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When it comes to cryptocurrency, the first thing that comes to mind is bitcoin. But besides bitcoins, there are about a thousand types of other digital money. How do they work and how much do they cost?
According to CoinMarketCap – Forbes, there are more than 1,100 types of digital money in the world of cryptocurrencies today. And the total capitalization of this market is 133 billion dollars. DW has collected facts about the most popular types of cryptocurrencies and which of them, in addition to bitcoin, are most often invested in.
Altcoins – an alternative to bitcoins
Most altcoins (alternative digital currencies) are just a variation of bitcoin. The creators of new currencies take the already existing bitcoin code and improve it at their discretion. It turns out a branching of cryptocurrencies, with a single “start” in the form of bitcoin. This process is called “hardfork”. A hard fork occurs when users of a currency cannot come to a single decision about how digital money works.
For example, this happened with Bitcoin in August. A distinctive feature of bitcoin is the speed and cheapness of transactions. However, the cryptocurrency became so popular that the system could no longer cope with the volume of work. As a result, bitcoin users could wait for several hours, or even days, for the operation to take place.
Bitcoin users decided it was time to improve the system. But the cryptocurrency does not have a single owner who could make new changes. To change a decentralized cryptocurrency, the decision of the majority is not enough. It is necessary that 99 percent of users agree with the new rules and begin to comply with them. And although the decision to change the Bitcoin system was made, users could not come to a common plan of action. As a result, Bitcoin split into Bitcoin and Bitcoin Cash, and there was one more cryptocurrency on the market. In addition to Bitcoin Cash, among the digital money alternatives to bitcoin, 5 more types are popular.
Ethereum (ethereum, ether) – the currency of “smart contracts”
It is not known why the creator of Efir, a Canadian programmer of Russian origin, Vitaly Buterin, called it that. Perhaps due to the fact that, unlike the same bitcoin, the amount of ether is unlimited. And perhaps due to the fact that the ether is the first cryptocurrency that uses the technology of “smart contracts”, which means it can “take the form” of any object.
How do these “smart contracts” work? For example, you made a bet with a friend that Russia will win the upcoming football match between Russia and South Korea. Your friend wholeheartedly supports the South Korean team. You set the terms of your bet.
“Smart contract” removes the amount of the bet from the accounts and keeps it until the terms of the contract are met – until one of the teams wins. This approach reduces human intervention and makes the machine do the work. In the future, “smart contracts” can be used in accounting, logistics, and jurisprudence.
The currency appeared in 2015, using the funds raised by Buterin, through crowdfunding – a voluntary donation of money via the Internet. By the way, donations were collected in bitcoins. Ethereum appeared in 2015.
If Bitcoin occupies 40 percent of the cryptocurrency market, then Ethereum – 18 percent, thus occupying an honorable second place in the list of popular cryptocurrencies. The value of all issued Ethereum reaches 26 billion dollars. At the time of writing, one “ether” cost $ 279 per unit, which is much cheaper than bitcoin.
Ethereum works in much the same way as Bitcoin because the base code for “ether” is borrowed. There are also miners (cryptocurrency miners. – Ed.), who “calculate” the cryptocurrency, blockchains, which store information about transactions. Just like in the Bitcoin system, Ethereum blockchains are stored on the computer of each user. Therefore, it is impossible to forge records – then it would be necessary to forge records on all computers.
There are many differences between bitcoin and ether. For example, there can be no more than 21 million bitcoins, while the amount of “ether” is unlimited. Blocks for storing information in the Ethereum system appear every 10-15 seconds, unlike bitcoin, which takes 10 minutes to create a new block.
Ripple is the fastest cryptocurrency
Most new cryptocurrencies appear due to small changes in the bitcoin code. Like, for example, Ethereum. But in the case of Ripple, the code is written from scratch, under the order of venture funds
Ripple was created to increase the speed of banking transactions and save on them. The calculator on the official Ripple website shows that if the bank’s turnover is $5 million and the number of transactions is 300,000 per year, then you can save $3.4 per transaction. A bank can save more than a million dollars a year.
Ripple technology is already used by Bank of America, HSBC. Unlike bitcoin and ether, the Ripple cryptocurrency cannot be “mined” (extracted). This is a centralized system where all digital money already exists and belongs to one company – Ripple Lab. At the moment, there are more than 38 billion units of cryptocurrency.
And if the systems of bitcoin and “ether” require empty mathematical calculations to “slow down” the creation of new blocks, then Ripple Lab gives out cryptocurrency for useful calculations – the processing of scientific data from different universities. Ripple occupies 5.7 percent of the entire cryptocurrency market, which is $7 billion. One Ripple cryptocurrency costs less than a dollar – 18 cents.
Litecoin – digital money for fast transactions
It occupies 2 percent of the total value of the cryptocurrency market, which is $2.7 billion. Litecoin appeared in 2011, thanks to the former Google engineer – Charles Lee. Litecoin, like Ethereum, is a hard fork from Bitcoin.
One of the few differences of Litecoin is the speed of transaction processing – it is faster than in Bitcoin. If in bitcoin blocks are created every 10 minutes, then in Litecoin it happens faster – every 2.5 minutes. That is why Litecoin can process more transactions than in the Bitcoin system. The amount of cryptocurrency is limited, and cannot exceed 84 million units. At the moment, you can buy one Litecoin for $51.
Dash – anonymous cryptocurrency
Dash is ranked 6th in the list of cryptocurrencies. In total, there are more than 7.5 million units of this cryptocurrency, and it costs $327 per dash. This is another cryptocurrency that appeared in 2014 as a result of a change in the Bitcoin code. The main difference from bitcoin is complete anonymity.
Bitcoin is anonymous until the owner of the wallet is found. That is, all bitcoin transactions are already visible, but what is the use of them if the sender and recipient are unknown? If somehow the owner of the bitcoin wallet becomes known, then it will be possible to trace all the movements of his funds on the bitcoin account, even if he bought a cup of coffee 5 years ago.
It is impossible to track other people’s transactions in the Dash system – transaction data is not published in blocks. Operators are responsible for this – another difference from bitcoin. Operators, as well as “miners”, process information on their computers and receive funds for this. Cryptocurrency mining forums say that operators earn twice as much as “miners”.
Nem – currency with a unique code
Cryptocurrency Nem appeared at the end of 2015. Unlike most cryptocurrencies, it has its own unique code. But the most important difference is that Nem works using the technology of the POI (proof of importance) algorithm.
What does it mean? For example, Litecoin and Dash work using the proof-of-work algorithm or POW (proof of work. – Ed). It’s like if you got a job as an artist, and would pay you only for the painted pictures. Also, the system of bitcoin-like currencies rewards its users for correct calculations. However, this system already has disadvantages – as tasks become more complex, computing power must also increase. As a result, a lot of resources are spent to find an answer to a systemic problem that does not bring any benefit to society.
The proof-of-stake algorithm or POS (share confirmation. – Ed.) works according to the dividend system – those who have more funds in their account receive interest. But in this case, rich users will only enrich themselves faster.
The POI algorithm used in Nem combines the concepts of these two algorithms. POI not only rewards those with higher account balances, but also takes into account how often transactions are made with other users. Each user is given a trust rating. The higher it is, the more chances to get a reward.
Cryptocurrency occupies 1.5 percent of the total value of the cryptocurrency market, which is $2 billion. There are 8.9 billion units of the Nem cryptocurrency, and its rate has reached $0.18.