What is the difference between different digital currencies?
In the year 2009, there was one encrypted digital currency, the Bitcoin currency, then it developed into dozens of currencies with different projects, but now the encrypted digital currencies number in the thousands, some of them are similar and others are different. In this article, we will explain the three main types of cryptocurrencies: Bitcoin, alternative cryptocurrencies, and crypto tokens.
All of these digital currencies that we will touch on share their work on the blockchain network.
1- Bitcoin
It is called the father of cryptocurrencies as it is considered the first cryptocurrency that originated and was launched in January 2009, over time the value of Bitcoin doubled to become today the largest cryptocurrency in terms of total market capitalization. As for how Bitcoin works and the basics around it, we have previously discussed all of this in detail. You can return to the article from the title:
What is BITCOIN
Thus, we move to the other titles of the article, and we will return later to compare Bitcoin with the rest of the cryptocurrencies and mention its pros and cons.
2- Alternative Cryptocurrencies
Alternative cryptocurrency means any other currency alternative to bitcoin and the majority of altcoins are just alternative versions of bitcoin with minor changes. It is important to understand that not all altcoins are just alternative versions of bitcoin, there are some differences from bitcoin and they have completely different goals and purposes.
Some altcoins use different algorithms than Bitcoin, for example, Stellar is an alternative currency that uses the PoS mechanism. In the PoS mechanism, there are no miners, instead, there are pledges and stakes in the network.
Underwriters are people who verify transactions in exchange for rewards, just like miners. But instead of racing to check a block before anyone else does, they are chosen one by one to take their turn. Which consumes much less electricity because they don't use thousands of miners trying to verify the same block, instead, there is only one "contractor" per block.
Thus, not all altcoins are very similar to Bitcoin.
In fact, Ethereum and Neo are good examples of alternative currencies, and very different from Bitcoin, as it is known that Bitcoin is used as a digital currency. Well, Ethereum and NEO are not designed to be used as a digital currency, instead they are designed as massive platforms to build applications on the blockchain. Where you can actually create your own applications, which is also the most common way to create new digital currencies, are created on the blockchain that allows the creation of applications, such as Ethereum and Neo.
All of this is possible because Ethereum introduced a new technology into the crypto world when it was launched in 2015. This technology is called a smart contract. A smart contract can automatically execute transactions when certain things happen. These "things" (also called conditions) are written into the smart contract when it is created. For example, a condition could be something like:
When Omar sends 120 ETH to the smart contract, Karim's house key will be sent to Omar.
Because of smart contracts, there is no need for a third party, in bitcoin it means that there is no need for a third party in direct payments, but smart contracts mean that there is no need for a third party in a lot of things like selling the house or selling electricity or selling shares in the stock market…etc. Of course, you can't put all of this stuff into a smart contract, can you?
So, instead, a token is placed in the smart contract that legally represents things. One of the best things about smart contracts on Ethereum, Neo and the like is that real things can be encoded and put on the blockchain.
3- Encrypted tokens
The third main type of cryptocurrency is crypto tokens, compared to the other two main types of cryptocurrency, crypto tokens are actually quite unique from what was previously mentioned as they do not have their own blockchain. They are used as dApps; These are the applications that we touched upon that can be built on a blockchain such as Ethereum and Neo.
dApps are designed to use smart contracts, which is why they use tokens. Private tokens don't have to represent something physical like electricity or a house, they can instead be used to buy things on a decentralized app. Either that or it can be used to get certain benefits like reduced fees and voting fees.
Tokens always have a price to sell against, which is why some people buy them, and some people buy tokens to sell them later at a higher price, instead of buying them to use on a dApp. Since DApps are built on other blockchains (such as Ethereum and NEO), the token transaction is still validated by nodes on Ethereum or NEO, meaning that transaction fees are still paid in Ethereum or NEO, not the token.
So, to make a transaction on a decentralized app (i.e. using a token), you have to have some Eth or NEO or whatever alternative the dApp is built on to pay the transaction fee.
The positive and negative points of the most famous cryptocurrencies and the distinctive differences between them
After we covered the different types of cryptocurrencies. In this second part of the article, we will cover the top cryptocurrencies, their pros and cons.
Bitcoin Pros
There will only be 21 million bitcoins, as most bitcoins have already been mined by users. There are currently about 18.2 million bitcoins, so there are about 3 million left to mine.
There is bitcoin but there is not much available, people who want bitcoin will pay more for it and that will make the price go up!
Bitcoin is easier to liquidate from other types of cryptocurrency, this means that it is easier to convert Bitcoin into cash, because Bitcoin is very popular, it is easy to exchange your Bitcoin for a fiat currency such as the dollar or the euro, and Bitcoin is found in almost every cryptocurrency exchange On the Internet, this means that the trading volume is very high! In fact, it is the highest percentage compared to other cryptocurrencies.
Many merchants accept bitcoin instead of other types of cryptocurrency, so you can buy any item with bitcoin through hundreds of online sellers that accept cryptocurrency, which is another way to liquidate your bitcoin instead of converting it back into cash, where you can only Spend it as you would with cash.
Bitcoin is the largest cryptocurrency, as Bitcoin was the first cryptocurrency, it is the largest and currently controls more than 60% of the crypto market, which is a huge number!
Many people think that Bitcoin will always be the biggest (but you should remember that this is just an opinion and that no one really knows what will happen next and in the future).
Cons of Bitcoin
Bitcoin fluctuates a lot which means that the price of Bitcoin changes a lot every day, but even so some investors like volatility, but people who lose money because of volatility, definitely don't like it.
Bitcoin can be exchanged for a better cryptocurrency, as we mentioned in the section on alternative currencies, as there are hundreds of variations of Bitcoin that exist today.
Bitcoin is almost 10 years old now, any of these new currencies can replace Bitcoin as they are newer and more advanced.
People are still using bitcoin for crime, bitcoin's reputation hasn't improved much since its early days, as it's still not perfect, we hear daily about people being prosecuted for using bitcoin illegally, and these include things like scams and tax avoidance.
Pros of Ethereum coin
Unlike Bitcoin, Ethereum is a platform that allows people to build dApps, tokens and smart contracts, its currency called Ether (ETH).
Users of dApps built on the Ethereum blockchain will always need Eth, so they need Eth to pay transaction fees on dApps because dApps run on the Ethereum blockchain.
Many new projects are being built on Ethereum, so most of these projects will take years to develop, however, many of them can be huge when completed.
Ethereum is fast, Ethereum can process transactions within seconds, while Bitcoin transactions take up to 10 minutes.
Disadvantages of Ethereum coin
There are many more Ethereum coins than Bitcoin, as scarcity usually means value which is not the case with Ethereum, there are approximately 110,000,000 Ether coins at the moment and they will never stop creating them, however, their rate of production will slow dramatically Large over time, so it is not a big problem.
Ripple Currency Pros
Basically, Ripple is a blockchain designed to be used by banks to make payments faster. It is known as a bank currency, and there are many partnerships with global banks that are already being worked on.
Reputable large corporations (such as global banks) trust Ripple as large financial institutions (such as banks and governments) have partnered with Ripple, and many are not yet involved but have plans for it, and consider it as an alternative to fiat currencies, Ripple may be the best option in the world of finance, And because it works with governments, it is a strong point and its potential for success.
The disadvantages of the Ripple currency
Unlike other cryptocurrencies, Ripple is not decentralized, instead it is centralized, as there is a company behind Ripple (called Ripple Labs) so if the company wants they can sell all their tokens and the price of XRP will drop a lot, but this is highly unlikely. Because they don't want to sell all their tokens, but a possible point should be made.
Pros of Litecoin
Litecoin is a fork of Bitcoin! So, basically, the Litecoin blockchain is part of the Bitcoin blockchain, but it split when the Litecoin update was introduced, so, it is very similar to Bitcoin but has different features from Bitcoin, and it was created to improve what Bitcoin created.
Litecoin is much faster and cheaper than Bitcoin, as Litecoin transactions take seconds.
Bitcoin transactions can be expensive, making it useless to send small amounts, but litecoin transactions are much cheaper, so litecoin is a lot better for small payments, which is why it is called a “lite” currency.
Cons of Litecoin
Litecoin may depreciate a lot if the main network is improved, and we are talking here about Bitcoin. If it is improved, then Litecoin becomes less important.
Finally
We learned about cryptocurrencies and the main differences between them, as well as touching on some of the pros and cons of the most popular cryptocurrencies.