Understanding the Top 10 Cryptocurrencies with the Highest Market Cap -Dec 2019
What are the key differences in technologies and protocols behind these coins?
Cryptocurrencies will probably never die. They may live on in various different forms or blockchains or technologies, but the idea in itself is too compelling to discontinue. Because of this, the rise of new currencies is frequent, but can become overwhelming because of the shift of the technology and the varying differences behind each coin. If you are completely new to cryptocurrencies, it is essential to understand the key differences between different coins and come to your own conclusions about how valuable they may be in the future.
As an introduction to cryptocurrencies, I will be providing an overview and comparison of the top 10 cryptocurrencies with the highest market cap (Dec 2019).
Small Introduction to Blockchain
To understand how cryptocurrencies work, you must have at least a simple understanding of blockchain. Blockchain is a completely decentralized system that operates by the rules of a smart contract (basically just math) instead of a sole company. Because the chain is not owned by one person, but instead distributed on many nodes, it is very secure and essentially immutable. Anyone has access to the ledger (full transcript of previous blocks or transactions) and can make transactions if they have an account. Privacy is introduced by encrypting each account, which makes it impossible to tell which account belongs to which person.
Speed is also an important factor worth noting. Because blockchain is all online, transactions go through the system much faster compared to third party systems, such as banks. Because of all of these advantages (security, immutability, etc), blockchain is an ideal technology for use behind cryptocurrencies.
Top 10 Coins with the Highest Market Cap
Bitcoin, created in 2009, was the first currency to operate solely on a blockchain. It was the first cryptocurrency in general, as outlined in Satoshi Nakamoto’s Bitcoin whitepaper. The whitepaper outlined that Bitcoin would be a peer-to-peer system for money transfer without third parties, like banks. Originally, the coin was valued around $1,000 until 2017. In 2017, because of the features of the Bitcoin blockchain, such as immutability and security, this coin was gaining a lot of interest from the world. Investors and those who got in at the ground floor of Bitcoin became millionaires over night when it’s value reached $17,000.
Currently, the value for a single Bitcoin sits at around $7,300 after the rise and fall of the 2017 bubble. Bitcoin is simply a classic example of a cryptocurrency operating on a blockchain.
However, there are many problems that arise with Bitcoin, mostly concerning the transaction fees and long wait for transactions to go through. Because of the way Bitcoin is structured to operate, it generally needs about 6 confirmations from miners for a transaction to go through, sometimes taking over an hour because of congestion.
In addition, as the ledger is continually growing, in order to mine Bitcoin, your computer must download all previous transactions which is around 240 GB. Because of this, running a node takes a lot of power and computational ability, which can become very costly overtime.
Ethereum, created in 2015, is a decentralized software platform that allows for the development of dapps (distributed applications) and smart contracts mainly through a programming language called Solidity. All applications made have the opportunity to be run on the Ethereum blockchain without fear of downtime or interference from a third party. There are many interfaces that are available to explore Ethereum too, like the mist browser.
The ether currency, on the other hand, acts as a method of payment for developers, users, miners, and network contributors. For example, it can be used by users to pay for a movie streaming service provided by a dapp. In this sense, Ether is to the Ethereum platform what dollars are to the app store.
The only challenge with the Ethereum platform is that since smart contracts (code that dapps operate by) and dapps themselves are written by humans, they can be prone to hacks. In 2016, a hacker targeted a project called “The DAO”, stealing over $50 million worth of ether. This caused the currency to fork, creating two currencies, Ethereum classic (with the hack), and Ethereum. However, this was significantly smaller than Bitcoin’s Mt. Gox hack, where more then $460 million was stolen.
3. Ripple (XRP)
Ripple’s blockchain proposes a solution to lessen transaction speeds for money transactions across the world, specifically bank-to-bank transactions. This is because right now, sending money across the world is known to take a very long time, as in flying to the country with the money instead of using banks is faster. Ripple’s blockchain solves this problem. Currently, it takes less than 4 seconds for a transaction to go through, which is a big improvement compared to Ethereum and Bitcoin.
This is because Ripple’s blockchain verifies transactions through a PoS (Proof of Stake) protocol rather than a PoW (Proof of Work) protocol like Bitcoin. The difference is PoW protocols require the actual mining of coins and solving a complex crypto math problem for every transaction, while PoS requires a simple consensus ledger to confirm transactions. This means PoS is irrevocably faster for transactions going through.
However, currently only around 40% of all XRP created is in circulation right now, leaving 60% still in control of Ripple. In other words, the blockchain is a centralized system which makes some users skeptical about what the company has planned for the future. On the other hand, for a currency mainly used by banks and financial providers, this is essential because banks need to know their investment is stable, as with centralized systems.
4. Tether (USDt)
Tether is a stablecoin, a coin that is pegged to a real world currency. In this case it is pegged to USD (worth $1 USD) and is expected to always be of this value no matter the changes in other cryptocurrencies. Stablecoins allow for the benefits of cryptocurrencies, such as fast transaction speeds, along with the stability of fiat currencies.
The biggest use case of tether in crypto exchanges is the ability to convert other types of coins, Bitcoin for example, to a stable dollar to decrease risk and vice versa depending on what you want to invest at what time. Stablecoins also allow the transfer of coins to other exchanges pretty quickly, such as from Binance to Bitfinex.
Tether’s smart contract runs on an algorithmic peg, which means that the value of tether will never go over or under $1 USD. This is because when more people buy tether, the smart contract will create more coins, instead of increasing the value of the coin, which keeps the supply and demand at the same levels. When people start selling a lot of tether, the smart contract deletes coins so that the value of $1 stays the same.
5. Bitcoin Cash
Bitcoin cash is a hard fork on Bitcoin created in 2017 with the intention of improving factors of the Bitcoin blockchain, such as speed. One of the biggest differences between the two is that Bitcoin cash has a block size limit of 8MB, while Bitcoin’s block limit is 1MB. The main reason for this change is to allow faster transactions and more that go through everyday. For example, Bitcoin can only process 250,000 transactions per day, while Bitcoin cash can process around 2 million transactions per day.
Another advantage of Bitcoin cash is that there is little to no transaction fees, which is what the original idea for cryptocurrencies proposes. Since the block size for Bitcoin is small, there are many transactions forced to wait in a queue before they can be processed. However, the higher transaction fee you pay, the more your transactions jumps the queue. This means that in Bitcoin, the transaction fee to even process your data in under an hour can end up costing a lot, which is a problem Bitcoin cash eliminates due to it’s large block size limit.
Other than those main differences, Bitcoin and Bitcoin cash still run on the same PoW protocol.
Litecoin was created in 2011 with the aim to be the ‘silver’ to Bitcoin’s ‘gold’. One of the biggest differences between Bitcoin and Litecoin is the total amount of coins that will be available to be in circulation. For Bitcoin, this amount is 21 million, and for Litecoin this amount is 84 million.
Litecoin also runs on a different algorithm than Bitcoin called Scrypt, but they both still use a PoW protocol. The Scrypt algorithm, however, is easier to understand than the SHA-256 algorithm that Bitcoin uses, which is a big incentive to mine Litecoin. This makes the transaction speed of Litcoin about 2.5 minutes compared to Bitcoin’s hour. Another incentive to mine Litcoin is the amount of Litecoin awarded to miners for each block compared to Bitcoin. Both coins started with awarding miners 50BTC or 50LTC for mining. For Bitcoin, this number halves every 210,000 blocks but for Litecoin, this number halves every 840,000 blocks.
EOS is a development platform for dapps, similar to Ethereum, but much easier to use in the opinion of many developers. The main idea behind EOS is to combine the best features of some of the best smart contracts out there to produce one highly functional, simple-to-use development platform (called EOSIO).
Dapps built on EOS do not require micropayments by end users, which means individual developers are in complete control of how users pay low transaction fees. Additionally, to prevent issues with scalability, EOS integrates parallel execution and asynchronous communication, which allow the blockchain to function optimally even with a large size. EOS uses a delegated PoS (DPoS) protocol for it’s blockchain, which means that it’s transaction speed has the speed of PoS, but also has no problems with scalability.
It is interesting to note that the gas price for Ethereum can be problematic on it’s development platform, which is a challenge that EOS does not have to deal with. Also, there are a total of 1 billion EOS tokens available, which is substantially different than a lot of coins on the market.
8. Stellar Lumens (XLM)
Stellar, created in 2014, was led by the efforts of Jed McCaleb, one of the co-founders of the Ripple. He left to create stellar because of disagreements he had with the way Ripple was being developed for use. For example, a key difference between the two is that Stellar was created to assist transactions between individual people, while Ripple is more focused on transactions between banks and other financial institutions.
100 billion of the tokens of Stellar, called Lumens, were created at launch. The Stellar network proposes an interesting use that hasn’t surfaced as of yet for other cryptocurrencies. The network is able to provide conversions between currencies, acting as a sort of mediator for both cryptocurrencies and fiat currencies alike. For example, you could send someone in another country Bitcoins and they could receive the amount in Euros if specified, similar to the function of PayPal.
Additionally, transaction speed is fast for cross border payments, and fees are very low. It is worth noting that Stellar is not a fork of Ripple, and has some differences in consensus protocol. The key difference is that Stellar’s protocol allows nodes to become validators more quickly than Ripple, which allows for a more speedy transaction.
9. Tezos (XTZ)
Tezos, launched in 2018, is a more complicated coin to understand background technology wise. In this review, I will go over the three main purposes of Tezos and why they are important, however, a lot more can be read elsewhere for more features of Tezos for example, it’s two types of accounts. The first idea the coin brings to the table is on-chain governance and self-amending. In simple terms, this means the voting process can be modified and updated as needed without ever needing a hark fork.
It works by allowing proposals for change within the protocol to be tested, then voted on within the network. Should the change be approved, it is smoothly integrated into the protocol, kind of like an update for an app.
The second concept it proposes is liquid proof of stake. This includes all features of a regular PoS model, but allows for voters to delegate their votes to other voters and back if they want to. It also requires token holders to stake a certain number of Tezos tokens to participate in the consensus, a process called “baking”. In the baking process, each block is “baked” by a baker and signed off on by 32 other bakers. Should the block be approved successfully, the baker receives a block reward and can charge transaction fees inside the block.
The third proposed idea is implementing functional programming languages for smart contracts instead of imperative languages. Imperative languages are the ones we are most familiar with today, including Python and Java, which place a high importance on order of execution, state changes (variables), flow control (loops), etc. Functional languages place a low importance on all of these, meaning that the code is much simpler to understand and predict. This makes writing smart contracts much easier and avoids a lot of bugs.
The main goal of ChainLink is to bridge the cap between real world applications (off the blockchain) and smart contracts. It is an Oracle based network which uses Oracle nodes to process the main requests of the off chain applications. ChainLink’s technology solves the problem of off chain data not being able to be accessed outside of the blockchain. By implementing this protocol, applications are able to access essential data they need to run certain features.
Users who want to access data from the outside the blockchain ecosystem submit a request contract to ChainLink’s network, which ends up processing it through a number of on-chain contracts. The oracle contracts have three main parts, a reputation contract, an order matching contract, and an aggregated contract. The second essential feature that Oracle nodes provide is off-chain contracts. These nodes are responsible for collecting data off the blockchain, then allowing it to interact with the ChainLink Core to be processed and sent to a live blockchain.
The problem with oracle networks is that they are usually centralized which defeats the purpose of blockchain, however, this is not the case with ChainLink. ChainLink implements source and oracle distribution, which essentially means that nodes can draw data from multiple sources and also be distributed to any node the be processed at a time.
ChainLink’s goal is to operate with smart contracts outside the Etehreum blockchain, which means it aims to work with multiple networks in the future.
Most coins have small changes between technology and protocol, which allow for different features. For investment purposes or just general knowledge, it is important to understand how these coins differ from each other and what proposals they bring to the crypto markets. That being said, these are only the coins with the highest market cap. There are still so many interesting coins out there, such as Tron or IOTA that could potentially end up on this list because of their structure. For best practices, read about a few coins everyday in order to gain a much better understanding of all key players in the markets.