This guide looks at the different category of cryptocurrency market, focusing on the first category which represents pure cryptocurrency. This is the first part of the series that breaks down the crypto market into 12 major categories.
This guide takes a look at the first category in the Top 100 of the cryptocurrency market, which features cryptocurrencies with the core utility (use case) of being a medium of exchange. These coins are the purest definition of a cryptocurrency.
First Market Category: Pure Currency
Here are the following cryptocurrencies that belong to the first category, functioning as currencies:
The first and largest decentralized, open-source cryptocurrency that kickstarted the cryptocurrency ecosystem that we see now. With growing adoption and usage, Bitcoin is currently facing a core issue of scalability. The implementation of the upcoming Lightning Network looks promising and could alleviate most scalability concerns and also address its high energy consumption.
A pretty centralized currency that might become very successful due to its tight involvement with banks and cross-border payments for financial institutions; banks and companies like Western Union and Moneygram (who they are currently working with) as customers. In alignment with the cryptocurrency spirit, Ripple seems to be making plans to make it more decentralised. Ripple is capable of supporting a huge number of Transactions Per Second (TPS) due to its Proof of Correctness algorithm.
A decentralised, community-supported currency made entirely for the purpose of privacy and anonymity. Due to its untraceable nature, Monero offers true fungibility and is perfect for anyone that wants to exercise their natural autonomy for absolute privacy. Here’s a comparison of privacy coins.
Bitcoin Cash (BCH)
A Bitcoin fork with the main difference between having a block size which is 8 times bigger than the original Bitcoin, making it 8 times more scalable. Bitcoin Cash has recently increased in block limit to 32MB, thereby supporting greater amounts of transaction. This makes Bitcoin Cash a much faster and cheaper version of Bitcoin. There is a strong polarization between supporters of Bitcoin (Core) and Bitcoin Cash.
Opponents for increasing the block size limit argue that the solution is unimaginative, offers only temporary relief, and damages decentralization by increasing costs of participation. In order to preserve decentralization, the system requirements for participation should be kept low. Consider an extreme example: very big blocks (1GB+) would require “data centre-level” resources to validate the blockchain. This would preclude all but the wealthiest individuals from participating. (Read more: How Exchanges are Manipulating the Cryptocurrency Market)
Litecoin is a Bitcoin fork that is integrated with a different version of the Proof-of-Work mining algorithm. Additionally, Litecoin has a greater coin supply limit (84 million compared to Bitcoin’s 21 million) and average block time of 2.5 minutes (compared to Bitcoin’s 10 minutes), making it much faster to send Litecoin than it is to send Bitcoin.
Dash (Digital Cash) is a fork of Bitcoin and focuses on user-friendliness; it can process transactions at a relatively faster rate (within seconds), requires low fees and uses Proof of Service consensus algorithm. A unique feature of Dash it has a two-tier incentivized network of Masternodes and miners. They are currently building a system called Evolution, which will allow users to send money using simple usernames. You could say Dash is trying to be a PayPal of cryptocurrencies. Currently, there’s a fundamental tradeoffs for all cryptocurrencies; they have to choose two out of 3 traits of either decentralization, speed or scalability. With Masternodes, Dash chose speed and scalability at some cost of decentralization.
IOTA is often referred to as the 3rd generation blockchain powered by a new technology called Tangle. Tangle is a Distributed Ledger Technology (DLT) that allows for high scalability, no fees and instant transactions. IOTA aims to be the connective layer between all 80 billion IOT devices that are expected to be connected to the Internet in 2025, possibly creating 80 billion transactions per second or 800 billion TPS. However, it needs to be seen if the Tangle can keep up with their scalability pace and iron out its security issues that have not yet been completely resolved.
Nano, like IOTA, is also seen as a 3rd generation blockchain called Block Lattice, with features of high scalability, no fees and instant transactions. Unlike IOTA, Nano only wants to be a payment processor and nothing else, for now at least. With Nano, every user has their own blockchain and has to perform a small amount of computing for each transaction, which makes Nano perform at 300 TPS with little issues. In fact, 7,000 TPS have also been tested successfully. Nano looks to be a promising 3rd-gen technology with a strong focus on only being the fastest currency without trying to be everything.
As mining operations have grown, Bitcoin’s decision-making process has become more centralized, with the largest mining companies holding large amounts of computing power. Decred focuses heavily on decentralization with their Proof-of-Work/Proof-of-Stake hybrid governance system to become what Bitcoin was set out to be. They will soon implement the Lightning Network to scale up.
We’ve seen recently, that it’s difficult to scale the execution of smart contracts on the blockchain. Crypto Kitties is a great example; something as simple as creating and trading unique assets on Ethereum bogged the network down when transaction volume soared. Ethereum and Zilliqa will try to address this problem with Sharding. Aeternity focuses on increasing the scalability of smart contracts and decentralised applications (dApps) by moving smart contracts off-chain. Instead of running computations on the blockchain, smart contracts on Aeternity run in private state channels between the parties involved in the contracts.
State channels are lines of communication between parties in a smart contract. They don’t touch the blockchain unless there is a need to for adjudication or transfer of value. Because they’re off-chain, state channel contracts can operate much more efficiently. They don’t need to pay the network for every computation and can also operate with greater privacy. An important aspect of smart contract and dApp development is access to outside data sources. This could mean checking the weather in London, the score of a football game, or the price of gold. Oracles provide access to data hosted outside the blockchain. In many blockchain projects, oracles represent a security risk and potential point of failure, since they tend to be singular, centralized data streams.
Aeternity proposes decentralizing oracles with their oracle machine. Doing so would make outside data immutable and unchangeable once it reaches Aeternity’s blockchain. Aeternity implements a prediction market where users can bet on the accuracy and honesty of incoming data from various oracles. Aeternity’s network runs on a Proof-of-Work/Proof-of-Stake hybrid of proof of work and proof of stake.
Bitcoin Atom (BCA)
Bitcoin Atom is a Bitcoin fork that enables the integration of atomic swaps (cryptocurrency swaps without exchanges) and Lightning Network (scalability solution by using off-chain channels) that is powered by a Proof-of-Work/Proof-of-Stake hybrid consensus. Bitcoin Atom looks to be the only Bitcoin clone that is actually looking to innovate with the latest technology next to Bitcoin Cash.
(Read also: Guide to Common Crypto Terms)
In many ways, Dogecoin is a manifestation of the cryptocurrency community’s unique trait of revering memes. It was introduced as a ‘joke’ and quickly gained a vibrant community. Dogecoin is a fork off Litecoin and its main application is being a tipping currency for the general cryptocurrency ecosystem. Dogecoin has limited commercial applications.
Bitcoin Gold (BTG)
Bitcoin Gold is a pre-mined version of Bitcoin with the core differentiator of having an ASIC resistant algorithm. The reason for the creation of Bitcoin Gold was to break the centralization effects of Bitcoin, where Bitcoin mining has grown to be a centralized industry controlled by large and powerful entities. Having an ASIC-resistant algorithm ensures that the playing field is level, allowing normal, everyday users to take part in the mining process and reinstate true decentralization of Bitcoin. However, Bitcoin Gold suffered from a 51% attack in May 2018, thereby compromising the project.
(Read also: A Guide To Fundamental Analysis For Cryptocurrencies)
Digibyte’s Proof-of-Stake blockchain is spread over hundreds and thousands of servers, phones, computers, and nodes across the globe, aiming for the ultimate level of decentralization. DigiByte rebalances the load between the five mining algorithms by adjusting the difficulty of each so one algorithm doesn’t become dominant. The algorithm’s asymmetric difficulty has gained notoriety and has been deployed in many other blockchains. DigiByte’s adoption over the past four years has been slow. It’s still a relatively obscure currency compared to its competitors. There’s not much technical information about what the development team have planned for the future. Digibyte is similar to Bitcoin, but with shorter block times and a multi-consensus algorithm.
Bitcoin Diamond (BCD)
Bitcoin Diamond seems to be an exact copy of Bitcoin, with the main difference being that the supply of its coins is 10 times larger. Bitcoin Diamond is also looking to address the lack of privacy protection of Bitcoin and the slow transaction times. A possible contention is that Bitcoin Diamond is controlled by an anonymous (and therefore untrusted) team. There’s been little support for Bitcoin Diamond.
Beneficial Resources To Get You Started
If you’re starting your journey into the complex world of cryptocurrencies, here’s a list of useful resources and guides that will get you on your way:
Trading & Exchange
- Crypto Guide 101: Choosing The Best Cryptocurrency Exchange
- Guide to Bittrex Exchange: How to Trade on Bittrex
- Guide to Binance Exchange: How to Open Binance Account and What You Should Know
- Guide to Etherdelta Exchange: How to Trade on Etherdelta
- Guide To Cryptocurrency Trading Basics: Introduction to Crypto Technical Analysis
- Cryptocurrency Trading: Understanding Cryptocurrency Trading Pairs & How it Works
- Crypto Trading Guide: 4 Common Pitfalls Every Crypto Trader Will Experience
- Guide to Cryptocurrency Wallets: Why Do You Need Wallets?
- Guide to Cryptocurrency Wallets: Opening a Bitcoin Wallet
- Guide to Cryptocurrency Wallets: Opening a MyEtherWallet (MEW)
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