In this pack we’ll run you through the history and technology behind five of the most popular cryptocurrencies: bitcoin, ethereum, ripple, bitcoin cash, and EOS.
We’ll get the ball rolling with bitcoin, the OG cryptoasset – launched in 2008 by Satoshi Nakamoto (spoiler: that’s a pseudonym).
I’ve heard about bitcoin, but what is it? Without bitcoin (BTC), the cryptoasset market would simply not exist. Although there were precursors to bitcoin, such as b-money and bit gold, it was the invention of blockchain technology – the decentralized digital ledger underpinning it – that changed the game. Hence, bitcoin is considered the original crypto, and laid the foundations on which a majority of cryptocurrencies now operate.
Why is it so popular? The timing of its launch played a part: in October 2008, only weeks after the collapse of Lehman Brothers, then the fourth largest investment bank in America, the mysterious and still-masked figurehead of the Bitcoin movement published the now famous white paper, Bitcoin: A peer-to-peer electronic cash system.
What problem does it solve? The anonymous author (or authors) of the white paper proposed “a purely peer-to-peer version of electronic cash would allow online payments to be sent directly from one party to another without going through a financial institution.”
The first bitcoin was mined in January 2009, when the global economy was reeling from the last major financial crisis. There were significant concerns over trust, privacy, autonomy, and liberty with the mainstream financial system – many of which persist today – and bitcoin offered a potential alternative solution.
The white paper, which spawned the cryptocurrency craze, states: “No mechanism exists to make payments over a communications channel without a trusted party. What is needed is an electronic payment system based on cryptographic proof instead of trust, allowing any two willing parties to transact directly with each other without the need for a trusted third party.”
Bitcoin and more advanced cryptos have solved numerous problems outlined by Bitcoin’s founder, causing some people to posit that this form of digital currency represents the future of money. With an inbuilt safeguard against double spending, fraud and false identity – thanks to the blockchain technology – greater transparency, plus lower fees for cross-country transactions, and by being free from government interference, cryptos might one day transform payment systems around the world. Or they might not. Time will tell.
So who controls bitcoin? Like any other crypto, bitcoin relies upon peer-to-peer technology to operate and a method of mining limits the generation and creation of each coin. There’s no central authority involved in its creation, transaction or storage; rather it is administered by the blockchain and governed by community members.
Mining bitcoin involves powerful computers that solve sophisticated puzzles to unlock new coins. As with other cryptos, the more coins mined, the more difficult the mining becomes and the more effort (computer oomph and electricity) it requires.
There are a limited number of coins that can be introduced. There are more than 17 million bitcoins in circulation, meaning less than 4 million of the 21 million total are yet to be mined. That endpoint is expected to be reached in 2140.
Ever since the Ethereum network was launched in July 2015 by Vitalik Buterin, its associated currency – also called ethereum, or ether (ETH) – has proven hugely popular.
How is it different to bitcoin? If bitcoin is a digital payment system, Ethereum is all about utility. To appreciate its benefits, it’s worth understanding the Ethereum network. It is a decentralized, open-source, public-distributed computing platform that runs smart contracts: applications that run exactly as programmed without any possibility of downtime, censorship, fraud or third-party interference.
The Ethereum network has given rise to almost 2,000 decentralized applications (DApps), built and deployed by developers. This programmable blockchain technology has many applications; digital currency is only one of them.
Until recently, developers seeking to build blockchain applications have needed a background in coding, cryptography, and mathematics, as well as significant resources. Ethereum changed that. Previously unimagined applications – from electronic voting and digitally recorded property assets to regulatory compliance and trading are now actively being developed and deployed faster than ever before – have been made possible by providing the tools with which the developers can build DApps.
How does it work? In the Ethereum protocol and blockchain there is a price for each operation. Ether is simply the unit of cryptocurrency used on the Ethereum blockchain, and is used to pay for computer processing time and for transaction fees. It’s frequently compared to bitcoin, but it’s not actually a competing currency. However, Ethereum and ether wouldn’t have been possible without bitcoin, and there are many similarities between the two. For example, they’re both blockchain-based cryptocurrencies and can be mined by users around the world.
So when will all the ether be mined? While the annual supply of ether is limited to 18 million, Ethereum could theoretically continue to introduce new currency and make its supply unlimited. Conversely, bitcoin’s supply is capped at 21 million. Another key contrast with bitcoin is the processing speed; bitcoin transactions take around 10 minutes, whereas an ether transaction takes an average of 15 seconds.
XRP is three-letter name for a digital currency launched in 2013 by Ripple Labs – often (wrongly) just called “ripple”.
Ripple Labs has three main products: xCurrent, xRapid and xVia. xCurrent is its flagship tool, which gives banks the ability to efficiently move money across borders and doesn’t utilize XRP (this is what most of its financial partners are using). xVia is similar to xCurrent, but targets non-financial institutions, such as corporations and payment providers, helping them to send money through banks (this also doesn’t use XRP). xRapid helps banks improve liquidity – when trading in emerging markets, for example – and does make use of XRP.
Why should I care about XRP? In a word: speed. Ripple can handle 1,500 XRP transactions per second, which is in a different league than Bitcoin’s 7 per second (although this may change with the introduction of the lightning network, which promises millions of transactions per second). Transaction speed is important to compete against mainstream debit and credit card giants – Visa tops the market with 45,000 transactions per second.
How is XRP mined? XRP tokens aren’t mined – unlike bitcoin and others. All the 100 billion original XRP tokens were created by Ripple Labs. They’re held in a special account and released in batches of varying size each month. Each transaction on Ripple’s network has a cost, which destroys a tiny fraction of an XRP token – to stop hackers overloading the system. This has the side effect of slowly making XRP more scarce, and hence helps support its value.
Ripple Labs’ software is starting to be adopted by banks but the native XRP token has yet to be used by financial institutions on a significant scale. Critics cite Ripple’s relative centralization compared to other cryptos, as well as its price volatility, as two key risks. Some expect that as soon as one bank uses XRP, the rest will quickly follow.
Bitcoin cash (BCH) burst on to the crypto scene in early August 2017, and was the result of the first major “hard fork” in the history of digital currency.
These activists forged a new version of the world’s most famous cryptocurrency (bitcoin) because they were frustrated by its sluggish processing speed and inability to cope with a large number of transactions. At peak trading times bitcoin transactions could take hours. In short, bitcoin had grown too big for its own good, and the Bitcoin network could not cope.
What’s new about bitcoin cash? Bitcoin cash is similar to bitcoin in terms of protocol – it’s capped at a supply of 21 million tokens and has the same block times and reward system. However, it’s superior in terms of block size (32MB rather than 1MB), meaning it can store more information (transactions) in each block. It also uses a slightly modified algorithm to speed up the mining process when the network is congested.
It didn’t take wry commentators long to name the hard fork “Bitexit”, and the incident divided opinion. Many commentators insist the bitcoin cash hard fork, and the global news it generated, precipitated the bull run enjoyed by bitcoin and the other cryptos in late 2017. Whatever the case, bitcoin cash – described by those behind the project as “the best money in the world” – quickly became a highly sought-after investment instrument.
Bitcoin cash’s long-term success is dependent upon bitcoin’s progress. As the two cryptos stem from the same network they remained tethered, though they are rivals, and when the price of one asset goes up the other often falls.
And so we come to EOS, which – like Ethereum – aims to create a platform on which developers can build distributed software applications (DApps).
EOS is the name of the token that runs the EOS.IO blockchain protocol. The whole thing was developed by a Cayman Islands-based company called block.one. Owning EOS gives you access to bandwidth and storage on the EOS.IO network – in proportion to how much you own.
How is it different to Ethereum though? EOS’s main claim to being an “Ethereum killer” comes from its boasted greater speed – which EOS hopes will enable “commercial scale” applications.
Technologically, the EOS environment uses C++, a very old programming language that might make it harder to hack.
And while ethereum and bitcoin use a system called proof-of-work to verify transactions – which uses a lot of energy powering the computers that perform the complicated sums involved – EOS has developed a new method called delegated proof-of-stake. This means EOS can’t be mined, only purchased.
So which is better? It’s far too early to tell. EOS only launched in June 2018, following a year-long coin sale during which it raised a whopping $4 billion. There are hardly any real-world applications as yet.
How did they attract such interest? A lot of the buzz was down to the company’s founders: Brendan Blumer, a serial tech entrepreneur, and Dan Larimer, who had previously created Bitshares, a decentralized exchange, and Steemit, a decentralized social network.
Phew! That’s a lot of tokens. Thanks for sticking with us.
Disclaimer: These articles are provided for information purposes only. Occasionally, an opinion about whether to buy or sell a specific investment may be provided. The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment advisor.