Bitcoin alternatives: the most important other cryptocurrencies

1. It was released in 2015 and has quickly grown a devoted following due to the myriad applications of its blockchain technology.
2. ETH is often traded back and forth like any other crypto.
3. But its primary use is not as a currency.
4. Instead, ethereum enables the creation of new financial applications backed by smart contracts.

Smart contracts are bits of code that are automatically triggered when certain conditions are met.

• While not every country has determined the status of smart contracts, some big economies have given them legal certainty
• In November 2019, for example, the UK Law Commission set out a landmark ruling noting that they were legally enforceable in courts in England and Wales.

Almost the entirety of the decentralised finance (DeFi) and non-fungible token (NFT) markets are built using ethereum.

1. DeFi is an interconnected web of financial applications, the main star of which so far has been the cryptocurrency lending markets, where users loan out their cryptocurrencies to other investors in exchange for a fee.
2. According to data tracker DeFiPulse.com, 83 of the 84 highest-value DeFi projects currently use ethereum. The total value of the DeFi market has grown from less than $1bn to $50bn in the past 18 months.

NFTs are digital collectibles – usually artwork or sports or gaming collectable items. 

• Ownership is recorded on the ethereum blockchain network and as such can’t be faked or forged.
• Christie’s became the first big auction house to sell off an NFT artwork, collecting $69.4m for the sale of Everydays: The First 5,000 Days by digital artist Beeple.

It was also revealed at the end of March that the payments giant Visa will start using ethereum to record cryptocurrency-based transactions. This removes the need to convert cryptocurrencies into national currencies in order to settle payments.

In this way, the ethereum network has become a singularly important as it bridges the gap between the worlds of traditional and crypto finance. 

Cuy Sheffield, head of crypto at Visa, says: “We see increasing demand from consumers across the world to be able to access, hold and use digital currencies – and we’re seeing demand from our clients to be able to build products that provide that access for consumers.”

Why are ETH transaction fees so high?

The sometimes extreme transaction fees required to use ethereum are a long-standing problem.

“The ethereum network is so popular that it is routinely overloaded. Transaction times become agonisingly slow. Transaction fees become exorbitantly expensive.“

Mathematician Juan Villaverde, who leads a team of analysts at US ratings agency Weiss Crypto

Throughout the cryptocurrency bull market of 2017 to 2018, ethereum transaction fees averaged $5.70 apiece. In 2021, the cost of confirming transactions has leapt to an average of $10.

Planned changes to the way in which the ethereum network functions could solve this thorny issue. 

In a network-wide update called ETH 2.0, which will take place over several years, ethereum will move away from the energy-intensive “proof of work” method of confirming blocks of transactions to something called “proof of stake”.

According to ethereum co-founder Vitalik Buterin:

1. When ETH 2.0 is completed, transaction times will fall from the current several minutes to just three seconds
2. This kind of functionality would put ethereum’s smart-contract execution speed into the same realm as swiping a credit card or sending an email

To explain how important this change is for the ethereum network, consideration should be given to proof of work versus proof of stake.

• Blockchains based on proof of work, such as bitcoin and ethereum, use up vast amounts of electricity to secure their networks and process blocks of transactions.
• Data from the Cambridge Bitcoin Electricity Consumption Index, run by the University of Cambridge Judge Business School, shows that the bitcoin network uses about 135 terawatt hours (TWh) of electricity every year.
• For comparison, Pakistan, which has a population of about 225m, uses about 120.5TWh annually.

That’s because in proof of work, highly specialised ASIC-chip computers devoted to this one job expend electricity (the “work’) competing to solve complex mathematical puzzles of ever-increasing difficulty.

Those who win get the right to add blocks of transactions to the digital ledger and are rewarded in the native cryptocurrency of that blockchain.

So if my machine solved the bitcoin puzzle the fastest, I would get rewarded in bitcoin. The more powerful the computer, the faster it can solve the mathematical problem, and the more likely it is to win bitcoin as a reward.

In “proof of stake”, the more of a certain cryptocurrency (the “stake”) that an individual owns, the greater their right to confirm transactions and win rewards.

This process removes power-hungry miners from the equation, instead relying on those who already own a decent stake in the cryptocurrency – thereby ending the electricity-use arms race.

What is binance coin?

Binance coin is an ethereum-based crypto token that can be used to trade between various cryptocurrencies and to pay fees on the binance cryptocurrency exchange. 

Binance is generally regarded as the world’s largest cryptocurrency exchange by daily trading volume, with about $25bn of cryptocurrency changing hands on its spot markets every day.

What is litecoin?

Litecoin is a digital currency that is intended to be used as a payment mechanism without the need for conducting transactions through a middleman such as a bank. 

1. It was created in 2011 by ex-Google developer Charlie Lee, who designed it to confirm transactions four times faster than bitcoin: once every 2.5 minutes compared to once every 10 minutes.
2. Like bitcoin, its longevity and its security are its main features.
3. Only two cryptocurrencies have never fallen out of the top 10 highest-value projects on the market since their launch: bitcoin and litecoin.

Investors with a long time horizon are hoarding litecoin in increasing numbers, according to news website Cointelegraph.

When payments giant PayPal announced in October 2020 that it would start supporting cryptocurrencies, it chose only the best-known ones: bitcoin, litecoin, ethereum and bitcoin cash.

Is there a better cryptocurrency than bitcoin?

It depends what you mean by “better”. As the original peer-to-peer digital currency, bitcoin has become a proxy for the market as a whole. It is the best-recognised cryptocurrency and also the longest-lasting, mostly because it has never been hacked. You may want to read our article Should you invest in bitcoin?

There are, however, many hundreds of crypto projects and blockchains that claim theoretical transaction speeds well in excess of what bitcoin can handle, and for much lower fees.

Take the 23rd-largest cryptocurrency by market cap: EOS. Its engineers believe that it can handle about 50,000 transactions per second. That is orders of magnitude more than bitcoin, which can process between two and seven transactions per second.

But as with any technology, ease of use and adoption is the key factor and not necessarily its raw prowess.

• For example: the Linux computer operating system is widely regarded as being much faster than Microsoft’s Windows or Apple’s macOS. But according to StatCounter, more than 75% of computers worldwide run on WIndows compared to less than 2% on Linux.

Because bitcoin was designed as an open-source piece of software, anyone can borrow the code and create their own version.

It’s not easy, mind. Just because you or I could go on Github and take a look at the inner workings of the most popular cryptocurrencies, it doesn’t mean that we could build and run our own version.

Most cryptocurrencies are maintained voluntarily by teams of developers.

What other cryptocurrencies are there?

There are more than 9,000 crypto tokens in existence today, running the gamut of a dizzying array of uses.

Beware:

• The vast majority of these are only lightly used and rarely traded, so selling them on to someone else can be rather difficult.
• Like the classic “lobster pot” analogy often applied to illiquid stock markets, it can be very easy to get your money in, but almost impossible to get it out again.

In the main, asset managers and hedge funds spending billions on cryptocurrency have only been buying bitcoin. In December 2020, London asset manager Ruffer confirmed a bitcoin exposure of about 2.7% of its total assets under management, worth £550 million at the time. And Elon Musk’s Tesla spent $1.5bn on the most-recognised digital currency.

Financial institutions are starting to broaden their scope of cryptocurrency holdings, however. We can see this most clearly by combing through the data provided by analytics provider Messari.

Silicon Valley venture capitalist firm Andreessen Horowitz, for example, currently holds 14 digital currencies of varying stripes. These include bitcoin and ethereum, along with DeFi protocols such as Uniswap, Compound and Maker.