What (tf) is Bitcoin? What is the difference between Bitcoin, Ethereum, Ripple, Stellar and others?

Differences between Bitcoin, Ethereum, Ripple, Stellar, Litecoin, IOTA, NEM, Monero, Dash and Tether

Bitcoin

Correctness: proof of work

My entire life savings…

Bitcoin was invented as a first decentralized currency and payment system as opposed to the traditional payment systems and currencies which do require central financial institution or administrator. (1) Idea was to enable users to transfer funds without the need for a transaction to be cleared by the financial authority of trust. This would reduce cost and speed up a time for transactions to be executed. (2)

Technically transactions are grouped together into blocks, blocks are verified, timestamped and chained together using mathematical functions. Immutability is guaranteed by required Proof of work concept. (3)

Bitcoin attracts a billion dollar economy but also significant scientific interest which resulted in many more cryptocurrencies to be made.

It is created by unknown person or group with pseudonym Satoshi Nakamoto and first ever block was mined in January 2009. (4) (5)

The initial value of bitcoin transactions was negotiated by the users. One of the first transactions where the value was negotiated was a transfer of 10,000 BTC in exchange for two pizzas delivered by Papa John’s. (6)

How big it is? (Bitcoin, of course)

Ethereum (ETH)

Correctness: proof of work (possibly moving to proof of stake)

Programmer Vitalik Buterin, saw future in the development of decentralised applications which use blockchain as an underlying mechanism (7) and he argued that Bitcoin is missing scripting language for such application development. (8) Failing to gain agreement to change Bitcoin, he proposed the development of a new platform and cryptocurrency (9) with emphasis on smart contracts / scripting functionality embedded into currency itself. (10)

Development was funded by an online crowdsale that took place between July and August 2014. (11)

The system went live on 30 July 2015, with 11.9 million coins “premined” for the crowdsale. (12)

Ripple

Correctness: Ripple Consensus Algorithm (RPCA)

Jed McCaleb, Chris Larsen, Arthur Britto and David Schwartz began developing digital currency system that would resolve shortcomings of Bitcoin and Ethereum which use proof of work system. (13) (14) Instead of mining process which relies on blockchain ledgers, transactions were verified by distributed consensus among the members of the network. It was designed to eliminate bitcoin’s dependency on centralised exchanges, use less electricity than bitcoin, and perform transactions much more quickly than bitcoin. (15)

Ripple has been increasingly used by many financial institutions and partnered with banks such as Canadian Imperial Bank of Commerce (CIBC), UniCredit, UBS, Banco Santander. (16)

In November 2017, Ripple announced that American Express and Banco Santander’s U.K. unit were teaming up to use Ripple’s blockchain in a real-world payment scenario. (17)

As of January 26, 2018, XRP is the third largest coin by market capitalisation. (18)

Stellar

Correctness: Stellar Consensus Protocol (SCP)

Stellar transaction in progress…

Jed McCaleb, founder of Ripple company left the company in 2013 and went on to develop Stellar in 2014. (19) Stellar was initially based on Ripple but later they developed their own consensus protocol which was supposed to resolve issues of Ripple consensus algorithm (please see descriptions of RPCA and SCP above to see the differences between those two). (20) (21) (22) (23)

Stellar co-founder Joyce Kim claimed that there is a flaw in the Ripple protocol (24) but this statement was challenged in a blog post by Ripple Labs CTO, Stefan Thomas. (25)

In October 2017 Stellar and IBM partnered to increase the speed of global payments and news about that pushed Stellar to top 10 cryptocurrencies by market cap (26) (27) and partnership with the online payments company Stripe strengthened further its position on the market. (28)

Litecoin

Correctness: proof of work

Founded by Charlie Lee, a former Google programmer, (29) Litecoin was a fork from Bitcoin and intention was to improve the flaws in bitcoin and increase the speed of transaction times. The Litecoin Network aims to process a block every 2.5 minutes, rather than Bitcoin’s 10 minutes. (30)

In May 2017, a transaction was completed through Litecoin transferring 0.00000001 LTC from Zürich to San Francisco in under one second. (31)

IOTA

Correctness: the tangle, a directed acyclic graph (DAG)

IOTA is distributed ledger platform with MIOTA as its cryptocurrency which was founded in 2015 by David Sønstebø, Sergey Ivancheglo, Dominik Schiener, and Serguei Popov. As the protocol used to keep correctness of the network proposes no cost for making transactions, this payment system was initially made for micro-transactions between IoT devices. Other cryptocurrencies like Bitcoin could be too expensive for such transactions. (32)

IOTA is asynchronous network and that means there might be conflicting transactions which are eventually orphaned by running the algorithm proposed in The Tangle whitepaper. (33)

Untangling the Tangle

NEM

Correctness: proof of importance

Similar to the Bitcoin, author(s) of this cryptocurrency are unknown as they go with pseudonyms. (34) Platform was launched on March 31st, 2015, with the goal to provide a solution that resolves issues with the proof of stake and proof of work based currencies and to provide advance features such as multi-signature accounts, encrypted messaging, and reputation system. (35) (36) (37)

It is used in a commercial blockchain called Mijin, which is being tested by financial institutions and private companies in Japan and internationally. (38)

NEM focused attack on January 26, 2018, resulted in a loss of 523 million NEM coins worth approximately 534 million USD at the time of the attack. Attack was caused by the lack of strong security measures of the exchange that was the victim of the attack. This resulted in NEM development team to refuse to do hard fork to resolve the issue. Instead, stolen money was tagged and the system will track any account that receives tainted money. (39)

Monero

Correctness: proof of work

As tracing the transactions is possible in Bitcoin and other cryptocurrencies, Monero was built with the intention to provide privacy which has attracted illicit use. (40)

It uses the ring signatures to mix the spender’s address with a group of others, making it exponentially more difficult to establish a link between each subsequent transaction

Users can also use the “stealth addresses” which are generated for each transaction and make impossible to discover the actual destination address of a transaction by anyone else other than the sender and the receiver. (41)

Amount of the transaction can also be hidden. (42)

Monero is sometimes employed by Bitcoin users to break link between transactions, with bitcoins first converted to Monero, then after some delay, converted back and sent to an address unrelated to those used before. (43)

Dash

Correctness: proof of work

It was built on top of the Bitcoin but with intention to provide possibility of making private and instant transactions. (44) (45)

In order to achieve that it uses the additional two-tier incentivised network (Masternode network). Unlike in Bitcoin network where all work is done by miners, certain functions are performed by the network of “master nodes”. (46)

Interestingly it implements Treasury system which keeps ten percent of block rewards in order to pay for projects that benefit the network. (47) (48)

Tether

Correctness: proof of work

Tether is an unregulated digital cryptocurrency token backed by fiat currency (49) which was initially based on Bitcoin but later transitioned to Litecoin. (50) It aims to resolve issues with high volatility of other cryptocurrencies by the one­-to-­one ratio in a fiat currency which is stored and kept at Tether Limited’s bank account (51) but it is very controversial for its attempt to combine traditional centralised currency system with decentralised cryptocurrency (52) and inability to prove their one­-to-­one ratio in backed up fiat currency. (53) (54) (55) (56)


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  37. Blockchain Project Thinks Microsoft Azure License Agreement Goes Too Far April 15, 2016. CCN. Author: Justin OConnell
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