In this article, I present a high-level overview of 10 cryptocurrencies. These 10 were not chosen at random, but form the top 10 by market capitalization as presented on Coinmarketcap (https://coinmarketcap.com/) somewhere end of November 2017.
I will give short overview of the currency and list a number of properties. Be advised, however, that the cryptocurrency market is highly volatile. Today’s number three could be several places lower tomorrow. And there are currently (as of November 2017) 1320 cryptocurrencies listed on Coinmarketcap, compared to the 180 official world currencies!
I will first present a financial overview, followed by an overview on technicalities and an overview on financial properties. Within these overviews, there are 23 attention points. Finally, I give a short description of ten cryptocurrencies.
This first article will be part of a series where I delve deeper into cryptocurrency and blockchain technology, which will deal with concepts such as forking, hashing, daps, smart contracts and immutability.
1 A Financial Overview
In the financial overview, the current position of the cryptocurrency on Coinmarketcap is given, together with its ticker symbol, exchange rate compared to the US Dollar, maximum possible number of the currency, its market capitalization, number of currency in circulation and the year the currency went live. Deducting circulation from limit shows how much currency is left to be discovered.
Attention points 1 – 4
(1) According to Vitalik Buterin, one of the creators of Ethereum, the practical ETH limit is 100 Million for the foreseeable future, but there is no theoretical limit. (https://np.reddit.com/r/ethereum/comments/5izcf5/lets_talk_about_the_projected_coin_supply_over/dbc66rd/).
(2) When 18 Million XMR is reached, the mining rate drops to 0.3 XMR per minute.
(3) All IOTA was created in the first, so-called genesis block.
(4) This is an estimate of the average value of the New York Stock Exchange in 2016 (http://www.nyxdata.com/nysedata/asp/factbook/viewer_edition.asp?mode=tables&key=333&category=5).
2 An overview on technicalities
In the technicalities overview, the mining method of the cryptocurrency (the way in which its volume is increased) is presented, together with the programming language the currency was created in, the algorithm used for mining and adding to the blockchain or ledger, the open source license and – if available, its supported scripting language.
Proof of Work, Proof of Stake, Proof of Importance
Of these, the mining method warrants some more explanation. As can be seen in the table, three methods are possible: Proof of Work, Proof of Stake and Proof of Importance. These have one thing in common: they are all algorithms that are employed to decide the order upon which blocks are added to the blockchain or ledger. This, however, is where the similarity ends.
Proof of Work is the oldest of the three. It is a resource-intensive and time-consuming mining process, which is to make sure the number of mined blocks remains steady and prevent attacks on the blockchain. The side-effect, however, is (particularly with Bitcoin) that as more miners join in, it gets more difficult to mine (as the speed at which blocks are added to the blockchain does not change). To overcome these difficulties, more powerful mining hardware is necessary – which is expensive and consumes so much energy, that profitability margins are low. Only few people are able to afford buying and running this hardware. As a matter of fact, most serious mining nowadays is done by specialized organisations. One could argue that Bitcoin wealth is not distributed evenly.
Proof of Stake tries to solve this problem. It does not use mining but focuses on ownership of currency. The wealthier the miner and the longer the ownership of the currency, the higher the chance that a block gets validated and added to the blockchain. Of course, this means that wealth is not distributed evenly. So even though it does solve the mining problem, it does not solve the uneven distribution of wealth issue.
Proof of Importance addresses the latter issue by adding the amount of transactions and the transacting parties into the mix. Each party receives a trust score based on these factors and the higher the trust score, the higher the chance of receiving a reward. In other words, active users are rewarded. But before it is possible to start harvesting (the Nem term for mining), you need a vested balance of 10.000 Nem. The initial vested balance is first created when Nem is deposited and grows with 10% of the deposit per day (leaving 90% unvested). When Nems are traded, both vested and unvested Nems are used. This keeps the balance sound.
Attention points 5 – 15
(5) Both Bitcoin and Ethereum are investigating a transition to Proof of Stake at some point in time.
(6) NEO uses the Delegated Byzantine Fault Tolerance algorithm, created by Erik Zhang (one of the co-founders of the cryptocurrency). It is a way to reach consensus based on a mathematical puzzle named the Byzantine Generals problem, which is about a number of generals trying to reach consensus over an attack strategy by relying on messengers, who might be corrupt.
(7) Iota uses Markov Chain Monte Carlo algorithm, properly explained at https://jeremykun.com/2015/04/06/markov-chain-monte-carlo-without-all-the-bullshit/
(8) The NEM client is open source, but the server component (called NIS) is not.
(9) Scripting languages are executed on the Ethereum Virtual Machine. The most commonly used language is Solidity (JavaScript-like), but others (such as Serpent, which is Python-like and LLL, which is Lisp-like) are possible. See also https://github.com/pirapira/awesome-ethereum-virtual-machine#programming-languages-that-compile-into-evm
(10) Ripple itself has no support for applications or smart contracts (and therefore needs no scripting support), initially it relied on a separate platform called Codius (https://codius.org/), which was discontinued and open sourced in 2015.
(11) Litecoin is based on Bitcoin and should therefore share its scripting language, but information on this is sparse.
(12) Iota can do smart contracts, but only those in which the order of transactions do not matter.
(13) Monero features a small, built-in scripting language that is described in more detail in the CryptoNote whitepaper (https://cryptonote.org/whitepaper.pdf), specifically paragraph 6.3.
(14) Neo supports many codebases, specifically C#, VB.Net, F#, Java and Kotlin. Support for other languages such as C, C++, Go, Python and JavaScript is forthcoming (http://docs.neo.org/en-us/sc/introduction.html).
(15) In Nem, business rules and logic are off-chain (https://nemflash.io/interview-lon-wong-president-nem-foundation/).
3 An Overview on Financial Properties
In this overview, the block speed (how long it takes for a new block to be added to the blockchain), number of transactions (per second), maximum block size, profitability (per day) and reward (per block) are listed, where applicable: cryptocurrencies that do not use a PoW mining model do not offer a reward per block. Sometimes they offer cryptocurrency or a percentage of a transaction fee in return – or they are entirely free, such as Iota.
The profitability is expressed as the result of mining 1 unit per second, but the unit varies: terahash (Bitcoin and Bitcoin Cash), gigahash (Dash), megahash (Ethereum and Litecoin) and kilohash (Monero). See https://bitinfocharts.com. Even though there are numerous profitability calculators (see for example https://99bitcoins.com/bitcoin-mining-calculator/) which often suggest that mining is currently profitable, there are a lot of factors to take into account: the fluctuation in cryptocurrency value, electricity cost, difficulty increase, initial hardware investment to name but a few, but most importantly the looming block reward halving in 2020 (there is a site which keeps track of this: http://www.bitcoinblockhalf.com/). With current metrics in place, a profit of a few thousand Euro per year seems possible. How likely it is, I’ll leave up to the gamblers.
Attention points 16 – 23
(16) Iota does not use a blockchain, but a directed acyclic graph (DAG): a (tree-like) model where the nodes follow one direction and the last node approves the previous two.
(17) This figure is purely based on the assumption that block size is 8 times larger than Bitcoin.
(18) This figure is purely based on the assumption that 2Mb block size with 2.5m block time is 8 times faster than Bitcoin.
(19) Full scale performance is not known at this point in time, but theoretically Iota becomes faster with more users.
(20) Transaction speed is currently artificially limited to 2t/s, but with an upcoming solution called Catapult – according to its creators – will be able to surpass 3.000 transactions per second, as stated in the Catapult whitepaper (https://nem.io/wp-content/themes/nem/files/catapultwhitepaper.pdf, page 7)
(21) Ripple does not work with a blockchain, but a decentralized ledger containing only current transactions.
(22) Actual size is hard to find, but 12MB seems to be the largest on the Neo tracker (https://neotracker.io/).
(23) Nem block size depends on transaction size, with currently 120 transactions per block as the limit.
4 On the ten cryptocurrencies
Bitcoin (https://www.bitcoin.com/)
In 2008, an as-of-yet unidentified individual with the name of Satoshi Nakamoto wrote the paper “Bitcoin: A Peer-to-Peer Electronic Cash System”. It detailed the digital currency Bitcoin, of which a first version was released in early 2009. Currently, Bitcoin is the largest cryptocurrency available.
Ethereum (https://www.ethereum.org/)
Vitalik Buterin proposed Ethereum in 2013 as a blockchain application platform. It allows developers to use a scripting language (Solidity) to create applications based on smart contracts (executable code that arranges transactions) and issue tradeable digital tokens which – when combined – represent the total value of the application.
Bitcoin Cash (https://www.bitcoincash.org/)
In August 2017, a hard fork (a split in the codebase which is not backwards compatible) of Bitcoin – the result of disagreement on how to implement massive scalability in the cryptocurrency – led to Bitcoin Cash. One of the first changes was an eightfold increase in block size.
Ripple (https://ripple.com/)
The self-proclaimed enterprise blockchain solution for global payments, Ripple aims to modernize the current worldwide payment infrastructure by replacing it with a blockchain-like solution. Since its inception in 2012, it was endorsed by several large financial institutions and the MIT.
Dash (https://www.dash.org/)
The mission of Dash is to make cryptocurrency easy to use and available to anyone. It was created in 2014 by Evan Duffield and based on Bitcoin, but offers some enhancements such as instant transactions, a larger blocksize and faster overall blockspeed. As of November 2017, Dash is proposed by startup Kuvacash in an attempt to solve Zimbabwe’s inflation.
Litecoin (https://litecoin.org/)
Former Google employee Charlie Lee created Litecoin in 2011 largely based on Bitcoin. It handles transactions four times faster than Bitcoin, also has four times as many possible coins and handles blocksize more efficiently – in part due to employing a different algorithm.
Iota (https://iota.org/)
Created in 2015, Iota aims to be the ledger for internet of things. It offers fee-free transactions on a distributed ledger called the Tangle. This is not a blockchain (a structured sequence with blocks added at a regular interval) but a Directed Acyclic Graph (a tree-like structure, where every new transaction approves the previous two). No blocks and no miners in turn make micro-transactions possible.
Monero (https://getmonero.org/)
With Monero, cryptocurrency becomes secure, private (both identity and amount) and untraceable. Created by the secretive Thankful_for_today and launched in 2014, Monero has a shady reputation in part due to it being the official currency for the AlphaBay darknet site, an underground marketplace which offered a wide variety of (stolen) goods.
Neo (https://neo.org/)
Neo is also known as the Chinese Ethereum, created in 2014 by Da Hongfei. It has strong economic backing from within China and Japan and is used by for example Alibaba. It offers support for a wide variety of programming languages to create applications, contrasted to Ethereum’s Solidity. How the Chinese ban on Initial Coin Offerings will affect Neo remains to be seen.
Nem (https://nem.io/)
The Nem (New Economy Movement) platform was created in 2015 by someone named UtopianFuture with scale and speed in mind, offering theoretically up to 4.000 transactions per second – far more than financial systems currently handle (an often-used benchmark is Visa’s current average of 1.500 transactions per second, even though Visa’s infrastructure can allegedly handle about 30 times more than that). It lacks support for smart contracts: business rules and logic are not part of the blockchain.