Whether Bitcoin stays or not, crypto currency has definitely become a part of our future. So it is useful for all of us to understand crypto currency better. So in today's post, I would like to talk to you about this. What are the important parts of crypto currency? How is crypto currency actually used in real life? And what alternative crypto currencies exist apart from Bitcoin? And why?
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| Ethereum, Ripple, Litecoin Cryptocurrency Explained |
As I told you in my last Bitcoin post, a man named Satoshi Nakamoto created Bitcoin as a form of alternate currency. If you haven't seen that post yet, check it out. The post is
What is Bitcoin? Why Bitcoin is So Popular? How Bitcoin Works?, All our existing currencies are controlled by central banks. He created Bitcoin as a decentralized currency, so that no single bank or institution can control the currency. Basically, new Bitcoins can be discovered through their algorithm. That is, they can be mined. And these Bitcoins can then be traded among people. By using digital wallets and keys. All transactions done with Bitcoin are recorded in a public ledger. Which is called a distributed ledger. The special thing is that all this is public. Anyone can access it and see some details of every transaction. Not all details, the identity of the buyer and seller is not revealed in this ledger. And because this ledger is decentralized, for this reason it is also secure. It is almost next to impossible to hack it.
Satoshi decided that the supply of Bitcoins should be limited. So he coded it in such a way that only 21 million Bitcoins can be available. So just like gold exists all over the world, its supply is limited. Gold does not exist in the world beyond a certain limit. Similarly, Bitcoins were created so that its value can increase. If the supply of anything is limited, people will want to buy it more, then its value will increase. On top of that, to make Bitcoins even more rare and valuable, Satoshi made the algorithm in such a way that as new Bitcoins get mined, mining future Bitcoins will become even more difficult. Now Bitcoin is not a perfect thing. Like everything, it also has some flaws. And to address the flaws of Bitcoin, after Bitcoin many other crypto currencies came, which are called altcoins. Alternative coins, because they are alternatives to Bitcoin. Many altcoins try to address the flaws of Bitcoin itself.
The second most important feature of a crypto currency is a crypto currency exchange. An exchange is an online platform where you can convert fiat currency like rupees, dollars and euros into crypto currency and convert crypto currencies into fiat currency.
Now let's talk about the third feature which is Miners. The job of miners is to verify every transaction, check its accuracy and maintain the security of the blockchain. Miners only ensure that every transaction is actually added to the blockchain. An important thing to understand here is that if you want to create a new crypto currency, create a new coin, then for that you will also have to create a new blockchain and coding a new blockchain takes a lot of time, a lot of money and advanced technical skills are necessary to do it. So, instead of doing this, an alternative is that you create a crypto currency that works on some other crypto currency's blockchain. Such crypto currencies are called Tokens. So a token is a crypto currency that works on an existing blockchain.
And finally the last most important feature for crypto currencies is a wallet. Just like you need a wallet to store rupee notes and dollar notes. Similarly, to store crypto currencies you will need a wallet. And this wallet is not always physical. Like your purse. This wallet can also be in the cloud, it can also be in your laptop or it can also be in some external storage device. Like USB drives or hard drives.
What are Bitcoin Alternatives?
Ether (ETH)
With this background knowledge, let's now talk about altcoins in detail. Perhaps, the most popular altcoin today is Ether or ETH. It is based on the blockchain technology of the Ethereum platform. It was launched in 2015 and there are some critical differences. If you compare it with Bitcoin, Ethereum uses a smart contract to guarantee a transaction. You can understand it with a simple example. When you use a vending machine. You insert some money in the vending machine. To buy a packet of chips. The whole system is automatic. No one is sitting there to ensure how much money you actually put in. How much stuff you are getting here. The vending machine does everything automatically. Similarly, on the Ethereum platform, there is no involvement of a third party. Two parties can enter into a smart contract with each other. The interesting thing is, this platform has had many real-life applications. It has been used in healthcare, security, and self-driving cars.Litecoin (LTC)
Another popular altcoin is Litecoin or LTC. It is counted among the top five coins. It was released in 2011. Its basic structure is similar to Bitcoin. But there are some important differences. Like Bitcoin, Litecoin also has a limited supply. Bitcoin has a supply of 21 million coins, Litecoin's supply is 84 million coins. Second, Litecoin's block creation time is only 2.5 minutes as compared to Bitcoin's block creation time which is on average 10 minutes. Although Ethereum's block creation time is even less than this. It takes around 25 seconds. And Ripple's is even less than that. It takes less than 4 seconds.Ripple (XRP)
Ripple (XRP), which was created as a cross-border payment platform so that different financial institutions like banks can also use it. Now this basic idea itself is different from Bitcoin. Bitcoin was created so that centralized institutions stay away from it. But Ripple is created in such a way that centralized institutions can also use it. Ripple has collaborated with big banks like American Express, Bank of America so that they can use the platform to transfer currency from country to country across the world in less time and at less cost.Conclusion
A big issue that you will often see with every crypto currency is that the value of these crypto currencies is very volatile and keeps going up and down so much as I told you at the beginning of the post. Because of this, doing financial transactions becomes quite difficult. If you are sending money from one place to another and within 2 days the value of Bitcoin goes up and down so much, then it will make a lot of difference in the money. So keeping the value of the currency stable here is very important in many cases. For this reason, a new class of crypto currencies has been created which offer price stability and are backed up by a reserve asset. Like US dollars or gold, they are called Stable Coins because they remain quite stable in price. Stable coins have become popular because you are getting benefits from both sides. You are getting the privacy and security that is there in crypto currency and you are also getting the stable value that is there in a normal currency. For this reason people use stable coins. So this was an overview, friends, on alternatives to Bitcoin.
For example, one of the biggest complaints against Bitcoin has been that it takes a long time to confirm a transaction in Bitcoin. It can take up to 1 hour. To address this flaw, an altcoin was created, Ripple (XRP). It takes less than 4 seconds to confirm a transaction. Let me give you another example. There is an altcoin called Ether or ETH. Its creators felt that this limited supply system of Bitcoin is not quite right. So they created Ether saying that the supply of our coin, our crypto currency, will be unlimited and every year 18 million new coins will be released. After the success of Bitcoin, many companies, organizations and in fact some countries also felt that we should create our own crypto currency. We should create our own coins. Before moving forward, to better understand crypto currency, you will have to first understand the important features of crypto currency.
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