Cryptocurrency is a peer-to-peer digital currency that uses cryptography to generate currency and validate transactions. The currency is decentralized, meaning that it doesn’t depend on any country’s economy and isn’t controlled by any central bank.
Countless of cryptocurrency types have been recorded so far, but most of them originate from the first such digital currency, Bitcoin and share a common algorithm (Scrypt, SHAH, etc.) . Some of the derivatives, known as altcoins, include Litecoin, Namecoin, Peercoin and Ripple (although Ripple is not really an altcoin in the same sense). Most of the cryptocurrencies gradually introduce new units into circulation, but have a cap on how much currency will ever be issued. This helps prevent hyperinflation and maintain their value, similar to that of precious metals, which remain valuable because of their scarce amount.
Cryptocurrencies were designed as a counter-culture movement, with the purpose of shifting the control over money back into the hands of the people rather than states and financial institutions. The digital money can be easily used across borders, is hard to counterfeit, cannot be easily seized by law enforcement, provides a high degree of privacy and can be stored on one’s hard drive. Here’s a quick overview of several of the most popular cryptocurrencies currently in circulation.
Update 2014: Altcoin Prices Decoupled – “Worthless” For Speculation But Possible Advantages For Businesses
We have compared prices of various Altcoins and Bitcoins. Although Bitcoin has lost over 50% of its 2013 peak value, it is the least volatile currency and by far the most important. Investments into altcoins are NOT recommended. You can integrate them into your business to provide alternative payment options, but speculations on a price increase is risky because the market has realized that altcoins will never replace Bitcoin. Even if another viable player emerges it cannot replace Bitcoin right away due to the capital invested into Bitcoin businesses.
That still doesn’t mean they are useless. Altcoins have some advantages. Litecoin transactions for example are considerably faster (although most exchanges now deposit Bitcoin after only 2-3 confirmations instead of 6). Other coins have very specific uses for niche businesses like songcoin, devcoin, etc.
1 The Mother Of All – Bitcoin:
Bitcoin was the pioneer among cryptocurrencies and the most valuable one among them as well, trading at a whopping $500 (2013 high avg: $1145.56) (with currently consistently high fluctuations) at the moment. It was introduced as a an electronic currency and payment network in 2009, utilizing cryptography for securing transactions.
The payment messages are electronically signed and broadcast to a decentralized computer network around the world. The operators of such computers are called bitcoin miners. They are awarded with newly minted bitcoins and small transaction fees. To be able to send and receive money, you can use a Web wallet that will hold your bitcoins, or install a software wallet on your computer or a mobile wallet on your phone.
If Bitcoin is considered Internet’s gold, Litecoin is often compared to its silver. This cryptocurrency has also seen a lot of growth, with a current value of $5 (2013 high avg: $43.99). Just as its name suggests, Litecoin was designed as a lighter version of Bitcoin, duplicating a lot of its features, but having a shorter block rate, which means faster transactions.
It also uses a different proof-of-work system than Bitcoin, scrypt rather than SHA2. Scrypt supposedly prevents miners from using specialized chips to boost their mining efficiency, and thus makes the playing field more equal for everyone. Many people who didn’t join the bitcoin mining craze early on started mining litecoins as an alternative, the latter providing a mining system more accessible for everyone.
Another popular alternative cryptocurrency, Peercoin is currently valued at $0.8 (2013 high avg $6.24). Its major differentiating feature is that Peercoin has no hard cap on the amount of currency that can be mined. This means that it will eventually attain a 1% inflation rate, which could possibly boost its longevity.
Right now Peercoin uses the same proof-of-work mining system other digital currencies use, but the plan is to eventually transition it to a proof-of-stake setup. While the former model makes the mining power dependent on one’s processing power, the latter calculates your mining efficiency based on the size of your holdings and the age of your coins, or the amount of time they’ve remained static. This model reduces energy waste and the possibility of anyone with extremely high processing power taking over the system.
Namecoin’s current value is $1.15 (2013 high avg $9.60). This cryptocurrency also follows Bitcoin’s model, but stands out thanks to some added functionality. Besides its role as currency, Namecoin also manages information access and acts as a peer-to-peer form of ICANN. It costs 0.01 namecoins to register a domain and have it recorded on the blockchain. So while keeping its functionality as a currency, Namecoin serves as a Domain Name System, which allows it to reduce downtime and prevent Internet censorship.
Unlike the majority of other altcoins, Ripple doesn’t really resemble Bitcoin or follow its model. Instead, it was designed to complement virtual currencies as well as fiat ones. The downside of it being so unique is that learning how it works involves time for people new to this currency.
Similarly to HTTP or TCP/IP, Ripple is an Internet protocol, although it was designed for sending and receiving payments. It acts similar to email that you can use to send money, no matter what financial institution or provider you are using. Ripple consists of a payment network, distributed exchange and virtual currency, ripples, which at the moment cost $0.004 (2013 high avg $0.058).
Feathercoin is one of the most recent altcoins, released in 2013 and costing $0.02 right now (2013 avg: $0.68). It produces 16 times more coins per block than Bitcoin and has the same level of security as Litecoin.
At $0.000296 (2013 high avg: $0.053) , Fastcoin is still a lot cheaper than other altcoins, but it has its potential. True to its name, Fastcoin claims to be the fastest one on the market of cryptocurrencies. It is a clone of Litecoin, also using scrypt and all the advantages that come with it. The block rate is only 12 seconds, as compared to Litecoin’s 2.5 minutes and Bitcoin’s 10 minutes.
Devcoin’s value is quite low right now, just $0.0000045 (2013 high avg: $0.00059). This cryptocurrency was created with its own purpose in mind, aimed at helping developers, writers, designers and other creative individuals fund their open-source projects. It’s called an “ethical currency” for this reason. Devcoins are earned as a proportion to project development, and according to Devcoin’s site, anyone who wants to do the work will receive some devcoins, although the amount might not be high.
Primecoin too was inspired by Bitcoin and shares a lot of its source code. Its block generation rate is in the middle between Bitcoin and Litecoin, at one block per minute. The transaction confirmation time is faster as well, among several other small differences. Primecoin costs $0.20 (2013 high avg: $5.89).
Novacoin is valued a little higher, at $0.90 (2013 high avg $26.36). This cryptocurrency uses a mix of a proof-of-work and proof-of-stake systems, the latter meant to address the vulnerabilities of the former. This setup decreases the risk of cyber-attacks and the likelihood of anyone gaining monopoly over coins. Similarly to Peercoin, Novacoin has no hard cap either, meaning that it was designed to experience dynamic inflation over time.
The rates of each cryptocurrency fluctuate drastically all the time. The values given in this article are the current ones as of August 30, 2014 – High average based on December 4, 2013.