Despite warnings about Bitcoin’s market volatility and unregulated nature – with detractors such as Warren Buffett dubbing the cryptocurrency “the latest economic bubble” – cryptocurrencies have captured investors’ imaginations.
While bitcoin (BTC) was the first publicly available cryptocurrency and is the most recognisable and popular –the ATO recently released guidelines around the tax treatment of cryptocurrencies – there are plenty of “altcoins” out there that have marketed themselves as competitive substitutes.
Here we look at some of the features of other leading cryptocurrencies and their key advantages when stacked up against the behemoth that is bitcoin.
1. Litecoin (LTC)
On face value, Litecoin’s features are similar to bitcoin, but there is a good reason for this resemblance. When ex-Google engineer Charlie Lee devised Litecoin in 2011, he built upon Bitcoin’s open-source software with the aim to address bitcoin’s limitations, and is regularly quoted as creating Litecoin to be the “silver to bitcoin’s gold”.
The main differences between the two are that thanks to faster block generation and the ability to better parallel process transactions, Litecoin has cut down the time of processing transactions from bitcoin’s 10 minutes to a speedy 2.5 minutes, and can handle a larger volume of transactions at once.
Litecoin is also considered a more egalitarian equivalent to Bitcoin as its divergent algorithm makes mining difficult for automated processing devices, which led to the monopolisation of bitcoin by larger, more technologically-savvy corporations.
Another reason Litecoin has flourished can be somewhat attributed to Lee’s personal efforts to further the value of the cryptocurrency – the relatively faceless bitcoin doesn’t have an obvious public leader and advocate.
2. Ripple (XRP)
Ripple comprises a settlement and exchange system that allows users to make overseas finance transactions in real-time with no fees incurred, meaning it is a favourite for those looking to convert international currencies.
A major difference between Ripple and other cryptocurrencies is its more centralised structure, a governance strategy which seems to be aimed more towards alignment with larger financial companies.
A private company, Ripple issues its own tokens and thus doesn’t rely on open-source mining, the incentivised block validation and reward system that many cryptocurrencies, including bitcoin and Litecoin, rely on (as participation from many people provides computational resources to power their blockchains).
Ripple’s resemblance to a “central bank” has led many crypto proponents — including Litecoin’s Charlie Lee — to assert that Ripple is not a ‘true’ cryptocurrency.
Such criticisms have not led to any waning of interest in Ripple. With recurring news that the major banks are impressed and potentially interested in adopting such technology, and the fact Ripple is in the third-most used cryptocurrency at the time of writing, XRP is widely considered to be a strong contender against BTC based on its high rate of market adoption and relative stability.
Related: Is bitcoin a speculative bubble?
3. IOTA (IOTA)
IOTA is a unique case compared to bitcoin as its verification processes are fundamentally different, in that it uses a ‘blockless’ ledger called Tangle as opposed to standard blockchain technology.
The IOTA coin was purpose-built to interface with the Internet of Things (IoT), a concept that relates to how “any device with an on and off switch” (think mobile phones, whitegoods, kitchen appliances) can be connected to the internet and to each other. This machine-to-machine communication is already at play and has powerful implications for how we will live and organise our everyday life in the future. Who wouldn’t love an alarm clock that commanded your coffee machine to independently brew your morning cup while you’re still rolling out of bed?
IOTA founders created the system to allow machines to share resources efficiently, such as when a device detects that they need to buy more resources (such as electricity, storage, bandwidth) or alternatively sell excess resources.
The IOTA/Tangle network supports transactions between devices by simply verifying each new transaction against two previous transactions at random on the network, meaning it is an instant, less centralised and more scalable system than blockchain and it doesn’t rely on miners. Each new active device cleverly contributes to the overall processing power of the Tangle chain.
4. Monero (XMR)
Monero’s overwhelming advantage over bitcoin is that it offers a means of anonymously exchanging money, affording users a superior level of online privacy.
While bitcoin transactions can be linked back to a blockchain user’s public address, and thus discernable by anyone who knows a user’s public address, the secret behind Monero’s untraceable transactions relies on the use of “one-off” addresses and a method dubbed ‘ring signatures’.
Ring signatures can disguise the sender and recipient of funds to the wider blockchain of users by randomly selecting a number of unrelated users to appear in the transaction records, thereby rendering the real participants a mystery.
Related: Should governments control bitcoin?
5. Ethereum (ETH)
A key difference between BTC and ETH is that while bitcoin has positioned itself as an alternative to traditional currency and thus its value lies in being a “store of value”, Ether tokens were designed chiefly to drive and monetise the exchanges on its peer-to-peer (P2P) network.
When a user buys and sells Ether tokens, the tokens go towards financing the services enabled by the Ethereum P2P network that primarily hosts contracts and other applications.
The platform’s distinct advantage is that it can finalise transactions at a much faster pace than bitcoin, but bitcoin aficionados need not worry despite Ethereum nipping at its heels as the second most-popular blockchain technology.
Given the difference between the two in terms of methodology and aims, Ethereum is not considered a direct competitor to bitcoin and harmoniously addresses the functional limits of the latter.
With these alternatives to bitcoin in mind, a little research goes a long way in determining which cryptocurrency suits your aims best.
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