Comparing Bitcoin, Ethereum, and Other Cryptos
View the high resolution version of today’s graphic by clicking here.
Unless you’ve been hiding under a rock, you’re probably aware that we’re in the middle of a cryptocurrency explosion. In one year, the value of all currencies increased a staggering 1,466% – and newer coins like Ethereum have even joined Bitcoin in gaining some mainstream acceptance.
And while people like Jamie Dimon of J.P. Morgan and famed value investor Howard Marks have been extremely critical of cryptocurrencies as of late, many other investors are continuing to ride the wave. As we’ve noted in the past, the possible effects of the blockchain cannot be understated, and it could even change the backbone of how financial markets work.
However, even with the excitement and action that comes with the space, a major problem still exists for the layman: it’s really challenging to decipher the differences between cryptocurrencies like Bitcoin, Ethereum, Ethereum Classic, Litecoin, Ripple, and Dash.
For this reason, we worked with social trading network eToro to come up with an infographic that breaks down the major differences between these coins all in one place.
A Description of Major Coins
Here are descriptions of the major cryptocurrencies, which make up 84% of the coin universe.
Bitcoin is the original cryptocurrency, and was released as open-source software in 2009. Using a new distributed ledger known as the blockchain, the Bitcoin protocol allows for users to make peer-to-peer transactions using digital currency while avoiding the “double spending” problem.
No central authority or server verifies transactions, and instead the legitimacy of a payment is determined by the decentralized network itself.
Bottom Line: Bitcoin is the original cryptocurrency with the most liquidity and significant network effects. It also has brand name recognition around the world, with an eight-year track record.
Litecoin was launched in 2011 as an early alternative to Bitcoin. Around this time, increasingly specialized and expensive hardware was needed to mine bitcoins, making it hard for regular people to get in on the action. Litecoin’s algorithm was an attempt to even the playing field so that anyone with a regular computer could take part in the network.
Bottom Line: Other altcoins have taken away some of Litecoin’s market share, but it still has an early mover advantage and some strong network effects.
Ripple is considerably different from Bitcoin. That’s because Ripple is essentially a global settlement network for other currencies such as USD, Bitcoin, EUR, GBP, or any other units of value (i.e. frequent flier miles, commodities).
To make any such a settlement, however, a tiny fee must be paid in XRP (Ripple’s native tokens) – and these are what trade on cryptocurrency markets.
Bottom Line: Ripple runs on many of the same principles of Bitcoin, but for a different purpose: to serve as the middleman for all global FX transactions. If it can successfully capture that market, the potential is high.
Ethereum is an open software platform based on blockchain technology that enables developers to build and deploy decentralized applications.
In the Ethereum blockchain, instead of mining for bitcoin, miners work to earn ether, a type of crypto token that fuels the network. Beyond a tradeable cryptocurrency, ether is also used by application developers to pay for transaction fees and services on the Ethereum network.
Bottom Line: Ethereum serves a different purpose than other cryptocurrencies, but it has quickly grown to displace all but Bitcoin in value. Some experts are so bullish on Ethereum that they even see it becoming the world’s top cryptocurrency in just a short span of time – but only time will tell.
In 2016, the Ethereum community faced a difficult decision: The DAO, a venture capital firm built on top of the Ethereum platform, had $50 million in ether stolen from it through a security vulnerability.
The majority of the Ethereum community decided to help The DAO by “hard forking” the currency, and then changing the blockchain to return the stolen proceeds back to The DAO. The minority thought this idea violated the key foundation of immutability that the blockchain was designed around, and kept the original Ethereum blockchain the way it was. Hence, the “Classic” label.
Bottom Line: As time goes on, Ethereum Classic has been carving out a separate identity from its bigger sibling. With similar capabilities and a different set of principles, Ethereum Classic could still have upside.
Dash is an attempt to improve on Bitcoin in two main areas: speed of transactions, and anonymity. To do this, it has a two-tier architecture with miners and also “masternodes” that help the network perform advanced functions such as near-instant transactions and coin-mixing to provide additional privacy.
Bottom Line: The innovations behind Dash are interesting, and could help to make the coin more consumer-friendly than other alternatives.
Bonus: Bitcoin Cash
Although not included in the graphic, we also wanted to add a quick word on Bitcoin Cash. This new currency “hard forked” from Bitcoin about a month ago, as a result of miner disagreements about the future of Bitcoin. Here’s a detailed summary of the announcement.
Mapping the Major Bitcoin Forks
Bitcoin forks play a key role in Bitcoin’s evolution as a blockchain. While some have sparked controversy, most Bitcoin forks have been a sign of growth.
Mapping the Major Bitcoin Forks
The emergence of Bitcoin took the world by storm through its simplicity and innovation. Yet, plenty of confusion remains around the term itself.
The Bitcoin blockchain—not to be confused with the bitcoin cryptocurrency—involves a vast global network of computers operating on the same distributed database to process massive volumes of data every second.
These transactions tell the network how to alter this distributed database in real-time, which makes it crucial for everyone to agree on how these changes should be applied. When the community can’t come to a mutual agreement on what changes, or when such rule changes should take effect, it results in a blockchain fork.
Today’s unique subway-style map by Bitcoin Magazine shows the dramatic and major forks that have occurred for Bitcoin. But what exactly is a Blockchain fork?
Types of Blockchain Forks
Forks are common practice in the software industry and happen for one of two reasons:
- Split consensus within the community
These forks are generally disregarded by the community because they are temporary, except in extreme cases. The longer of the two chains is used to continue building the blockchain.
- Changes to the underlying rules of the blockchain
A permanent fork which requires an upgrade to the current software in order to continue participating in the network.
There are four major types of forks that can occur:
1. Soft Forks
Soft forks are like gradual software upgrades—bug fixes, security checks, and new features—for those that upgrade right away.
These forks are “backwards compatible” with the older software; users who haven’t upgraded still have access to the network but may not be able to use all functionality in the current version.
2. Hard Forks
Hard forks are like a new OS release—upgrading is mandatory to continue using the software. Because of this, hard forks aren’t compatible with older versions of the network.
Hard forks are a permanent division of the blockchain. As long as enough people support both chains, however, they will both continue to exist.
The three types of hard forks are:
Scheduled upgrades to the network, giving users a chance to prepare. These forks typically involve abandoning the old chain.
Caused by disagreements in the community, forming a new chain. This usually involves major changes to the code.
- Spin-off Coins
Changes to Bitcoin’s code that create new coins. Litecoin is an example of this—key changes included reducing mining time from 10 minutes to 2.5 minutes, and increasing the coin supply from 21 million to 84 million.
3. Codebase Forks
Codebase forks copy the Bitcoin code, allowing developers to make minor tweaks without having to develop the entire blockchain code from scratch. Codebase forks can create a new cryptocurrency or cause unintentional blockchain forks.
4. Blockchain Forks
Blockchain forks involve branching or splitting a blockchain’s whole transaction history. Outcomes range from “orphan” blocks to new cryptocurrencies.
Splitting off the Bitcoin network to form a new currency is much like a religious schism—while most of the characteristics and history are preserved, a fork causes the new network to develop a distinct identity.
Summarizing Major Bitcoin Forks
Descriptions of major forks that have occurred in the Bitcoin blockchain:
- Bitcoin / Bitcoin Core
The first iteration of Bitcoin was launched by Satoshi Nakamoto in 2009. Future generations of Bitcoin (aka Bitcoin 0.1.0) were renamed Bitcoin Core, or Bitcore, as other blockchains and codebases formed.
A codebase fork of Bitcoin. Developers released a hard fork protocol called Segwit2x, with the intention of having all Bitcoin users eventually migrate to the Segwit2x protocol. However, it failed to gain traction and is now considered defunct.
- Bitcoin ABC
Also a codebase fork of Bitcoin, Bitcoin ABC was intentionally designed to be incompatible with all Bitcoin iterations at some point. ABC branched off to form Bitcoin Cash in 2017.
- Bitcoin Gold, Bitcoin Diamond, Other Fork Coins
After the successful yet contentious launch of Bitcoin Cash, other fork coins began to emerge. Unlike the disagreement surrounding Bitcoin Cash, most were simply regarded as a way to create new coins.
Some of the above forks were largely driven by ideology (BTC1), some because of mixed consensus on which direction to take a hard fork (Bitcoin ABC), while others were mainly profit-driven (Bitcoin Clashic)—or a mix of all three.
Where’s the Next Fork in the Road?
Forks are considered an inevitability in the blockchain community. Many believe that forks help ensure that everyone involved—developers, miners, and investors—all have a say when disagreements occur.
Bitcoin has seen its fair share of ups and downs. Crypto investors should be aware that Bitcoin, as both a protocol and a currency, is complex and always evolving. Even among experts, there is disagreement on what constitutes a soft or hard fork, and how certain geopolitical events have played a role in Bitcoin’s evolution.
The Beginning of a Bitcoin Bull Run?
After 15 months of losses and stagnation, Bitcoin has made a miraculous recovery — going on a 150% bull run since its lows in December 2018.
The Beginning of a Bitcoin Bull Run?
After 15 months of losses and stagnation, Bitcoin has made a miraculous recovery — rising more than 150% from its lowest point in December 2018.
In its heyday, Bitcoin had surpassed $10,000 in early December 2017, before briefly crossing the $20,000 mark for a single day on December 17th. A year later, the digital currency had fallen back to Earth, dropping below $3,200.
Now that the dust of that wild speculative frenzy has settled, Bitcoin is back on the upswing. What could be causing this most recent surge in growth?
We look at four possible explanations for the Bitcoin bull run, as originally outlined by Aaron Hankin at MarketWatch:
Bitcoin has seen several technical milestones this year, such as surpassing the psychological barrier of $5,000 in early 2019, breaking the 200-day moving average, and scoring the golden cross (when the 50-day moving average crosses above the 200-day moving average).
Bitcoin is experiencing a steady increase in adoption across several markets. The term Bitcoin has become a household name — even if people don’t understand what it does, they know what it is.
Companies such as Starbucks, Microsoft, and Amazon, and Nordstrom are looking for ways to integrate cryptocurrencies into daily transactions for faster payment clearance, innovative rewards programs, and efficient customer service interactions.
Bitcoin has possibly seen a shift in public perception. There have been fewer negative articles about Bitcoin and cryptocurrencies, and the news stories that are negative no longer have as big of an impact as they once did.
When Binance announced hackers stole $40 million in bitcoin and when accusations of an $850-million cover-up were leveled against Bitfinex and Tether, the Bitcoin bull run barely flinched and continued to climb.
Wavering Gold Investment
Investor confidence in gold has been more stagnant in recent times. To capitalize on this, Grayscale Investments (of Digital Currency Group) posted a campaign in May 2019 promoting Bitcoin as an ideal alternative to gold because it is borderless, secure, and more efficient for storing value.
Despite the World Gold Council’s response denying those claims, the Grayscale Bitcoin Trust saw OTC Markets Group’s highest trading volumes five days later.
Where to from here?
After a long skid, it appears Bitcoin is showing signs of life again. Bitcoin’s price can be highly volatile, so it remains to be seen whether this is the beginning of a bull run, or whether this is just another bump in the roller coaster ride.
Editor’s note: The price of Bitcoin has fallen to $7,100 at time of publishing and will likely continue to experience extreme volatility. However, even at a price of $7,100, this is still a 120% increase from lows in Dec 2018. As well, an earlier version of this graphic had incorrect dates on the timeline. That has now been corrected.
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