptocurrency. It is an open source system to decentralize diverse functions of the internet. Where bitcoin allows people to exchange value, Ethereum allows for the exchange or storage of information outside of an app or program. With Ethereum we have the introduction of the concept of “smart contracts.”
“[Ethereum] blockchain has some extraordinary capabilities. One of them is that you can build smart contracts. It’s kind of what it sounds like. It’s a contract that self-executes, and the contract handles the enforcement, the management, performance, and payment”
The idea that we could one day be handling things like real estate transactions on blockchain technology is fascinating. And potentially a very lucrative investment.