Bitcoin vs altcoins is becoming an increasingly prominent battle in the world of cryptocurrency. While Bitcoin still takes up the majority of the market, its alternatives are becoming increasingly popular. Altcoins are often created to resolve some of the limitations of Bitcoin. As a result, altcoins often use different protocols and encryption algorithms. They also have a different focus, whether that’s:
- Alternative payment methods
In this guide, we explore the Bitcoin vs altcoins battle, the different types of coins involved and they key differences between them.
Bitcoin vs Altcoin: The popularity contest
Bitcoin, in terms of popularity always comes on top when it comes to Bitcoin vs Altcoins. It sought to become an alternative, electronic, peer-to-peer cash system. The intention of its creation was to decentralise the world of finance and offer greater levels of transparency. Its creators aimed to give power back to the people and enable self-sovereignty over our finances, rather than giving control to a central authority – such as a bank.
The original cryptocurrency is encrypted with an algorithm known as ‘SHA-256,’ which encrypts the data into a 256 bit long ‘hash.’ This message is infeasible to invert without the private key. A private key is not too dissimilar from a password; only you, the owner, should ever have access to it. This level of encryption adds layers of security to the cryptocurrency and also offer anonymity.
The hash rate also has another vital role. For a series of transactions to be added to the blockchain, a cryptographic puzzle must be solved by a data miner. The incentive for a miner is that they will be awarded with Bitcoin, known as a ‘block reward’. The block reward for Bitcoin is halved every four years. The current block reward is 12.5 Bitcoin. If the network is running optimally, a new block will be added to the blockchain every 10 minutes.
Ethereum, launched by Vitalkin Buterin, is more than just a cryptocurrency. In fact, it’s an open-ended decentralised software platform that supports smart contracts and the creation of distributed applications. Although Ethereum runs on a blockchain and can be traded as a figital currency exchange, it can also be used to monetise work. This altcoin was not created with the sole purpose of being a payment alternative.
As a result, the hash times set the two apart. Whereas Bitcoin is encrypted with the SHA-256 algorithm, Ethereum is encrypted with ‘Ethash.’ Whilst Bitcoin’s current block reward is 12.5 Bitcoin, Ethereum’s block reward is currently 3 Ether. But, if the Ethereum network is running optimally, a new block will be sequenced every 15-20 seconds, which is significantly quicker than Bitcoin’s 10 minutes.
Both Bitcoin and Ethereum currently use a proof-of-work (PoW) algorithm. A PoW algorithm is important as it allows for transactions to be verified and added to a blockchain. But, Ethereum’s long term goal is to move away from a PoW system into a proof-of-stake (PoS) one. Whilst PoW focuses on rewarding miners for solving the cryptographic puzzles, PoS determines the creator of a new block based on the stake (wealth). In effect, Ethereum wants to move away from miners hashing for blocks and instead lock people’s funds into smart contracts.
Litecoin is another popular altcoin on the market. At its core, Litecoin is not dissimilar from Bitcoin – at least when considering their respective code. But, Litecoin can be mined significantly quicker than Bitcoin with a block generation time of 2 1/2 minutes. The aim behind the quicker block generation time is to allow for faster transaction confirmation times, looking to solve some of Bitcoin’s limitations. Litecoin also allows for a grand total of 84 million coins to be minted, which is four times higher than Bitcoin.
Whilst Litecoin’s code is similar to Bitcoin’s, it utilises the Scrypt encryption algorithm over SHA-256. The scrypt algorithm make Litecoin mining accessible to a wider audience as it can be used on personal computers. This eliminates some of the high costs and levels of energy consumption associated with Bitcoin mining.
XRP, created by Ripple, is gaining popularity with cryptocurrency fans and investors alike. Whereas Bitcoin seeks to offer an alternative payment system whereas Ripple seeks to create a system of direct transfers. Rather than replacing banks, XRP builds competition against the Swift Payment system by offering an alternative way of transferring money and assets across the globe. It’s starkest difference form Bitcoin is that it’s a centralised platform. This means there is a central authority, with Ripple owning 60% of all XRP tokens. These price of these tokens is also quite small in comparison to Bitcoin’s value.
Although this centralisation leads some crypto enthusiasts to dismiss the validity of the cryptocurrency, Ripple offers some solutions to the issues of Bitcoin. Time to transaction with Ripply takes little more than a few seconds, whereas Bitcoin transactions can take up to 10 minutes to confirm.
Monero is an open source cryptocurrency created in 2014 that places focus on fungibility, privacy and decentralisation. It uses a public ledger so that anybody can broadcast or send transaction; but, no outside observer can determine the source.
Currently, Monero has a block generation time of around 2 minutes, though this number use to be lower. Like many other cryptocurrencies, Monero makes use of a PoW algorithm. Monero has a planned hard fork every 6 months which alters its mining algorithm. A hard fork refers to when a fundamental change occurs within the code; sometimes it is to upgrade the network, other times it might arrive from a dispute within the community about the future direction of a project.
As the cryptocurrency industry continues to evolve, so will the types of coin. Having different coins with different purposes shouldn’t be perceived as a negative thing. In the Bitcoin vs altcoins battle, users are giving more choice and a greater level of encouragement to move from fiat to cryptocurrency. We always recommend exploring the range of cryptocurrencies available and make the best investment decision according to your needs.
Disclaimer: The views and opinions expressed by the author should not be considered as financial advice. We do not give advice on financial products.