The Cryptos: An Overview
Trying to figure out what the difference is between Bitcoin, Ethereum, Ripple, NEM, Litecoin, Golem, Augur, and the 700+ other cryptocurrencies listed on http://coinmarketcap.com/? Read on for an overview.
Background
On October 31, 2008 Satoshi Nakamoto, a person who went silent in 2010, published “Bitcoin: A Peer-to-Peer Electronic Cash System,” a white paper proposing a “a system for electronic transactions without relying on trust.”
In plain English (for technical explanation see Wikipedia or Bitcoin.org), Nakamoto proposed Bitcoin, a virtual gold and banking system that does not rely on a central institution. You know how some video games have virtual gold and you rely on the game, the central institution, to reliably tell you how much gold you have? And how if the video game developer wants to cheat they can give their friends extra gold or take your gold away? Nakamoto created a virtual gold system that works outside the confines of a video game and relies on a blockchain, or system of majority voting (so yes if you control over half the votes you can cheat) by participants to track gold holdings and spending instead of a central institution. This means even Nakamoto, the developer of Bitcoin, the virtual gold system, cannot cheat and give himself extra Bitcoin (gold) or take away your Bitcoin. Every transaction ever made in Bitcoin is also public — you can see every Bitcoin transaction ever right here https://blockchain.info/.
On January 3, 2009 Nakamoto released the first version of the Bitcoin software based on his white paper and now just over 8 years later, all the Bitcoin in circulation has a market cap of over $35 billion. After Bitcoin’s release people improved it and released new coins (virtual gold systems). These new coins became known as altcoins.
In 2013 Vitalik Buterin proposed Ethereum, a blockchain based distributed computing platform that runs user created programs in the form of Turing-complete smart contracts — basically a big public computer you can pay to use with the Ethereum gold known as Ether. One feature of Ethereum is that it is very easy to make new tokens (coins) that live in the Ethereum system. Before Ethereum, a new altcoin needed to recruit users to participate in its system (need many participants to prevent a majority vote attack!). With Ehtereum this is no longer necessary — developers can create tokens on top of the Ethereum network and not have to worry about recruiting users to its system.
Today there are over 700+ altcoins that can broadly be divided into four categories: 1) currencies, 2) currency systems, 3) platforms, 4) app tokens, and 5) equity tokens.
1. Currencies
Currencies are decentralized virtual gold systems just like the original Bitcoin. Currencies tend to focus on individual and merchant adoption instead of bank adoption like the Currency Systems mentioned below.
Two examples of currencies with basic improvements to Bitcoin are Litecoin and Dogecoin.
Bytecoin, Dash, and Monero are three privacy focused currencies that are all based on the privacy-centric CryptoNote technology. Zcash is another privacy focused currency.
2. Currency Systems
Currency Systems are similar to the Currencies mentioned above with one key difference — they are focused on large bank and financial institution adoption instead of individual and merchant adoption. Currency Systems aim to modernize the international banking and money transfer system. Read Chief Cryptographer Explains Ripple’s Big Vision for more info on the massive potential of Currency Systems.
There are three major Currency Systems: Ripple, NEM, and Stellar.
3. Platforms
Platforms serve as a host system for other coins and allow developers to build on top of them.
The biggest platform is Ethereum — it has a market cap of $15 billion, second only to Bitcoin. There is also Ethereum Classic which grew out of Ethereum when a major Ethereum smart contract (program) was “hacked” — long story, for details read about The DAO.
Another platform is Stratis which has significant development and consulting services offered by the company that created it.
4. App Tokens
App tokens come in countless varieties but generally are used to pay for a product/service in lieu of cash. Some examples are Storj (cloud storage), Augur (a prediction market), and Golem (a supercomputer). For more, just scroll down the list of coins at http://coinmarketcap.com/currencies/views/all/ — most of them are app tokens. Click one to go to its page (e.g. GameCredits) and then click the “Website” link in the top left to go to its homepage to learn more. For example, “GameCredits is creating a new payment gateway for the gaming industry” — their idea is that instead of paying for games with a credit card, you’ll be able to pay for them with GameCredits.
5. Equity Tokens
Equity tokens give token holders equity returns related to some underlying investment, asset, company, fund, etc. One example is Blockchain Capital, a venture capital firm that raised $10M of its $50M fund via an equity token that does not trade yet.
ICONOMI has Digital Asset Arrays which are similar to index funds.
How to Buy
Coinbase provides an easy way to buy Bitcoin, Ethereum, and Litecoin. To buy other altcoins I recommend buying Bitcoin on Coinbase and then immediately (Bitcoin can be volatile!) transferring it to Bittrex where you can trade Bitcoin for other altcoins.
Poloniex is the biggest cryptocurrency exchange but I do not recommend it — their site has been crashing and having significant performance problems. They also delayed a withdrawal for days and did not answer support inquiries.
Warning Note: Do not store any coins on any online service, exchange, etc (see Mt. Gox failure). After buying your coins you should transfer them to your own locally stored and secured wallet — big topic so Google but beware of scams that will steal your coins. For Bitcoin see here.
