The top bitcoin alternatives you should know about
By Neil Dennis
08:21, 6 March 2018
In the fluid and ever-changing world of financial markets, one small corner finds a seething cauldron of bubbling activity that is cryptocurrency trade.
The daily percentage moves, coupled with the growth in leveraged trading platforms and digital currency exchanges that buy and sell - or offer prices on - cryptos, have made cryptocurrencies a popular speculative trade.
But remember, alternative currency - also called altcoin - transactions are at the very top of the speculative end of the investment spectrum. Such has been the volatility in this market during the past six months, that fortunes can be won and lost in a matter of seconds.
Without careful application of stop loss orders and other day trading principles, losses can quickly get out of hand when dealing in leveraged finance - unless your trading venue offers guarantees to prevent heavy leveraged losses.
Why did cryptocurrencies become so popular?
Bitcoin remains chief among its digital currency rivals in terms of market capitalisation - at time of publish $195bn - and in terms of the value of a single coin - $11,540 at time of publish.
The term cryptocurrency relates to "crypto" - meaning secret or hidden - but more specifically to "cryptography", which means the solving of codes. This has a couple of implications:
- Coded - the most popular cryptocurrencies are "mined" by computer experts who contribute coding using complex algorithms to the blockchain ledger that supports them
- Hidden - there's a distinct lack of transparency surrounding the market for cryptocurrencies: indeed, global regulators have expressed concerns over criminal activity using digital currencies as payment or for laundering cash from illegal activities
The "secret" or "hidden" aspect to cryptocurrency transactions is one of the reasons for its popularity.
Bitcoin and its rivals were conceived as an alternative to instant payment systems in traditional currency units - to be traded on the blockchain ledger for goods and services - or just cash.
Each transaction in the set that makes up a block is fed through a program that creates an encrypted code known as the hash value.
Hash values are further combined in a system known as a Merkle Tree.
The result of all this hashing goes into the block's header, along with a hash of the previous block's header and a timestamp.
The header then becomes part of a cryptographic puzzle solved by manipulating a number called the nonce.
Once a solution is found the new block is added to the blockchain.
Although one of the benefits of blockchain technology is its accessibility, it allows for anonymous trading and, therefore, puts many cryptocurrencies beyond the oversight of authorities.
Let's look, then, at some of the most popular and biggest alternatives to bitcoin in the realm of the cryptocurrencies.
We'll examine:
- How these alternatives differ from bitcoin
- How they were established
- How they performed during the volatility of late 2017/early 2018
- Any major headlines or controversies surrounding them
- How they have held up to scrutiny in the face of some serious security breaches on digital exchanges
Ethereum
As the second-biggest digital currency behind bitcoin, it makes sense to start with Ethereum which - like its bigger rival - is built around a public blockchain ledger where "ether" units can be mined in exchange for computer coding contributions.
Conceived in 2013 by crypto programmer Vitalik Buterin, the project was crowdfunded between July and August 2014 and went live on 30 July 2015.
It has some notable differences to bitcoin - most notably in the time and cost of generating "blocks" that are used to build out the blockchain, for which miners of digital currencies are rewarded.
Transaction fees are lower for ether than for bitcoin, and while bitcoin supply is capped at 21 million "coins", there has been no official limit of ether units stipulated by Ethereum's developers as yet, but potential production is expected to end at some point.
Ethereum has had its share of controversial press. In June 2017, FT Alphaville cited a study by the University of Cagliari in Italy that suggested Ethereum was being widely used in "smart Ponzi" schemes.
Indeed, Ethereum-related cyber crime, including phishing and scam initial coin offerings (ICOs) were estimated by Fortune magazine to have accounted for losses of around $225m in 2017.
And so, to the acid test: how did Ethereum perform during the recent spell of market volatility?
In April 2017, ether was languishing at $34 a unit and peaked on 8 January 2018 at $1,423.20 - a rise of 4,086%. At the time of publish it had fallen 39% from this peak to $862.10. It's current market capitalisation is $84.66bn.
Ripple
The Ripple network describes itself as a real-time global settlement system and was first developed in 2004 by Vancouver-based web developer Ryan Fugger as a decentralised and free payment system.
Unlike bitcoin, Ripple's technology can be incorporated into the IT systems of the financial services companies that use it.
These banking and shadow-banking institutions provide liquidity in the currency of the transaction required by all counterparties, or using Ripple's own internal currency - it operates on consensus and trust between the counterparties.
XRP is the currency used on Ripple's network and 100 billion units were created at the company's inception. Under Ripple protocol, no further currency generation is permitted, making it an asset with decreasing available supply.
Ripple has generated broadly positive press comment, and has been cited as a milestone in banks adopting faster processing of global payments.
Bill Gates said in 2014: "There's much that bitcoin or Ripple can do to make moving money between countries easier and dramatically reducing fees, but bitcoin won't be the dominant system.
Back in April 2017, one XRP unit was valued at $0.0362, and by 4 January 2018 it had climbed a massive 8,960% to peak at $3.28. It has since lost 68% to stand at $1.045 per unit.
It remains the third-biggest cryptocurrency with a market capitalisation of $41.8bn
Bitcoin cash
Occasionally in the development of cryptocurrencies certain mined "blocks" of data will suggest to developers that changes must be made to the programming. Some of these changes may result in incompatibilities with the existing product. This is called a "fork".
Some forks can - at a cost - be incorporated back into the original system. But when they can't, a new cryptocurrency is born.
Our fourth-biggest digital currency by market capitalisation - bitcoin cash - was not a mistake, however. It was created after a technical disagreement between bitcoin developers and ultimately on 1 August 2017, the bitcoin blockchain ledger was split in two - a so-called "hard fork".
It has quickly gained wide acceptance by cryptocurrency exchanges and differs from its estranged parent mainly in the increased block size that makes transactions quicker and less costly.
Roger Ver, chief executive of bitcoin services website Bitcoin.com and a key promoter of bitcoin cash, said last year: "So if you have two versions of bitcoin: one that’s fast cheap and reliable and one that’s slow, expensive to use and unreliable, you don’t have to be a rocket scientist to figure out which one of those two versions of bitcoin will be most usable."
It has been criticised by bitcoin adherents, however, for being an "unimaginative" attempt at taking over bitcoin.
It started life in August 2017 at $395 a unit and rose 939% to $4,104.30 at its peak on 20 December 2017. It has since fallen back 69% to $1,281.20. Bitcoin cash's market capitalisation is $21.83bn
Litecoin
Former Google employee Charlie Lee released the Litecoin network as a fork of the Bitcoin Core client on 13 October 2011.
It remains very similar to bitcoin in that miners are rewarded for creating blocks of code that support its blockchain ledger.
It has a shorter block generation time than bitcoin, processing a single block every 2.5 minutes rather than the 10 minutes of bitcoin. However, it is technically more difficult to mine and the hardware is more expensive than that used to mine bitcoin.
Litecoin has also forked, and litecoin cash was the newly created cryptocurrency following the hard fork in February 2018. Charlie Lee commented on Twitter: "Any fork of Litecoin calling itself Litecoin 'Something-or-Other' is a scam trying to confuse users into thinking they are Litecoin."
But its Litepay system that will allow businesses and individuals to use the currency as an instant payment system that will settle global payments in local currencies - has suffered "indefinite" launch delays due to its inability to find a cryptocurrency-friendly card services provider.
After languishing around the $4 until the middle of 2017, it jumped 10,348% to a peak of $420 on 12 December 2017. It has since fallen 49.5% to $212, making it one of the better performers among the cryptocurrency suite.
At $11.7bn its market capitalisation makes litecoin the fifth-largest cryptocurrency.
Cardano
Blockchain developers Output Hong Kong, led by former ethereum developer Charles Hoskinson, founded the Cardano platform in September 2017. Cardano supports the ada cryptocurrency.
Because it is so new, the ecosystem is still being developed, but the company aims to make it the "most complete and most useful cryptocurrency ever constructed".
Like Ripple's XRP unit, ada units are not mined, but were launched in an ICO and a so called "proof of stake" algorithm is used in block building and rewarded in ada units.
Ada launched in November 2017 and by mid December was still only trading around the 10 cent mark. It then jumped 1,279% to a high of $1.379 on 4 January. It has since dropped 77% to $0.317.
But with a market capitalisation of $8.13bn Cardano's ada is already the fifth-biggest cryptocurrency.
NEO
China-based blockchain platform and altcoin NEO wasn't among the biggest gainers during the turn-of-the-year onslaught for cryptocurrencies, rising 1,745% from its $10.50 August launch price to its $193.70 peak on 15 January 2018.
Perhaps it was the threat of Chinese regulators getting tough on crypto exchanges, however, but its subsequent losses were not so severe - it fell 38.5% and currently sits at $119.12.
A total of 100 million NEO units were issued in last year's ICO and this amount cannot be increased.
It has stayed clear of much of the controversy surrounding the crypto realm, but political risks remain its biggest potential problem as China continues its rumblings about crypto-regulation.
"If NEO is as centralised as argued, and if it is (or could be) under the control of the Chinese autocracy, then it runs counter to the values of crypto and decentralisation," writes Jeremy Epstein, chief executive of blockchain marketing company Never Stop Marketing, in Venture Beat.
With a market capitalisation of $7.68bn, NEO is the seventh-largest cryptocurrency.
Stellar
Founder Jed McCaleb - who also co-founded Ripple - established Stellar as a cross border payments service to help reduce transaction costs for international financial institutions.
Sharing many similarities with Ripple, Stellar's "lumens" cryptocurrency provides liquidity to help expedite cross-border transfers.
Stellar's offering was one of the biggest gainers during the recent bout of volatility. It climbed a massive 45,895% to its 3 January 2018 peak of $0.9199 and subsequently lost 58.5% to its current level of £0.381.
Stellar is the eighth-largest of the alternative currencies with a market capitalisation of $7.06bn.
Monero
Created in April 2014 as a fork of Bytecoin, Monero, like its parent, is attractive due to its anonymous cash settlement system.
Anyone examining Monero's opaque ledger would be unable to trace the identity of individuals or institutions involved in any transaction.
Critics say that growth in Monero is largely thanks to the attractiveness of its anonymity in the execution of illegal activities, but some users may just prefer privacy and not have their transactions open to the view of online advertisers.
During the first half of 2017, Monero's token was sitting at around the $0.55 level. It rallied to its $478 peak on 20 December that year - a megalithic rise of 86,809%. It subsequently fell just 23% to today's $367.97.
With a market capitalisation of $5.8bn it is the ninth-biggest of the cryptocurrencies.
EOS
Very close behind Monero, EOS is the tenth-biggest altcoin by market capitalisation, worth $5.78bn.
It launched in August 2017 at $1.50 and hit its $18.65 peak on 13 January - a rise of 1,143%. Since then it has fallen back to $8.06, down 56.8% from its high.
Further mention
Mention has to be made of Nem, if not only for the dramatic story of its losses at the hands of cyber criminals - hackers made away with $534m of NEM's XEM currency that had been stored in a "hot" wallet on the CoinCheck exchange.
A cryptocurrency wallet stores the public and private keys that are used to receive or spend cryptocurrencies. A hot wallet is connected to the internet and is thus more vulnerable to cyber attack. A cold wallet is not connected to the internet and is thus deemed much safer.
The incident underlined how security at some of the many dozens of cryptocurrency exchanges is of worryingly varying quality.
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