Cryptocurrencies are a type of digital money which acts as an alternative to normal currencies, like dollars, that are issued by governments of different nations. Cryptocurrencies can be used for purchase of numerous different products available in online marketplaces, from cyber pets, to airplane tickets, to desserts. Cryptocurrencies are not available as paper bills or metal coins, but as digital encrypted codes.
Cryptocurrencies are protected from counterfeiting and fraud by the innovative blockchain technology. This advanced system consists of cryptographically protected ledgers which record entries of transactions validated by the majority of participating computers or nodes in the blockchain network. Thus, there is no central authority, such as a central bank, that approves the transactions. Blockchain technology is designed for users who do not trust a central authority or others in management of their money or transactions.
Digital currencies, like bitcoin and its competitors, are free from the actions of a central authority which can indulge in different practices to achieve certain governmental targets. For example, the central bank can alter the amount of money in circulation by changing the supply of currencies so as to lower inflation or stimulate economic growth. The lack of interference by a central authority allows cryptocurrencies to fall and rise as per changes in demand and supply in the global marketplace.
Presented below is a list of the top 5 cryptocurrencies.
- BTC or Bitcoin
Bitcoin was designed as a digital currency in 2008 and created using complex software codes. The aim of the cryptocurrency was to validate and protect monetary transactions without the help of government institutions or a central bank. A newly created blockchain system was used to verify each online transaction within the blockchain network by different computers or nodes participating in the blockchain network. The computer that was able to first validate the transaction as an honest transaction would be rewarded a bitcoin. This is how bitcoins were initially mined. Bitcoins are not mined in material form but are digitally available as strings of codes or numbers. Such virtual or digital currency has a complex verified history attached to it and hence it is near impossible to counterfeit it.
The original bitcoin software code limits the total number of bitcoins that can be mined or created to 21 million. However, there are no restrictions on the size of fractions of a bitcoin. Thus, it is possible to use 100th fraction of a bitcoin for a transaction. It may be noted that the value of 1000th of a bitcoin is currently more than the worth of the first bitcoin that was mined. An unlimited supply of this digital money will have an adverse effect on the demand and supply equation. The limited supply of bitcoins is what has resulted in the significant rise in its price.
The price of bitcoins has been soaring and many investors are regretting not having put their money in this cryptocurrency when it was being traded at a significantly lower price. One bitcoin was worth nearly $12,000 last week, while in 2013 one bitcoin was worth around $12. The total market capitalization of bitcoin currently stands at nearly $300 billion. It may however be noted that investors do not have purchase a whole bitcoin. You can buy or sell fractions or a bitcoin from any of the exchanges that trade varied currencies like euro, dollar, etc., for bitcoins.
Bitcoin has many critics and it has been dismissed by some as a fad on the internet or as something that finds preference with illegal businessmen or merchants who want to circumvent the laws or taxes. Even if the bitcoin survives such criticism and skepticism and becomes a useful tool of exchange in the long-term, its current prices may be indicative of a bubble. There is the possibility of the system being hacked, but the monetary incentive of hacking a majority of the participating computers and keeping them running (to take hold of the bitcoin blockchain system) vis-à-vis the benefits of availing bitcoins as a reward for being a participating computer, is far less. Hence, hacking can be ruled out for the moment. There is also the possibility that a government regulation can prevent transactions using bitcoin and make it illegal, as has been done by China.
- ETH or Ethereum
Ethereum is the blockchain network that helps manage its cryptocurrency ‘tokens’ known as ether. It was created in 2014 by a former writer at Bitcoin Monthly with increased focus on more decentralization of transactions.
Ethereum is different from the bitcoin blockchain network in its applications. The former is a decentralized and open platform where users pay for transaction services and fees using ether. Also, unlike bitcoin network, this platform is available for transactions other than just selling or buying. It can be used for voting systems, crowdsource funding, decentralized apps, insurance, and social networking.
In late 2016, the price of per unit of Ethereum was just $10 and currently it is trading at more than $1290 per unit. It has a market capitalization of nearly $70 billion.
Some of the benefits offered by Ethereum are listed below:
- It is a permanent blockchain network and there is no interference by any third party institutions.
- It is not centralized and has no encrypted, risky cryptography. Its applications are thus extremely safe and secure.
- The applications of ethereum are based on the principle of ‘majority decision’ wherein all participating computers have a say. It cannot be restricted by a bunch of powerful people.
- The system cannot be closed or stopped at any point in time as it is based upon the blockchain system.
- LTC or Litecoin
Litecoin was among the first few cryptocurrencies that were launched after bitcoin. It was popularly known as ‘silver to the gold of Bitcoin’ which indicated that it was a slightly less expensive but more easily available cryptocurrency.
Litecoin was launched in 2011 by Charlie Lee as a faster substitute to bitcoin. It can process a block every 2 and a half minutes as compared to the 10 minutes taken by bitcoin to process a block. Lee was a former engineer at Google and is a graduate from MIT.
Litecoin code is written on a global, open source payment network without any control being exercised by some centralized authority. It makes use of ‘scrypt’ as evidence of work and one can decode it with the assistance of consumer grade CPUs.
Litecoin may have many similarities with bitcoin, but its rate of block generation is much faster. It can thus offer faster confirmation rate for transactions. Litecoin has been accepted by many developers as well as a rapidly growing group of merchants. Litecoin does not tend to focus on large transactions, but caters to merchants who require big volumes of smaller transactions to get processed more rapidly.
The market cap of litecoin is nearly $5.5 billion and it is trading at over $100 per unit.
- XRP or Ripple
Ripple is a digital form of money that connects payment processors and banks. It is poised to be a replacement for the IBAN system which is costly, outdated, and very slow in comparison to Ripple.
Ripple was launched in California in 2012 by former developers of bitcoin. Several experts believe that XRP is the rational successor of bitcoin.
Ripple is fast becoming one of the main sources of banks as a system for remittances and global payments. Ripple differs from bitcoin in the sense that it is not just a form of digital money, but also a network that can be used for trading and transfer of any currency. It can be said that Ripple is like Western Union, but without the high charges and fees.
In 2017, the price per unit of Ripple rose by more than 40,000 percent and is currently trading at nearly $2.50 per unit. The market cap of ripple is nearly $10 billion.
Some of the benefits of Ripple are listed below:
- It permits the transfer of money to any place on the planet in only 4 seconds.
- More than 100 banks across the globe support this cryptocurrency system
- Among all the current digital currencies, Ripple is most scalable as it permits more than 1,490 transactions every second.
- It has ensured liquidity by placing 55 percent of all Ripple coins in ESCROW
- It is efficient as well as stable
Dash is considered to be a more secretive type of cryptocurrency. It provides more privacy and anonymity to the transactions by working on a decentralized mastercode system which conducts transactions in a near untraceable manner. The two-tiered network is made up of coin ‘miners’ who are supervised by ‘masternodes.’ The latter is a decentralized network of volunteers who validate the transactions.
Dash was launched by Evan Duffield in 2014 and has since become quite popular with users. The system can be mined using a GPU or a CPU. This cryptocurrency underwent a lot of name changes. It was initially known as XCO or XCoin, then the name was changed to ‘Darkcoin,’ and finally the name Dash was adopted. Dash is an abbreviated form for Digital Cash and it functions under the ‘DASH’ ticker.
The different changes in its names has not affected its fan following. Neither have any of the technological features of Dash been changed. For example, InstantX and Darksend features remain the same.
Dash has a market cap of nearly $6 billion and it trades at a price of over $750.
*The views expressed above are personal. Readers are requested to do their own analysis and study before taking any action.