An Intro to Cryptocurrencies

A Guide to the Major Cryptocurrencies

There are thousands of different cryptocurrencies in circulation. Some are ‘currency’ cryptocurrencies like Bitcoin and Litecoin that are intended as an alternative to fiat currencies. Others are ‘utility’ cryptocurrencies such as Ether and Ripple’s XRP, which can only be ‘spent’ within the environment of a specific blockchain to pay for its use. Yet others are ‘tokens’ which are similar to utility cryptos but are spent in decentralised applications build on smart contract blockchains such as Ethereum. They don’t have their own blockchain and are numerous.

Thousands of cryptocurrencies have been brought into existence since Bitcoin was launched in 2009. But it is safe to say that only the biggest 20 or so can be considered to have serious overall market capitalisation and a reasonable chance at a significant future. That’s not to say it’s impossible a dark horse cryptocurrency that hasn’t gained immediate traction might not come to the forefront in future years but it’s hard to tell which that might be or how likely it really is to happen.

The majority of cryptocurrency investors, traders and enthusiasts will stick to the several biggest cryptocurrencies. As of early 2019, the five biggest cryptocurrencies by market capitalisation are:

  • Bitcoin
  • Ethereum
  • XRP (Ripple)
  • Litecoin
  • EOS

Here we’ll offer a brief overview of the five.

Bitcoin

Still by far the biggest cryptocurrency by market capitalisation Bitcoin is also the ‘original’ cryptocurrency as the first to be released. Blockchain technology, which supports all other cryptocurrencies and has other potential wide-ranging applications outside of being an alternative to the fiat monetary system, was invented for Bitcoin.

Released in 2009 by an anonymous creator or creators under the pseudonym Satoshi Nakamoto, Bitcoin was represented as a solution to criticisms of the fiat monetary system. The total number of Bitcoin that can ever be in circulation is 21 million. The cap means ‘money printing’ cannot lead to inflation. As of March 2019, Bitcoin’s market capitalisation is just under $70 billion.

There is some doubt whether the version of blockchain technology that Bitcoin uses is efficient enough to mean it can ever really become a widely used as an alternative to fiat currency. Critics argue that the amount of electricity the mining process uses and the slow speed of transaction verification means Bitcoin’s underlying technology lacks the efficiency to truly scale to what would be required for a practical currency. For now it can be said that Bitcoin acts more like the cryptocurrency equivalent to gold – a commodity that offers a store of value that is protected by inherent scarcity.

Ethereum

The second largest cryptocurrency with a market cap of a little under $14 billion as of the time of writing, Ethereum, or Ether as the blockchain’s native cryptocurrency is called, is very different to Bitcoin. Ethereum is a smart contracts platform used to build and host decentralised applications (Dapps). It was developed as an antidote to the oligopoly of app development and distribution platforms dominated by Apple and Android.

Ether cryptocurrency units are used to pay for the Ethereum network’s bandwidth, such a developing and hosting a Dapp or using one.

XRP (Ripple)

XRP, the native cryptocurrency of the Ripple payments processing platform is a crypto with a difference. Sometimes referred to as the ‘establishment’ cryptocurrency, Ripple is a private blockchain so not a P2P network like almost every other major cryptocurrency. It’s a centralised transaction network built on blockchain as an alternative to the incumbent payments systems such as SWIFT.

Fiat currency transactions are converted into the XRP cryptocurrency, sent through the Ripple network and then converted back into fiat on arrival. Ripple has already established partnerships with numerous financial services providers. The system is designed to be a faster and cheaper alternative to current payment transfer systems with particular value for cross-border transfers.

Litecoin

A rival to Bitcoin, Litecoin was also created as a cryptocurrency alternative to fiat currencies while attempting to resolve its bigger brother’s weaknesses. One of Bitcoin’s problems is that transaction speeds can be slow because of the complexity of the cryptography miners have to solve. Litecoin transaction speeds are much faster. The cap on the final number of Litecoins that can ever be in circulation is also, at 84 million, much higher than Bitcoin’s 21 million.

A drawback of Litecoin is that its mining process is even more memory-intensive than Bitcoin’s so requires expensive hardware. And while it can be argued that in some ways the blockchain technology used by Litecoin is more efficient than Bitcoin’s earlier version, the fact is Litecoin hasn’t really challenged Bitcoin’s position as cryptocurrency top dog. It has a market capitalisation of $3.3 billion as of March 2019 compared to Bitcoin’s $68.3 billion.

EOS

If Litecoin is Bitcoin’s closest challenger among the ‘currency’ cryptocurrencies, EOS is a direct competitor of Ethereum. It’s also a smart contracts blockchain platform for Dapps to be built on. One of Ethereum’s greatest problems has been issues encountered with scalability. Its fully decentralised proof-of-work blockchain methodology has meant transactions speeds have significantly slowed down during unexpected peaks. It takes some time for the mining community to adapt to fluctuations in demand.

EOS is a newer platform and argues that it uses more sophisticated blockchain technology which makes Dapps built on it more scalable. EOS uses a ‘delegated proof-of-stake’ model that means only 21 nodes act as the ‘stakers’ that verify blocks. This improves scalability as the network doesn’t need to wait for a consensus from thousands of nodes.

There are other cryptocurrencies of significance outside of these top 5 and their positions in the market capitalisation league table do change with relative regularity. Nonetheless, a brief overview of the current top 5 offers some insight into the broader cryptocurrency world.

Steven King
We’re a new age Broker providing clients access to the Global Financial Markets by using only Crypto Currencies.