What’s covered: Highlight the most popular cryptocurrencies, how to research for new ones
Expected outcomes: You should have an idea of how cryptocurrencies often differ from one another. You will be able to make up your own mind of the actual and potential worth of various coins
Time to completion: 10m (much longer for external research)
Bitcoin vs USD
From here on out we will assume you have a basic understanding of the core concepts of cryptocurrency. If you have no idea what a blockchain is, how mining works, or how transactions are conducted without a bank, please visit Part 1 and 2. If needed, do some extended research on these topics.
Bitcoin is the first cryptocurrency or digital currency. It was created by one person as a result of the most recent financial crisis in 2008. That recession revealed some lack of competence in the banking industry and an inability to self regulate itself from greed, corruption, and economic stability. While no system is perfect and I have no doubt the financial industry and governments, for the most part, do their best to keep the economy strong, there is little doubt that big corporations and powerful individuals were selfishly motivated at the cost and suffering of others. The core intent of Bitcoin was take power away from a few and give it back to the many. This is the intent. Whether it or another cryptocurrency will succeed and whether any society will be better off, no one knows for sure. The point of this section is to highlight that if someone suggests they do know the answers to these future based questions, you should evaluate their opinion with a critical mind. Much like when anyone tells you they have a million dollar stock tip. As an optimist in digital currency and someone who is fascinated by the solution it provides, I would wager that >95% of the cryptocurrencies in existance will fail and that all might fail unless they break some critical thresholds.
Bitcoin, Ethereum, and other alt coins
How traditional money differs from Bitcoin should be fairly obvious now, even if you don’t fully understand everything. But how does Bitcoin and these other coins I’ve spoken of differ? Well Bitcoin was the first as I mentioned above. The rest, some more than 1500 of them expand on or are influenced by Bitcoin. Here are a few of the many ways they differentiate:
- The underlining technology is more efficient: Meaning, the time it takes to do a transaction may be faster and require less compute power (energy). This allows that given coin to scale better as its adoption grows
- Offers a different a security model: Many coins advertise themselves as being more secure and at less at risk of compromise and theft
- Is more lightweight: Similar to being more efficient, some coins reduce the amount of features and instead choose to specialize in one area
- Focuses on one type of transaction: Rather than trying to handle all types of transactions between human to human, machine to human, machine to machine, etc, they focus on one.
- Provides solutions outside of finance: blockchain in no way is inherently tied to finance. There are many applications. In a way, it provides the means for indisputable and reliable record keeping, particularly when multiple sides are involved without a human or corporation based third party.
- Not all are distributed: Some are more centralized, appealing more to current institutions like banks.
- Not all have a finite amount of coins: not all cryptocurrencies have a finite amount of coins to be mined. Some are infinite. Similarly, some cryptocurrencies don’t mine or start with a % of coins pre-mined already available on the market.
White papers
Naturally, you may be wondering, which is the best? Which ones will be the major players of the future? Unfortunately, they all advertise their design as superior for their target market. Many are merely proof of concepts, or worse. I think it would be a disservice to suggest which ones I think are the best. You should make up your own mind. The best advice I have is to read the “white papers” of some of the popular coins. The white papers is the pitch describing, what it solves, how it does it, and why it’s important. See how cryptocurrencies differentiate from one another. The papers are mostly high level but often dry and can dive in more technical than can be appreciated. Still with the foundation of Part 1 and 2, you should be able to research more on your own
Additionally, I think it’s worth considering who is already established. Who has weathered some of the storms. Many coins come and go as people con and try to make a quick buck by falsely advertising or failing to live up to the promise. The promise they provide may not even hold much potential for disruption. Take a look at the backers, the team of people behind the development, and be critical. There is a tremendous amount of grass roots energy and some major adoption milestones that have been broken but personally, I don’t see a clear path to worldwide radical change and nor do I think there has to be. Nothing is for certain. There are a lot of interesting projects. Which ones interest you?
To start, here are the two biggest cryptocurrencies and their respective white papers.
Bitcoin
The largest, most established and original cryptocurrency. Easily the most valuable and most recognized. Cryptocurrency exists today as is because of this. It has stood up over the years and gone through many market ups and downs. Still in infancy and not adopted at the same level as fiat based currencies.
Ethereum
While Bitcoin is the first to market, that also means it comes with some amount of baggage. Ethereum was able to make some advancements using hindsight. Transactions are faster and cost less to mine. Additionally, it was made to be more general based to support future unknown use cases.
Those are just the most valuable (popular) coins. You don’t need to understand everything in their papers. Before moving on, I recommend being able to spot some of the high level differences between these two and then look up some other coin’s papers and see how they differ.
Current and potential value
It’s worth repeating again, the point of this section is not to say that Bitcoin, Ethereum, or some other alternate coin (altcoin) is the best. Likewise, it’s also not to say that our systems and industries are better without cryptocurrency. Just like comparing a dictatorship to a democracy or a tv cable subscription to a free open web, putting the power in a few vs many each have their own pros and cons. Nothing is perfect. What I would like to do is give you the tools to do your own research. Make your own mind up of whether or not cryptocurrency is a better model. Whether it will meet some adoption rate that creates an inflection point. Whether or not any one cryptocurrency is better than the other. That’s ultimately for you to decide.
Continue on to Part 4 where we create our first wallet for playing around
Blocktrain 