Types of Crypto Currencies

Types of crypto currencies

This post is in continuation of our series on cryptocurrencies.  

In the earlier post we talked about the origin of crypto currencies, their features and drawbacks, how funds are raised in the crypto currency market through ICO’s and the size of major crypto currencies in the world. In this post, we would throw a light on common crypto currencies available in the market.

1.      Bitcoin

The most popular and expensive crypto currency is the Bitcoin, which dominates over 40% of the market. It created a revolution in the market at the time of its launch as it was the first traded security that enabled peer to peer payments without requiring trust in either party or third party like a central banks. Because it is decentralized, one does not need to identify himself. It can be used to pay for products or services or as a gift to someone. In this, transactions are facilitated through Blockchain technology. There will only ever be 21 million Bitcoins in the market out of which 17 million have already been mined, only 4 million are left. This would inflate the Bitcoin prices when the volume increases to reach its threshold level.

How Bitcoin transactions takes place?

When a person sends Bitcoin, the transaction is confirmed and then stored on the Blockchain. The information on the Blockchain is encrypted, it can be seen by everyone but only the possessor of the Bitcoin can decrypt it. Every owner is provided a private key which is used to decrypt the Bitcoins they own.

Bitcoin is the most liquid currency compared to its peers with highest trading volume and hence is accepted as a mode of payment by online sellers. It is easy to convert Bitcoin to cash for currencies like USD and EUR. Since Bitcoins are not issued or backed by any central banks or governments, they are not a legal tender. Even then, due to its fame it has initiated the launch of new virtual currencies collectively denoted to as altcoins like Ethereum, Ripple, Litecoin and many more.

2.      Ether

Introduced in 2015, Ethereum is a decentralized software platform that supports the formation of Smart Contracts and Distributed Applications (ĐApps) to be built and run without any interruption, control, interference or fraud from a third party.  Smart contracts are bits of code that are written to the Blockchain, making them practically impossible to modify. The currency is knows as Ether (ETH). Ether acts as a medium to facilitate payments on the Ethereum platform and is sought by mostly developers looking to develop and run applications inside Ethereum. It can be utilized to “codify, secure, trade and decentralize almost anything.”

Ether would sustain in the long run as it would always be needed by the users of ĐApps on the Ethereum platform for payment of transaction fees. The speed at which Ethereum processes transaction is just a matter of seconds whereas Bitcoin transactions take more than 10 minutes.

3.      XRP  (Ripple)

Ripple is a real-time global settlement Blockchain network offering instant, certain and low-cost international payments. It was designed for the banks to make payments faster, with end-to-end transparency. It is popularly known as Banker’s coin. Ripple creation does not need mining unlike Bitcoins and other altcoins which decreases the usage of computing power and reduces network latency.

Ripple is currently the most trusted and safest crypto currency recognised by the banks and international institutions. Recently in India, Kotak Mahindra Bank and Axis Bank announced their decision to adopt Blockchain-based payment platform of Ripple as a way of making cross-border transactions. Standard Chartered too announced that it will use Ripple in channelling funds for the $15 billion trade corridor between India and Singapore. Acceptance of Ripple as a means of payment by the banks is a positive step for the overall crypto currency market.

Unlike other currencies mentioned above, Ripple is not decentralized. Ripple Labs, the company behind Ripple, holds most of the Ripple tokens (XRP). Constant monitoring and control by the company and large supply of Ripple keep its prices stable as compared to Bitcoin which is very volatile.

4.      Litecoin

Created by Charlie Lee, Litecoin is an update of Bitcoin. Essentially, the blockchain of Litecoin was part of Bitcoin's blockchain before the split and offering of Litecoin update in the market. It is popularly called as ‘silver to Bitcoin’s gold’. Litecoin is decentralized and uses scrypt as a proof of work, which can be decoded with the aid of central processing units of consumer grade. It can be used to make micropayments since Litecoin transactions are much cheaper as compared with Bitcoin transactions. A growing number of merchants have started accepting Litecoin other than the developers.

The major advantage of Litecoin over Bitcoin is its speed. The mining time for Litecoin is 2.5 minutes which is much faster as compared to Bitcoin which usually takes more than 10 minutes. Its rate of block generation is speedy and offers a faster confirmation of transactions. One of the purposes of Litecoin was to improve upon what Bitcoin had created. The number of Litecoins available for mining and circulation are 4 times the quantity of Bitcoin, offering high liquidity.

Most of the currencies mentioned are traded on Coinbase, which is the mainstream digital currency exchange for crypto currencies, except Ripple. It is a platform where investors can buy and sell Bitcoins with fiat money. One can store the crypto currencies they hold in the wallet provided by Coinbase.  The exchange platform for Coinbase is GDAX – Global Digital Asset Exchange, formerly called Coinbase Exchange. Trading for Bitcoin, Ethereum, Litecoin and Bitcoin cash is primarily offered on this exchange.  

More information on the current scenario of crypto currencies covering their misuse and its impact on the global markets and investors would be covered in the next post.

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