Alternatives to Bitcoin have continued to come up since its introduction in 2009. However, Bitcoin is still one of the main forms of cryptocurrencies and widely used. The current state is that anyone with a digital currency related idea can quickly launch a coin using the underlying blockchain ledger. There is no need to recreate the ledger system every time. As a result, there are currently hundreds of different forms of cryptocurrencies. furthermore, as many different cryptocurrencies and digital assets are being developed every day. In this post, I briefly describe the main alternatives to bitcoin already in the market.
Bitcoin: the earliest cryptocurrencies
Bitcoin was the first form of cryptocurrency introduced in 2009. It is basically a form currency like dollars, Euros etc but in digital form. It is only accessible in digital format. You can make transactions with it, convert it into other currencies and money wallets. However, unlike paper money, Bitcoin is not regulated by a central authority. This means it is decentralized and open sourced indicating that it can be accessed by people within the network. Bitcoins are created through a ‘mining’ process which is the artful blend of cloud computing, cryptography, and game theory. Bitcoin has grown to become the de-facto digital currency used in various countries throughout the world. It is used as a form of payment and users can exchange Bitcoin for other currencies such as the dollar. The current value of Bitcoin as at July 2017 is over $40 billion (however, this figure is a moving target because of the volatile nature of Bitcoin). To know about bitcoin, please refer to what is bitcoin as explained in an earlier post.
Ethereum is a bit different form of cryptocurrency. This is because it processes transactions in terms of smart contracts. Ethereum leverages on the underlying application, blockchain, that Bitcoin also uses and introduces a new dimension of using it. However, unlike Bitcoin, Ethereum allows for other software programs rather than just transactions like the case of Bitcoin. Therefore people can build digital assets on top of Ethereum and launch them. Ethereum currency is called ether. Ethereum is mainly associated with Vitalik Buterin who is the brainchild behind it.
Ripple was created in 2013 and is more of a payment network for Ripple and other currencies. Therefore there is no process of mining as in the case of other currencies but instead facilitates automated systems for trading currencies. It aims to facilitate currency exchange globally using the principles similar to bitcoin. Therefore many banks around the world use Ripple for financial settlements. However, unlike Bitcoin, the source code of Ripple is not available to third parties. It has received venture capital funding even from Google Ventures. Due to its wide range application even outside the digital currencies to fiat money, Ripple is currently the third largest digital asset applying blockchain related principles.
Litecoin: the direct alternative to Bitcoin
Litecoin was created in 2011, and this is one of the direct alternatives to Bitcoin. It enables peer-to-peer internet currency payments at low costs to anywhere in the world. It is open source, decentralized and powered by blockchain technology. Litecoin positions itself as a company processing transactions faster than Bitcoin due to the manner in which it is mined.
Peercoin uses PROOF OF STAKE to maintain its network and verify transactions based on the stake they hold. There are no massive mining powerhouses and all computers can participate equally. Most forms of cryptocurrencies use PROOF OF WORK or mining to maintain their networks and verify transactions. This process leads to a lot of competition between miners and end up using a lot of electrical power. This digital currency positions itself as using less energy and therefore being more environmentally sustainable than other forms of cryptocurrencies in the market. Peercoin gives a 1% in annual reward to users in compensation for maintaining the network. This encourages savings making it a viable store of wealth.
Primecoin is a new form of cryptocurrency which has a unique PROOF OF WORK based on searching for prime numbers. With Primecoin, miners use their computers in order to find Cunningham chains. These are unique sequences of prime numbers. Primecoin claims that mining of prime numbers is important because it provides potential scientific value apart from minting as well as security for the network.
Created in 2011, Namecoin explores the record keeping side of cryptocurrency technology. Therefore it acts as a peer-to-peer domain name search system for dot-bit domains. The system is decentralized and therefore people can easily search dot-bit domains using Namecoin. Furthermore, Namecoin tracks the transaction within the block chain ledger.
FreiCoin is a peer-to-peer network based on PROOF OF WORK concept. It imposes a ‘Demurrage fee’ for users who hoard money instead of spending it. The fee is charged at 5% annually and therefore encourages users to spend their money instead of hoarding it. The demurrage fee was proposed in order to eliminate the privileged position held by money compared with capital goods, which is always the main cause of boom and bust in business cycle as well entrenching financial elite.
Make sure to check out the PART II of this discussion as we continue to explore alternatives to bitcoin that you need to know.