In recent weeks, cryptocurrency has filled the news and the markets have followed suit. For many people, cryptocurrency is still a pretty foreign subject. Today, we will break down the three major cryptocurrency coins including Bitcoin, Ethereum, and Litecoin.
Since its introduction in 2009 by a person or persons using the alias Satoshi Nakamoto, Bitcoin has quickly grown in value to become one of the most valuable assets today. For instance, in mid-August 2017, Bitcoin recorded a high of $4,483.55, giving it a market capitalization of $73.5 billion, according to CNBC. To put that in perspective, only 73 companies on the S&P 500 had a higher market capitalization than Bitcoin at that time.
There are several reasons that make Bitcoin highly appealing to investors. For starters, Bitcoin is decentralized, meaning no single authority (government or central bank) controls it. Instead, it exists in a peer-to-peer network called a blockchain. Second, the Bitcoin blockchain is secured using two cryptographic hash functions (SHA256 and RIPEMD), making it inalterable and safe from hackers. Third, all Bitcoin transactions are recorded on a public ledger, meaning it is easy to verify transactions. Fourth, only 21 million Bitcoins will be created, meaning the value of this cryptocurrency will likely increase over time. Fifth, Bitcoin addresses are essentially a long string of 34 alphanumeric characters, meaning they offer users anonymity.
To acquire Bitcoin, you have to buy them on a bitcoin exchange, receive them from someone who owns Bitcoin or mine them. Mining Bitcoin essential entails verifying pending transactions and recording them in the blockchain. Once you acquire Bitcoin, you have to store them in a Bitcoin wallet, which is basically a digital wallet that would allow you to carry out Bitcoin transactions such as receive and send Bitcoins and pay for goods. Today, many online businesses, including Dell and Expedia, as well as non-profits, such as Wikipedia, accept Bitcoin.
Conceptualized in late 2013 by Vitalik Buterin, one of the first programmers involved with the Bitcoin code, Ethereum is basically an open source software powered by blockchain technology. In other words, Ethereum is not a digital currency. However, the Ethereum network has its own native currency called Ether. With that in mind, the Ethereum platform has a more general scripting language compared to Bitcoin’s blockchain. For this reason, it allows users to build a wide range of blockchain-based products including digital currencies, distributed applications, and smart contracts. Additionally, the Ethereum platform allows users to create democratic autonomous organizations (DAOs), thanks to its Ethereum Virtual Machine (EVM), which can execute commands using an international network of public nodes. Ethereum’s EVM is particularly important because it allows users to decentralize centralized systems and therefore enjoy the benefits of decentralized blockchain applications including low transactional costs, security, and inalterability.
Similar to the Bitcoin blockchain, the Ethereum platform creates new Ether when “miners’ add new blocks to the platform, with a miner receiving five Ethers for each new block added. It takes an average of 12 seconds to create a new block, but the supply of new Ether is limited to 18 million Ethers per year. At present, Ether has a market capitalization of nearly $28 billion, making it the second largest cryptocurrency after Bitcoin.
Introduced in late 2011 by Charles Lee, a former Google engineer, Litecoin is a digital coin like Bitcoin. However, the two cryptos vary in terms of their hashing algorithms. Specifically, Litecoin uses a scrypt algorithm, which was originally named as s-crypt. Because of this, it takes significantly less time to mine a Litecoin block (2.5 minutes on average) compared to the time it takes to mine a Bitcoin block (10 minutes on average). As of August 2017, Litecoin had a market cap of about $3 billion.