Xpedition Week 6: All About Altcoins
What are Altcoins?
Following Bitcoin’s success, many peer-to-peer cryptocurrencies were launched to mimic Bitcoin’s success, and also to improve on the flaws of Bitcoin. These coins are known as Altcoins, which stands for “Alternative Cryptocurrencies”. There are several categories of altcoins, namely stable coins, mining-based coins, utility tokens, security tokens, and non-fungible tokens (NFTs). The following will provide a brief understanding on the various altcoins.
Stablecoins: Cryptocurrencies which are pegged to either another cryptocurrency or fiat-money. This minimizes the volatility and these coins usually do not experience large daily price fluctuations. The most popular stablecoin in the crypto world is Tether (USDT), which has the backing of gold and traditional currency.
Mining-Based: Similar to Bitcoin, these coins are mined using PoW which creates new blocks by solving for the correct hash. Examples of such include Litecoin and Zcash among others.
Utility Token: This type of coin is used within a platform to receive a service. These tokens are created with the intention of it being spent within a certain blockchain ecosystem. Examples include Filecoin and Siacoin.
Security Tokens: These tokens operate as investment contracts. Think of these tokens as traditional stocks where equity is promised by giving ownership or a dividend payout to holders.
Non-Fungible Token (NFT): An NFT is a cryptographic asset on a blockchain that represents real world objects like music, art, in-game items etc. NFTs have unique identification code on them that differentiates them from each other and are stored in smart contracts. In this way, users cannot duplicate or divide NFTs, promising a ‘uniquely yours’ ownership.
Firstly, lets learn more about Ripple (XRP)! Ripple is a technology that acts as both a cryptocurrency as well as a digital payment network. Ripple was co-founded by Chris Larsen and Jed McCaleb in 2012 and its currently one of the top Altcoins based on market capitalization.
Ripple’s main process is a payment settlement asset exchange and remittance system, similar to what we know of as SWIFT (Society for Worldwide Interbank Financial Telecommunication) system for international money transfers which is used by banks as the middleman for financial transactions across currencies. However, with SWIFT, there is a need of middleman. The idea of Ripple is to serve as a trusted agent between 2 parties in a transaction so that the network can quickly confirm and verify the transaction. Ripple can also facilitate the exchanges of fiat currencies, cryptocurrencies and even commodity like gold. Do you know how this is done? Using XRapid, the digital currency, XRP acts as a bridge currency to other currencies. In this way, currencies can be easily exchanged from one to another.
What about its consensus mechanism? Rather than using PoW or PoS that we have learnt about previously, the Ripple network uses a unique distributed consensus mechanism to help validate transactions in which participating nodes verify the authenticity of a transaction by conducting a poll, enabling almost instant confirmation without the need of central authority. This distributed consensus mechanism also means XRP consumes negligible amounts of energy as compared to Bitcoin. (0.00001133kWh in XRP vs 118kWh in BTC).
After we have learnt all these about Ripple lets end off with a fun fact. Did you know that XRP is in the process of a lawsuit with SEC (The Security and Exchange Commissions). This is because it was alleged that XRP has been an unregistered currency since 2013, and the SEC believes that Ripple’s sale for the past 7 years was an illegal securities trade. As of now, there are no updates on this case but who knows what the future might hold?
Besides Ripple, Cardano (ADA) is yet another crypto technology, or more precisely, a POS blockchain platform (head over to https://medium.com/mexcglobal/xpedition-week-3-intro-to-ethereum-part-1-d51d10613cb9 if you are still unsure about POS!). Founded in 2015 by Ethereum Co-founder, Charles Hoskinson, Cardano aims to facilitate peer-to-peer transactions using its own currency, ADA. Hoskinson envisioned Cardano to be the solution to many of the problems in the existing open-source community and some improvements of that was seen in Cardano’s multiple layers of settlement and computations, POS consensus mechanism, and its easy-to-upgrade function. More importantly, with recent interests and environmental concerns in cryptography, Cardano is hailed as environmentally friendly.
Furthermore, apart from sharing similar functions to Bitcoin and Ethereum, Cardano also helps to maximize security throughout the blockchain with its staking system. Another unique feature is that in Cardano, it is the token holders who vote and decide on the changes to the protocol instead of miners as in usual blockchain projects. When there is a new development proposed to the Cardano blockchain, Cardano crypto holders can use their ADA to vote on those proposals. Such a unique feature, Matcha believes, allows for a greater agency amongst the token holders.
At the point of writing, ADA is said to be developing their technology such that ADA can be used to power smart contracts and applications on the secure and decentralized Cardano blockchain. Having said that, all these require Cardano coins to work. Hence, it is up to our Xplorers to evaluate the costs and benefits of doing so!
We hope that you have a better understanding of Altcoins! Stay tuned for more educational content each week! Happy Learning and do check out our social media postings for this week’s Xpedition!
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