The world of digital currencies is vast and ever-evolving. This guide provides a clear overview of some of the most prominent cryptocurrencies, explaining their core purposes and underlying technology in straightforward terms.
Bitcoin (BTC)
Bitcoin is the pioneering cryptocurrency, introduced in 2009 by the pseudonymous entity Satoshi Nakamoto. It operates on a decentralized peer-to-peer network, secured by a revolutionary technology called blockchain.
It was designed as a decentralized digital currency, enabling direct online payments without the need for a central authority or financial institution.
Ethereum (ETH)
Ethereum is more than just a digital currency; it is a decentralized global software platform. Its native cryptocurrency is called Ether (ETH). It is best known for its smart contract functionality, which allows developers to build and deploy decentralized applications (dApps).
This capability has made it a foundational platform for innovations like decentralized finance (DeFi) and non-fungible tokens (NFTs).
Ripple (XRP)
Ripple refers to both a digital payment protocol and its native currency, XRP. It is designed to facilitate fast, low-cost international money transfers between financial institutions.
Unlike many cryptocurrencies, it is not based on a blockchain but uses a distributed consensus ledger and a network of validating servers.
Bitcoin Cash (BCH)
Bitcoin Cash emerged in 2017 from a "hard fork" of the original Bitcoin blockchain. The split occurred primarily due to a community debate on how to scale the network.
BCH increased the block size limit to allow for more transactions to be processed, aiming to be a more efficient digital cash for everyday payments.
Cardano (ADA)
Cardano is a third-generation blockchain platform that aims to be more sustainable and scalable than its predecessors. Its development is driven by scientific philosophy and peer-reviewed academic research.
Its native token, ADA, is used for transactions and for participating in the network's proof-of-stake consensus mechanism.
Litecoin (LTC)
Created in 2011 by Charlie Lee, Litecoin is often referred to as the "silver to Bitcoin's gold." It is a peer-to-peer cryptocurrency that was designed to provide faster transaction confirmation times.
It uses a different hashing algorithm (Scrypt) than Bitcoin, making it more accessible for mining on consumer-grade hardware.
NEM (XEM)
NEM, which stands for New Economy Movement, is a blockchain platform launched in 2015. Its native currency is XEM. It is notable for its unique features like its Proof-of-Importance (POI) consensus algorithm and its smart asset system, which allows users to easily create customized digital assets.
Stellar (XLM)
The Stellar network is an open-source platform designed to connect the world's financial systems and facilitate cross-border asset transfers. Its native digital currency is called Lumens (XLM).
It was co-founded by Jed McCaleb and aims to make financial services accessible to everyone, including the unbanked.
NEO (NEO)
Often dubbed "China's Ethereum," NEO is a blockchain platform and cryptocurrency that supports digital assets and smart contracts. Its goal is to build a "smart economy" by digitizing assets and automating their management through smart contracts.
It utilizes a delegated Byzantine Fault Tolerance (dBFT) consensus mechanism.
IOTA (MIOTA)
IOTA is a distributed ledger designed to power the Internet of Things (IoT). It does not use a traditional blockchain but instead relies on a directed acyclic graph (DAG) structure it calls the "Tangle."
This design allows for feeless micro-transactions and data integrity between machines.
Frequently Asked Questions
What is the main difference between Bitcoin and Ethereum?
Bitcoin was created primarily as a decentralized digital currency. Ethereum is a programmable blockchain that allows developers to build decentralized applications and execute smart contracts, with its currency, Ether, used to power these operations.
Why was Bitcoin Cash created?
Bitcoin Cash was created to address Bitcoin's scalability issues. By increasing the block size, it aimed to allow more transactions per block, resulting in lower fees and faster processing times for everyday payments.
Are Ripple (XRP) and Stellar (XLM) related?
Yes, they share a common co-founder, Jed McCaleb. While both focus on cross-border payments, Ripple primarily targets large financial institutions, whereas Stellar focuses on connecting individuals and smaller entities, including the unbanked.
What does "Proof-of-Stake" mean?
Proof-of-Stake (PoS) is a consensus mechanism where validators are chosen to create new blocks based on the amount of cryptocurrency they "stake" or lock up as collateral. It is an energy-efficient alternative to Bitcoin's Proof-of-Work (PoW) mining. To understand how different assets utilize these mechanisms, you can explore more on consensus protocols here.
What is a smart contract?
A smart contract is self-executing code stored on a blockchain that automatically executes the terms of an agreement when predetermined conditions are met. They eliminate the need for a trusted third party and are a core feature of platforms like Ethereum and Cardano.
Is IOTA a blockchain?
No, IOTA does not use a conventional blockchain. It uses a novel architecture called the Tangle, which is a type of directed acyclic graph (DAG). This structure is designed for high scalability and feeless transactions, making it suitable for machine-to-machine payments. For a deeper look at innovative ledger technologies, discover advanced distributed systems.