Types of Cryptocurrencies – Ruhani Walia


These are coins that are alternative to Bitcoin in particular. The majority of altcoins are a fork of Bitcoin like Namecoin, Peercoin, Litecoin etc.

These are not derived from Bitcoin’s open-sourced protocol (they are not modified versions of Bitcoin’s source code) All Altcoins have their own blockchain. They operate separately.

A hard fork is when a group of developers disagree with the direction that the blockchain network is taking — especially if the updates reduce the rewards given to the miners.

If they decide to fork, the developers first copy the Bitcoin protocol code. Then, they make their changes and decide when the fork will become active.

Below is a more in depth look at different types of Altcoins — there’s a lot more than the one’s here. I’ve just picked and chose the most significant.

  • All payments are recorded on the public ledger (the Blockchain)
  • Can send money anywhere in the world at any time
  • Transaction fees are considerably less than traditional banks
  • Both parties have proof that the payment happened
  • Only ever be 84 million Litecoin — no inflation will decrease value
  • Similar to Bitcoin simply because both are cryptocurrencies that rely on the cryptographic integrity of the network

Litecoin wants to become the silver to Bitcoin’s gold. The largest difference between the two is their cryptographic algorithms.

A cryptographic algorithm, also called a cipher, is a set of mathematical instructions used to encrypt/decrypt data. Bitcoin uses SHA256 and Litecoin uses Scrypt.

Hey, remember miners? With Bitcoin, many have chosen to now use Application-Specific Integrated Circuits (ASICs). These are hardware systems made specifically to mine Bitcoin.

The massive computing power used has made mining Bitcoin super inaccessible to the average user. Scrypt, on the other hand, hasn’t reached that level yet.

the power of ASICs

Another difference is how many coins each can produce. Both are actually infinitely divisible (the minimum quantity transferable of Bitcoin is 1 one hundred millionth or one satoshi)

This divisibility thing isn’t very popular among users. So, wallets like Coinbase and Trezor display Bitcoin values as Fiat currencies (currencies like the Euro or Dollar)

Bitcoin will never exceed 21 million coins. Litecoin will never exceed 84 million coins.

One of the key differentiating factors of this cryptocurrency is its governance and ownership structure.

Bitcoin is decentralized, open sourced, and run by a community that agrees on changes (the use of soft forks). Ripple, on the other hand, is kind of weird.

It is owned by a private company, uses an internal ledger and consensus to make changes.

Wait, if it’s owned by a private company then how is it a crypto? Doesn’t that mean it isn’t decentralized?

It’s kind of confusing, but it is still considered decentralized because it operates on a peer-to-peer distributed network.

Another difference is in transaction time and fees. In Bitcoin, users may pay miners to prioritize their transactions. Ripple has a mandatory minimum transaction cost.

This cryptocurrency aims to create a more scalable coin with quicker transactions. Nano transactions are only verified when a problem occurs — running a node on this network requires much less energy than a network with a proof-of-work model like Bitcoin’s blockchain. They’ve also designed an acyclic graph algorithm called Block-Lattice Infrastructure.

This video does a pretty good job of explaining the algorithm if you’re interested 🔽

This subsection of Altcoins has it’s own sub-sub sections.

Blockchains aren’t particularly scalable. IOTA solved this using DAG and Tangle tech.

DAG Directed Acyclic Graph is a storage system where individual items link to each other.

Directed = link between items always have a direction

Acyclic = cannot create loops inside the structure

Each square represents a transaction/site which includes transaction details. Each site connects to at least two other transactions called “edges.” These validate the transactions.

Towards the end of the tangle, you’ll find transactions without edges — these are unconfirmed transactions and are rightfully labelled “the tips of the tangle.”

How do you add a transaction to the tangle? The transaction must be attached to one of the tips. An algorithm will select two tips at random and make sure that they don’t conflict with each other.

If the two are not compatible, say one of the tips is for a fake transaction, it’ll be ignored, and a new tip will be chosen. If they are compatible, the transaction is added.

This concept is what allows IOTA’s tangle to be super scalable.

The more it’s used, the faster it gets. The tangle can handle a nearly unlimited amount of transactions per second.

How do you know if you can trust the transactions? In proof-of-work blockchains, users look at the number of confirmations to determine if a block should be trusted.

IOTA uses a weight. This is how much work a node has done for the transaction. This weight is cumulative of connected transactions.

The sum continues to grow with each validating site until the end of the tangle is reached.

Another comparison to draw is with storage — blockchain users must have their own copy of the chain before they can add new blocks/transactions.

With the IOTA tangle, only a small part is needed by each user to create and verify sites. Moreover, IOTA doesn’t have any miners. This means that there aren’t any fees associated with actually sending money.

The scalability of the Tangle will also pose new infrastructure issues. In a world with billions of devices, humans and machines communicating clearly will need higher software and hardware standards.

In reality, IOTA serves Machine-2-Machine transactions by creating a new fee-less economy. It is important to note that IOTA is typically considered an altcoin but in reality, it is an extension of the blockchain network.

IOTA has created a self-sustainable economy based on demand.

This crypto exchange and blockchain project was named after Charlie Walton — the inventor of Radio-frequency ID. RFID is a better version of a barcode — it is a tag attached to objects that doesn’t require line-of-sight for a sensor to read it.

RFID tech is used for things like auto pay at toll booths, tracking animals with microchips etc.

The goal with WTC is to combine RFID and blockchain tech to manage supply chains. It provides product history information and decentralizes the network for access.

THIS IS SO COOL!

In this case, the RFID reader is a node on the chain and the tag used is the device that needs to be connected to the chain. Information is stored here.

Walton Coin is the actual crypto. It’s been set to a total of 100 million coins in the genesis block.

The IoT Chain (ITC) combines DAG tech and the blockchain to power low computing power operated IoT devices. It makes use of asymmetrical encryption — private key.

It uses thousands of nodes and a distributed ledger to meet the storage needs. Because it is decentralized, there is no need for a centralized server cluster. The system also makes use of PBFT (Practical Byzantine Fault Tolerance) to reach consensus and the DAG tech expedites transactions.

PBFT is the skill that a distributed network has to reach a consensus despite having unreliable nodes that fail or send false information. This system reduces the influence of these corrupt nodes.

WTC also uses SPV (Simple Payment Verification) instead of using a complete blockchain to verify payment. This technique was outlined in Satoshi Nakamoto’s whitepaper. It essentially allows a client to verify a transaction without downloading the blockchain in its entirety.

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