Cryptocurrency, or a digital asset designed to use cryptography to secure its transactions, control the creation of additional units, and verify the transfer of assets, is a hot topic these days.
According to some, cryptocurrency promises to change how we do business, pay for services, and view the very nature of currency. The price of cryptocurrencies, including Bitcoin, Ethereum, Ripple, and Litecoin, fluctuate quite a bit. As of January 2018, there have been widespread fears that governments will crackdown on and more strictly enforce how cryptocurrencies are created, obtained, and used. However, given their myriad uses, cryptocurrencies seem to be destined for a long life, even if the debate over whether they will ever replace more traditional forms of currency rage on.
An important part about appreciating the current cryptocurrency situation, and why cryptocurrencies’ fluctuating values is so newsworthy, involves understanding the difference types of cryptocurrency, their uses, and their positive and negative aspects.
Bitcoin is the cryptocurrency that most people have heard of, even if they do not know how to obtain bitcoin.
Created in 2009, Bitcoin was the first decentralized cryptocurrency. It uses peer-to-peer technology to operate with no central authority. however, since its inception in 2009, other cryptocurrencies have been created, allowing individuals more opportunities to use digital assets to pay for goods and services. Bitcoin can be used to pay for services and transfer money. As of mid-January 2018, one bitcoin was equal to US$10113.55, but this value can fluctuate wildly.
Ethereum is an open-source, public, blockchain-based distributed computing platform.
It was first proposed in 2013, and crowdsale began in the middle of 2014. By July 2015, 11.9 million coins were “premined,” and available for sale. In 2017, Ethereum currency grew over 13,000%.
Ethereum provides users a cryptocurrency token called “ether.” These tokens can be transferred between accounts or used for compensation and payment. Ethereum is notable because it has “gas”, which is an internal transaction pricing mechanism used to reduce spam and allocate resources on the Ethereum network.
Ethereum is not without its issues, though. Some finance bloggers have commented that Ethereum can be used to run Ponzi schemes and other investment fraud. Of course, this is true of any currency; there is always a risk that a bad actor will manipulate a system to his or her own advantage, and is not necessarily a flaw in the currency’s design.
Ripple is a real-time gross settlement system and currency exchange and remittance network.
Released in 2012, Ripple is built on a distributed open source Internet protocol, consensus ledger and native cryptocurrency called ripples. Unlike other cryptocurrency platforms, Ripple supports a diverse range of tokens representing fiat currency, or currency that does not have intrinsic value; cryptocurrency; commodity; or any other unit of value, including such wide ranging items as frequent flier miles or mobile minutes.
Ripple is unique because its network can operate without the Ripple company. Other entities act as validators, including other companies, internet service providers, and even the Massachusetts Institute of Technology. Ripple is used by companies such as UniCredit, UBS, and Santander. It has been adopted by banks and payment networks as settlement infrastructure technology, making Ripple’s future seem bright and promising. Banks prefer Ripple over other cryptocurrencies, such as Bitcoin, because Ripple’s distributed ledgers system gives it a number of advantages over other cryptocurrencies. Ripple’s other advantages include its price and security.
Lastly, there is Litecoin, a peer-to-peer cryptocurrency and an open source software released in 2011.
Litecoin was inspired by Bitcoin, and functions in a similar way. Coins are created and transferred based on an open source cryptographic protocol, which is not managed by a central authority. Although Litecoin is not used by banks as much as Ripple and it is not as famous as Bitcoin, Litecoin has been successful. Its marketcap had reached US$20,000,000,000, and each litecoin was valued at approximately US$371.00 by December 2017.
Although it is based on Bitcoin, Litecoin differs in considerable ways from the more famous cryptocurrency predecessor. For example, the Litecoin Network aims to process a block every 2.5 minutes, rather than 10 minutes which is Bitcoin’s rate. Litecoin developers state that this rate allows Litecoin to have faster transaction confirmation. Additionally, Litecoin uses scrypt in its proof-of-work algorithm, which makes creating and mining Litecoin more complicated and expensive than Bitcoin.
Are cryptocurrencies like Bitcoin, Ethereum, Ripple, and Litecoin the future of money?
Will human civilization transition into an economy that is solely abstract and digital? The truth is that no one is certain, as of this point, what exactly cryptocurrency’s future will be. Nevertheless, cryptocurrencies are not going away; in fact, they are proliferating. Short of a global crackdown on cryptocurrency usage, it seems unlikely that this method of payment will disappear. With that in mind, perhaps in makes sense that so many people are investing in and using Bitcoin, Ethereum, Ripple, and Litecoin.