In this lecture we will see that beside Bitcoin the cryptocurrency world is very wide and it is continuing to grow exponentially. If we look back at Bitcoin creation in 2009, we see that the first Altcoin came out only after two years. Then the rate of Altcoin launches started to grow only from 2013, 2014. It went on increasing until now. In 2017 more than 600 new cryptocurrencies were created, so it has become impossible to check and study them all.
One important metric to understand Altcoin value is the Market Cap corresponding to the unitary cost multiplied by the number of coins in circulation. Using this metric Bitcoin is still the first cryptocurrency and Ethereum and Ripple occupy the following places. It is possible to check the live situation on CoinMarketCap website.
Another Altcoins classification can rely on AltCoins genealogy. So on how they are related to each other. For example, there are many Bitcoin-like alternatives which started from Bitcoin basics with some changes through a fork. If we look at Altcoins, we can see that many of them come from a fork of famous and long-lasting cryptocurrencies such as Bitcoin, Litecoin and Ethereum. However, every Altcoin has something that distinguish it from others, such as differences in the scripting language, transactions management, additional features or security, mining-based or not, with different consensus algorithms and so on. They can also differ from Bitcoin simply because they have different built in parameters, such as average time between blocks creation or blocks size.
Now let’s dig deeper into some Altcoins story.
Namecoin: decentralized domain name management
Namecoin was the first Altcoin born in 2011, around two years after Bitcoin. Its purpose was to replace the domain name system in a decentralized way. A specific plugin for Firefox or Chrome is available in order to access to any website ending with ".bit". It will automatically take you to the right location indicated by the registry stored on Namecoin. To register a domain in Namecoin and keep it, it is necessary to send a transaction to the Namecoin system.
Namecoin has many interesting properties:
- It gives the possibility to register a domain name which is not already in use for a small fee, corresponding to 0.01 Namecoin (around 0.05$). So, the cost is far less than the cost of registering a domain name following the standard procedure.
- It is not necessary to pay a renewal fee to keep the domain. While it is enough to publish every six months a transaction that pings the domain name under your control.
- Namecoin manages subdomains in the same way as current domain system. For example, if you register mywebsite.bit, you have access to all its subdomains.
- It is also possible to transfer domains to other people selling them in exchange of some Namecoins.
- It was the first Altcoin to feature merge-mining which is a very interesting mining approach that we will see later in further details.
Litecoin: first memory-hard mining puzzle
Also Litecoin was born in 2011 sometime after Namecoin. For several years Litecoin was the second main cryptocurrency after Bitcoin. The main technical difference from Bitcoin is its mining-puzzle. Litecoin uses a memory hard mining puzzle, while the Bitcoin a computation hard one. In 2011, Bitcoin mining already required GPUs and Litecoin purpose was to be GPU resistant. However, despite the purposes, it was possible to improve Litecoin mining first using GPUs and then with a specific Litecoin ASIC.
Litecoin is the second most forked cryptocurrency and, besides the mining puzzle, it differs from Bitcoin just for some parameters change. For example, the time between block creation is 4 times smaller than Bitcoin (2.5 minutes instead of 10).
PeerCoin: first proof-of-stake mining puzzle
PeerCoin was born towards the end of 2012 and uses a very different mining puzzle: proof-of-stake. As we said in a previous lecture this method doesn't involve any computational work. Instead, it involves mining by making transactions using coins owned by the miner. Coins acquire more stake over time as long as the miner doesn't spend them. Actually, Peercoin mining is a little more complicated, since it is an hybrid mining protocol and supports also proof-of-work, but only for minting. In fact, the proof-of-work blocks aren't actually included in the calculation to determine what's the longest Peercoin blockchain and their only purpose is to create new coins. So, an attacker with a high computation power doesn't have advantages in launching attacks against Peercoin network.
In addition, there's the concept of Peercoin administrators who own a trusted public key used to sign checkpoints every a certain number of blocks. This acts as a safeguard against attacks, but leads to the fact that Peercoin isn't fully decentralized. In addition, we can't prove that proof-of-stake is a very secure mining protocol since Peercoinrelies on these checkpoints.
DogeCoin: having fun with cryptocurrency
DogeCoin was born at the end of 2013. Besides a few technical changes from Bitcoin, the main difference between Dogecoin and other currencies is that it was born with the purpose of
having fun with cryptocurrency. In fact, Dogecoin supported many marketing campaigns and public events, which let it become popular in a very short term after its launch. For example:
- it sponsored a NASCAR driver which ran with Dogecoin logo on his car
- the community raised over 30 thousand dollars to support the Jamaican bobsled team to let them travel and compete in 2014 Winter Olympic Games.
One interesting technical difference from other cryptocurrencies was the notion of random block rewards. Rather than having a fixed block reward, each block bonus is random. It depends on a pseudo-random function applied to the previous block hash. So, miners knew the reward before the block insertion. And, if the reward was really low, they could switch to other cryptocurrencies mining. So, this feature was removes a few months after the launch. Now Dogecoin block reward is fixed and halved every two months.
Ethereum: the first smart contract cryptocurrency
Ethereum was born at the beginning of 2013 and allows the creation of smart contracts in a Turing-complete programming language. The innovative idea is to think that many contracts can correspond to a computer program. In fact, a contract is something which is fulfilled and can be applied when a series of conditions are met.
The smart contract are computer programs installed on the peer-to-peer network. In order to run, they "pay" the computational power required through a token, called Ether, which therefore acts both as cryptocurrency and contract fuel. There are many examples of contracts already running on Ethereum network. For example, electoral systems, registration of domain names, financial markets, crowdfunding platforms, intellectual property, auctions and so on.
Monero: higher privacy level
As we have seen, Bitcoin provides only pseudonimity. So, it is not that suitable for monetary exchanges in which a high level of privacy. While Monero uses a ring signature algorithm. A signature is a combinations of many participants signatures. So, it is possible to link a transaction to a users group, but not to trace it back to the user who actually made it. In addition, Monero, unlike Bitcoin, is fungible. So, every coin is completely identical to every other coin in circulation.
Cardano: first provably secure proof-of-stake algorithm
Cardano is a decentralized public blockchain that aims to protect user privacy, while also allowing for regulation. It is a 3rd generation cryptocurrency born in 2015. Its roadmap is still evolving and the major successes date back to the second half of 2017. At the beginning of 2018 it entered in the top 5 Market Cap cryptocurrencies.
The main Cardano features are:
- high speed: low speed is a point of failure of most early born cryptocurrencies
- money ownership: the user owns his money unlike in bank accounts where the bank owns them
- pseudonimity and security
- extensibility: supports the side chain concept, allowing to create specific purpose cryptocurrencies for a particular aim in which participants hold tokes that are valuable on the main chain.
Examples of such applications are identity management, gaming and gambling, and verifiable computations.
The main differences with Bitcoin are:
- mining relies on the first provably secure proof of stake algorithm called "Ouroboros
- presence of layers. The Cardano cryptocurrency resides on Settlement layer where the users can make exchanges. It supports a Control layer extension serving as a trusted computation framework. The aim is to evaluate a special kind of proofs to ensure that a certain computation was correct. In gaming and gambling, such systems serve for verifying honesty of random number generation and game outcomes.
Ripple was born in 2012. It has many conceptual differences with Bitcoin, since it aims to help the authorities and not to substitute them.
Banks and financial services companies can incorporate Ripple protocol into their own systems. As the Ripple team says, the aim is to "do for payments what SMTP did for email, which is enable the systems of different financial institutions to communicate directly."
On Ripple network it is possible to make payments in XRP (Ripple internal currency) or in fiat currency. XRP transactions rely on Ripples internal distributed ledger. While for other currencies or assets, the ledger records only the owned amount. To exchange other assets, users have to specify a list of trusted users and to what amount. A payment between two users that trust each other can take place directly according to the maximum threshold. While, a payment between users who don’t trust each other directly goes through a path created linking users who have a mutual trust relationship. This payments mechanism through a network of trusted associates is named 'rippling'.
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