A cryptocurrency is a digital currency that isn’t controlled by any regulatory authority. Typically, all fiat currencies (legal tender) like the US dollar or the Indian rupee are controlled by the central bank of the respective country. But in the case of cryptocurrencies, there’s no one who controls the currency. They use a decentralized control mechanism as opposed to a centralized control, used in fiat currencies. The supply of cryptocurrencies is always fixed unlike fiat currencies. Also Read - WazirX received 377 legal requests in Apr-Sept 2021: List of actions taken
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Cryptocurrencies use cryptography to secure themselves. Bitcoin is the first cryptocurrency created in 2009. In addition to bitcoin, there have been countless number of currencies that have been launched across the world. Cryptocurrencies don’t involve a third party to clear a transaction between a buyer and a seller. The entire transaction happens on a peer-to-peer basis. In general, a currency transaction happens when a bank or any other financial intermediary acts as a third party for a fee. Also Read - You can buy and sell Bitcoin via UPI wallet on Unocoin
Most people look at cryptocurrencies as assets. But with assets come cash flows. For example, equity, real estate, or for that matter fixed income, have cash flows attached to them. Cryptocurrencies are more like commodities than assets as they do not have any cash flows. They are more like digital gold or commodities.
This is the most popular cryptocurrencies around, and accounts for 54 percent of the total market capitalization. There are many retail stores across the world accepting bitcoins. The total number of bitcoins is capped at 21 million. Countries such as Japan and Australia are making a road map to make bitcoins more popular. There are talks of creating forward contracts on bitcoins on stock exchanges.
CME group, one of the biggest derivatives market place announced bitcoin futures in October 2017. Bitcoin is today being traded at over $17,000. Over the last few months, the price of bitcoin has increased multi-fold.
In 2013 Vitalik Butarin, a programmer known for his work on cryptocurrencies mentioned in a research paper that bitcoin needed a scripting language for application development. In general, bitcoin programming is not easy. He and his foundation created several prototypes of the Ethereum platform.
Since its launch the platform has gone through several planned protocols. Today it has become the largest open-ended decentralized software platform which enables smart contracts, and is also easy to use. Ethereum is currently traded at over $800. The current market capitalisation of Ethereum is at $66 billion.
Bitcoin Cash is a cryptocurrency which was the result of a split between bitcoin developers on how to limit the size of a bitcoin block. Initially a bitcoin block of 1 MB was created to 4.4 transactions per second. But as the blocks started to fill up with the popularity of bitcoin, there was a group who wanted to increase the transaction cost of moving bitcoin from one person to another. But it was still taking 13 minutes to complete a single transaction. It was suggested that the block size be increased to 2 MB.
Eventually Bitcoin Cash was created with a blocksize of 8 MB. Anyone who possessed a Bitcoin got the equal numbers of Bitcoin Cash provided that the users were in possession of their private keys and their bitcoins were not with any exchanges. Presently Bitcoin Cash is traded at $3,200. With a market cap of $54 billion, it’s the third largest cryptocurrency around.
Ripple is created to be a payment system. The idea is to create global financial transactions, without any fees for any kind of assets. Ripple as an idea is older than Bitcoin and was conceived in 2004. The authorization of Ripple transactions take 4 seconds, as compared to 13 minutes for bitcoins.
Dash is a cryptocurrency where the transaction fees are very low. Dash also has privacy settings that allows senders and receivers to remain anonymous, which are better than bitcoin. Dash created the first self-funding and self-governing Blockchain protocol. A transaction on Dash can be confirmed within few seconds. This is almost equivalent to cash transactions.
Litecoin is one of the first forks of bitcoin. Litecoin is faster. It can handle higher volume of transactions. Litecoin can adopt to new technology and upgrades without any disagreements amongst its developers. Litecoin uses an algorithm that is different from bitcoin. The supply of litecoins is fixed at 84 million litecoins and is traded at around $330.
Vishal Gupta is founder & CEO at SearchTrade.com and co-founder of DABFI. He’s an expert and early investor in various cryptocurrencies, including Bitcoin. Edits and additions have been made by BGR India staff.