When writing about digital currencies, it's all to easy to fall into the trap of saying, “Bitcoin and other alternative currencies.” Bitcoin, after all, was the first and is the biggest; they're the industry leader. While it's true that many of their methods and protocols are also followed by other cryptocurrencies, lumping all the other types in with Bitcoin is misleading and incorrect. We'd like to devote this article to pointing out where other alternative currencies actually differ from Bitcoin.
Before we dig in, however, a quick note: The cryptocurrency industry is extremely active, to put it mildly, and its fluctuations make it difficult when quoting precise numbers. The figures and concepts detailed in this article are current as of the time of its writing in December 2013.
History. Bitcoin was introduced to the public in early 2009, and it had no real competition to speak of until over two years later. As a result, it's gotten more attention, more scrutiny, and a big head start on all those that have followed. It's gotten a lot more competition now than it did have; though only two new digital currencies were introduced in 2011, about 30 have sprung up in 2012 and 2013.
Worth. According to CryptoCoin Charts, which tracks in real time the value of various leading cryptocurrencies, Bitcoin has a value over 80 times that of its next leading competitor, Litecoin. That's quite a discrepancy—but Bitcoins have been around longer than their competitors, and have had more time to generate publicity and value.
Number of Investors. These figures are almost never published, and for good reason: Cryptocurrency issuers don't want to frighten off potential investors with small membership totals. Industry expert estimates for Bitcoin put its investor numbers at about half a million, and no other digital currency even comes close to that. Bitcoin's likely to be the first to one million investors, but that may not happen for a couple of years.
Number of Coins. All cryptocurrencies have a mintage cap; once so many individual coins are created, that's it. The last Bitcoin is projected to be minted sometime around the year 2140, when it reaches its cap of 21 million coins. Litecoin has a cap of 84 million coins, whereas Peercoin has no set limit of coins it will create.
Mining Algorithms. Most cryptocurrencies—including Bitcoin—use a mathematical algorithm protocol for the mining process called SHA-256. What does that mean to the regular person? Well, Litecoin, as an example, uses an algorithm set called Scrypt, which uses much less computer time and energy. Mining—the process of processing blocks of data to validate transactions—is essential for both security and maintaining the stability of the currency. Since a lot of mining needs to be done to validate blocks—which generates revenue for the miners and creates new currency—many miners on the SHA-256 protocol are finding it necessary to create mining pools with other network members in order to make it worth their while. The more efficient Scrypt system, it's argued, makes it easier for individual miners to succeed.
Proof of Work vs. Proof of Stake. These terms define mining methods. “Proof of work” means pretty much what it sounds like; coins are rewarded to miners who perform an amount of work within a given set of criteria. Once those goals are achieved, the coins are issued to the miner or miners. “Proof of stake”—a method employed by Peercoin—awards new coins to those who have already invested in the currency. Whereas Bitcoin operates solely on the proof of work model, Peercoin uses a combination of proof of work and proof of stake. Since mining often involves high hardware dedication and energy commitment, many believe this combined strategy allows for better rates of both currency creation and investor income.
So you see, not all cryptocurrencies are created equal! Due to space limitations, we've really only touched upon the top three digital currencies out there, but it's enough to prove our point that not all alternative currencies are simply “Bitcoin clones.”
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