Over 1,300 different virtual currencies have already been created, each one having a different technology platform, purpose, protocol, and of course price. Understanding the differences between the different coins will help you figure out which coins you feel most comfortable investing in. For the purposes of this discussion, we will investigate seven of the most popular coins as of December 2017: Bitcoin, Litecoin, Ether, Dash, Monero, Bitcoin Cash, XRP, and Dogecoin.
COINS / VIRTUAL CURRENCIES
The first and most widely recognized digital coin. Bitcoin was created with the release of an academic white paper in 2009 by an individual using the pseudonym Satoshi Nakamoto. The real identity of this individual has never been revealed and remains a mystery to this day. Several individauls have come forth claiming to be Satoshi Nakamoto, but none have been able to provide positive proof.
Bitcoin was the first to utilize the concept of the blockchain as a distributed ledger that recorded all transactions. By protocol, only 21 million bitcoins will ever be created, making the coin inflation-proof. Blocks are 1 megabyte in size, and are produced every 10 minutes. Bitcoin originally had a capability of approximately 4-5 transactions per second. In August of 2017, Bitcoin implemeneted a scaliing technology called segregated witness which increased the number of transactions per second by roughly 130%. Even with this solution, at only 6-7 transactions per second Bitcoin falls far short of being able to process the tremendous backlog of transactions. For perspective, PayPal can process 193 transactions per second, while Visa can do almost 1,700 tps.
The little brother of Bitcoin, Litecoin was created in 2011 by Charlie Lee, then a programmer working with Google in San Francisco. Mr. Lee saw the potential for Bitcoin, but realized that there were several limitations which he believe would limit the usefulness of Bitcoin as a currency used on a daily basis. To overcome these limitations, Mr. Lee doubled the block size from 1 megabyte to 2, and allows for blocks to be solved every 2.5 minutes. These changes resulted in an increase from 6-7 transactions per second to 56 transactions per second. The developers of Litecoin are working to scale this even larger, however. The soon to be released Lightning Network will allow for off-chain scaling which could increase the theoretical transactions per second into the millions. Additionally, Mr. Lee increased the number of coins that could be created to 84 million, or four times that it bitcoin. All of this was designed to make the coin more available to the average consumer.
Mr. Lee also saw companies creating dedicated machines to mine bitcoin, and realized that with powerful ASICs, bitcoin would move further and further away from accessibility by the general public. To combat this, Mr. Lee changed the hashing algorithm from SHA256 to Scrypt. This change made it more difficult, but not impossible, to create ASICs that could mine Litecoin.
Litecoin has historically integrated advanced features and technologies before bitcoin, and because of the protocol similarities it has often been referred to as the bitcoin test platform.
Ethereum is vastly different from coins that attempt to be digital currencies. Ethereum doesn't care about payment processors at all, in fact. Ethereum's goal is to use blockchain technology to build a decentralized, smart contracts platform. The creators of Ethereum realized that a typical coin transaction that says "User A sent X coin to User B on this date and time" was the logical equivalent to, if not the de facto definition of, a contract. The creators of Ethereum built the coin to be able to accommodate far more complicated contracts, even including real estate lease agreements, loans, and even full-blown applications.
Because the stated design goal of Etehreum is quite different, the protocol is also very different. Since there is no way to ever know how many contracts will need to be added to the blockchain, Ethereum is not bound by protocol to a fixed number of coins that will be generated. In fact, the number is theoretically infinite. Ethereum as originally designed can process 20 transactions per second, but the release of the Raiden Network in the near future should allow for an off-chain scaling solution that allows for millions of transactions per second.
Impress your friends: Although everyone almost universally refers to this coin as Ethereum, technically the name Etehereum refers to the network on which the coin runs. The actual coin itself is called Ether.
Dash was originally created by Evan Duffield and released as XCoin in January of 2014. In February of 2014, it was rebranded to DarkCoin. In March of 2015, the coin was once again rebranded into its now current Dash form. Dash is a portmanteau of digital cash, which belies the design criteria for this coin. Dash is one of several coins in a class of "pre-mined" coins. Within the first few days of its existence, 1.9 million Dash coins were mined, or about 10% of the total allowed supply. Since its release, the Dash core development team has grown to 30 full-time employees, 20 part-time employees, and dozens of volunteers. When blocks are successfully mined on the Dash network, ten percent of the rewards are automatically set aside to fund continued development, and it is from this fund that the Dash core development team is paid.
Dash is a two-tier blockchain system known for incredibly quick transaction times. Dash maintains the same 1 megabyte block size as bitcoin and the same 2.5 minute block solution time as litecoin. This currently gives Dash about 4x the transactions per second capacity of bitcoin, although it should be noted that the Dash community has already agreed to increase the block size if required.
For more information, click here.
Originally released in April of 2014, Monero's design criteria was to be a fully secure and private digital currency. Bitcoin's ledger includes all wallet addresses that have ever been used to send or receive a coin. By tracing multiple transactions from the same wallet addresses, it was determined that some of the anonymity usually ascribed to bitcoin was lacking, and in fact some of the addresses were completely traceable given transaction activities. Monero sought to correct this.
Monero uses X11 as it's hashing algorithm. X11 is actually a chained combination of 11 different algorithms, hence the name. Monero transactions are completely private and secure due to its obfuscation of the blockchain transactions. Not only the addresses, but even the amounts of the transactions are private in the Monero system. Three different subsystems are utilized to provide this privacy. As a result, Monero is fungible, meaning that any Monero coin is identical to any other Monero coin. By contrast, as bitcoins are traceable, certain bitcoins that were known to have been involved in illicit activities can be blacklisted and refused by members of the distributed network.
Bitcoin Cash was created in 2017 by Roger Ver as a hard fork of bitcoin. A long time player in the Bitcoin game, Mr. Ver saw the backlog of transactions becoming increasingly large with time and sought a way to lessen the backlog while simultaneously decreasing transaction fees. The result of his efforts was Bitcoin Cash which in essence only increases the block size from 1 megabyte to 8 megabytes. This increases the theoretical transactions per second to approximately the same 56 tps that can be accommodated on the Litecoin network, although Bitcoin Cash lacks some of the more technologically advanced features of other coins, including segregated witness, confidential transactions, or smart contracts technologies.
Many in the cryptocurrency community have strongly criticized Roger Ver and the Bitcoin Cash team for their use of the Bitcoin name. The use of Bitcoin in the name is seen as nothing more than an attempt to confuse the industry into thinking that Bitcoin and Bitcoin Cash are the same thing. To combat this, many have begun to refer to Bitcoin Cash as BCash.
Dogecoin is a digital currency featuring the likeness of a Shiba Inu dog. It was originally created by Billy Markus as a "joke" currency in December of 2013. Dogecoin has over 100 billion coins in circulation, and although there has been no vendor adoption of the coin, it has come to be used as an internet tipping system. The Dogecoin protocol has been modified to allow for an unlimited quantity of Dogecoin to be mined.
The Dogecoin community is known for some outrageous crowd-funding efforts. A gold coin is scheduled to be launched into space in 2019 and be placed onto the surface of the moon. This has given rise to the common digital currency phrase "to the moon" to describe explosive coin valuation increases.
The 2014 Winter Olympics saw a Jamaican Bobsled team qualify for the Olympics but were unable to afford the travel. The Dogecoin community was able to raise $50,000 to assist them in financing their travels.
In March of 2015, the community raised 67.8 million Dogecoin and sponsored NASCAR driver Josh Wise at Talladega Speedway. His car was emblazoned with Dogecoin colors and logos.
Like Ethereum, Ripple's primary purpose is not as a digital currency. Ripple was designed as a payment protocol, and has found its largest use as an interbank transaction system. The first bank to adopt the Ripple platform was Fidor Bank in Germany in early 2014. Since then, Ripple has garnered tremendous corporate support from companies and banks including Deloitte, Mitsubishi Financial Group, National Bank of Abu Dhabi, the Royal Bank of Canada, Santander, and Earthport (whose clients include Bank Of America and HSBC).
Ripple is another of the "pre-mined" coin category. At its inception, 100 billion Ripple were created, with 20 billion retained by Ripple's creators. By protocol, no more are allowed to be created.
Ripple is considered a semi-private ledger. Transaction information on the ledger remains public, while payment information is not. This makes it difficult (if not impossible) to match individuals or corporations with transactions.
The Ripple ledger can sustain 1,000 transactions per second without off-chain protocol extensions, making it one of the fastest payment processors available.
Impress your friends: Although everyone almost universally refers to this coin as Ripple, technically the name Ripple refers to both the network on which the coin runs as well as the name of the privately held company that owns this technology (i.e., be aware that this is NOT a decentralized currency like the rest!). The actual coin itself is called XRP.