A Cryptocurrency is a virtual or digital medium of exchange using encryption techniques to control the creation of intangible monetary units and verification of fund transfer. Easy to use and trade, secure, fast and decentralised… is why cryptocurrencies have gained immense popularity.
Whether it was 2009 when ‘Bitcoin’ made its first ever appearance into the rapidly evolving tech-savvy community of users and investors, back then- proposing itself as the new face of digital payments, unleashing itself upon the economies world over- introducing the world to the very concept of a cryptocurrency; OR even today as we slowly come close to bidding adieu to 2019- a decade has swiftly passed and yet the essential questions on what really is a cryptocurrency, how does it work, what can one do with it.. dilemmas, potentials, scope, issues on cyber securities, the-much-created-hype, and you name it, what not- around the cryptocurrencies; do not really seem to have been slowing down their pace.
Cryptocurrency, almost instantly transferrable, decentralised the value system, captivating the interest of industries, organisations and governments.
The technology that sustains the existence of cryptocurrency is the peer-to-peer network Blockchain, an incredibly ingenious invention by a person / group of people known by the pseudonym, Satoshi Nakamoto, offering a decentralized ledger of all transactions. Progressively, the technology community found other potential uses for this invention.
The advent of cryptocurrencies brought evolutionary changes in the payment system and every day, with over 1500 cryptos currently in circulation, and new tokens being introduced frequently, it is impossible for market participants to stay on top of the market. The world has been quite receptive to the adoption of the blockchain technology and allowed the evolution of crypto economy since its inception in January 2009, with many governments extending support in its accelerated development while others staying wary.
Worldwide, cryptocurrencies have not been entirely implemented into the financial systems with a bespoke legal framework in place; however, they are not banned either. Certain challenges still remain related to the underlying technology as well as legal, economic and social considerations.
Discussing the Popular Cryptocurrencies
Bitcoin and cryptocurrency markets are extremely volatile yet independent of most mainstream indicators that conventional currencies, commodities, stocks and shares are susceptible to. After experiencing heavy losses with the onset of 2018, the Bitcoin price, has shown good signs of recovery in 2019, hovering around $ 8,000 per bitcoin mid-2019. The other crypto peers including Bitcoin cash, Ethereum, and Ripple's XRP have also delivered substantial gains in the recent months.
The leading crypto in terms of market capitalization, user base, and popularity is Bitcoin followed by other virtual currencies such as Ethereum and Ripple. Lately, some altcoins are also being endorsed for more advanced features vis-à-vis bitcoins.
Let’s look at how eight of these cryptos have been fairing so far:
- Bitcoin (BTC)
Bitcoin is the original cryptocurrency (digital gold), using Proof-of-Work (PoW) consensus, with the largest blockchain network and is the most resilient against attackers. Although no single entity can control this decentralised system and transactions are consistently verified by powerful computers, making it impossible to reverse them. It enables two parties across different parts of the world to buy bitcoin and send money that had never been possible.
Shortcoming: Rising demand has stressed Bitcoin’s scalability. The system can typically handle 5-7 transactions per second. As the volume of transactions grows, fee shoots up plus the processing takes a long time. Visa and Mastercard, on the other hand can apparently handle ~2000 transactions per second, posing a large gap for Bitcoin to be a global payments system.2. Ethereum (ETH)
Ethereum, currently using PoW, offers a built-in programming language which allows developers write computer programs and new applications, called smart contracts, that run on the blockchain network. The developer platform allows decentralised applications (or Dapps) to be built on top of Ethereum. Most initial coin offerings (ICOs) so far have been based on Ethereum smart contracts. It will eventually shift to Proof-of-Stake (PoS).
Shortcoming: Due to the size of transaction capacity, Ethereum faces the same scalability roadblock as Bitcoin. Since the crash of crypto prices in early 2018, it became more evident that the market for Dapps is much smaller than anticipated. In addition, the smart contract security space is immature and vulnerable to hacking.3. Ripple (XRP)
It takes days and a hefty fee to execute international payments, and Ripple solves this issue as its crypto-token, XRP, is used as a “bridge currency” that financial institutions, including banks and payment providers, use to settle cross-border transactions at low fee charges.
Ripple is a distributed ledger (but not a blockchain) owned and operated by Ripple Labs, using a ‘proof-of-correctness’ consensus that processes transactions more swiftly than Bitcoin or Ethereum.
Shortcoming: Ripple is not a decentralised crypto as the company Ripple owns most of the XRP tokens in circulation. Not to say that it won’t be further successful, however, it does not belong to the same category as BTC or ETH and has a long way to go for establishing itself as a reliable platform internationally.4. Bitcoin Cash (BCH)
Bitcoin Cash, also known as Bitcoin clone, was born out of a rift in the Bitcoin community over network scaling issues. Thus, Bitcoin Cash was hard forked from Bitcoin in August 2017, using PoW consensus, and those in favour of an increase in the Bitcoin block size had split to Bitcoin Cash (with each block being 8MB compared to Bitcoin’s original 1MB).
Shortcoming: As anticipated, the creators of Bitcoin Cash have been endlessly trying to prove the legitimacy of BCH over BTC.5. EOS (EOS)
EOS is often compared to Ethereum and currently, EOS tokens are traded on Ethereum. Meanwhile, EOS is building a proof-of-stake platform, which theoretically makes transactions faster and more efficient with EOS having broader range of features.
Shortcoming: The downside of EOS is that it is the youngest crypto, so less can be commented upon, before the network has launched.6. Litecoin (LTC)
Litecoin is an alt-coin, that is Bitcoin with few tweaks (a faster Bitcoin). It processes transactions way faster and its mining process is designed to remain open to hobbyists unlike the case with Bitcoin.
Shortcoming: Since Litecoin runs on a very similar blockchain network to Bitcoin, it is expected to have similar scaling problem once the network grows past a certain size. The Litecoin network development community is reportedly preparing in advance to address this anticipated issue.7. Stellar (XLM)
The ledger of Stellar is a hard fork of Ripple and thus, it aims for its lumens to be a bridge currency for cross-border payments. The network is run by a non-profit, instead of a for-profit company, planning to challenge Ethereum as a platform for ICOs. Stellar blockchain is operation with a Stellar Consensus Protocol.
Shortcoming: Stellar, too, faces quite a competition from both Ripple and the traditional banking system’s dominant platform, SWIFT. Otherwise, there are few concerns around this crypto.8. Tether (USDT)
Tether is a cryptocurrency, with no consensus mechanism, pegged to the value of a US dollar (price equal to USD 1.00), and therefore termed as a ‘stable coin’, that can be moved between exchanges, without the trader needing to cash out for real dollars.
Shortcoming: Tether has had issues proving its claim that it keeps a 1:1 reserve of real US dollars for every USDT released, which caused many to be wary of this token offering.
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