While cryptocurrency has only recently become a popular term in finance, it has been around for a long time. Before names like Bitcoin, Ethereum, and Litecoin even existed, there were attempts to create a decentralized currency.
David Chaum, a respected cryptographer, launched ECash, an anonymous system in the 1990s but it failed. Chaum built the system on currently existing government financial principles and infrastructure like credit cards. RPOW, BitGold, B-Money were also created but failed.
Cryptographers could not get past specific challenges that they faced at the time. The first challenge was how to achieve true decentralization and the second was the issue of double spending. The prevention of double spending meant the use of a third-party clearing house. This wasn’t acceptable because to achieve the type of innovative digital finance they wanted; the system had to be independent of any institution.
In 2008, cryptographers finally stumbled on the information they had been searching for when an anonymous contender released the blueprint for a digital currency known as Bitcoin. It showed the technical specifications of the blockchain — a decentralized technology that creates a trustless, permissionless system and eliminates the problem of double spending. This new technology took the world by storm, later leading to changes in the financial industry as well as other industries such as real estate. With the cryptocurrency revolution, came many coins, tokens, and altcoins. Here, we take a deep dive into the similarities and differences between some of the most popular and valued ones: Bitcoin, Ethereum, and Litecoin.
Bitcoin is a digital currency, created as a store of value for the anonymous exchange of goods and services online. It typically has all the properties of a more traditional currency and can be broken down into smaller parts, up to eight decimal places. It’s also the largest cryptocurrency by market capitalization.
Bitcoin first originated in 2008 when an anonymous programmer under the pseudonym of Satoshi Nakamotoreleased a paper in a cryptography mailing list. This paper detailed the workings of a new digital currency, built on blockchain technology. The virtual currency was designed to imitate key qualities of traditional money while providing anonymity, transparency and eliminating the need for a third party.
Researchers tried to find out the identity of this anonymous programmer, all to no avail. It became a mystery to the cryptography community who could not ignore this act of charity, containing a brilliant solution that had eluded them for so long.
The technology behind Bitcoin is open source, meaning that developers can modify it according to guidelines in the paper. Nakamoto aimed to create a currency that would be uniform, scarce, portable, durable and valuable, without the risk of double spending. This was achieved by creating a mathematical problem that would only ever have 21 million possible solutions. These solutions would represent Bitcoins, ensuring that only a finite amount of the currency would ever exist. This solution created scarcity, an essential property of any valuable item.
When Bitcoin was first released, it wasn’t well-known or widely accepted by the general public, and for up to eight months, it had no value. Critics laughed at the idea of a random digital currency that would be able to up-end the use of paper money as a means of exchange. However, software programmers continued to adjust the technology.
In October 2009, Bitcoin was valued for the first time when the New Liberty Standard published its exchange rate, listing the value of 1 USD to 1309.03 BTC. Soon after, in December, the second version of Bitcoin was released, and more people started spending the currency.
By the following year, exchanges had begun to pop up and, July 2010 saw the launch of MtGox, one of the largest Bitcoin exchanges. The Infamous Pizza cryptocurrency exchange also occurred in 2010, setting the precedence for other Bitcoin purchases for everyday items. It was allegedly also used to purchase illegal items and substances on the Dark web because the transactions were untraceable. The use of Bitcoin had become so popular that on February 9th, 2011, its value became equivalent to that of the US dollar.
By July 2011, 1 BTC was trading at almost 10 USD, and it continued to increase in value. As with any valuable commodity, Bitcoin began to attract theft. In March 2012, due to a security breach at Linode, almost 50,000 BTC was stolen. It was the first recorded Bitcoin crime in history. The theft would later get much worse with the loss of about 850,000 BTC from MtGox in February 2014.
Theft of Bitcoin reinforced its value in the eyes of the public, and price of Bitcoin continued to rise. Soon, several new exchanges started operating to cater to the needs of the growing horde of cryptocurrency users. It wasn’t long before groups running Ponzi schemes, pyramid schemes and different scams also began to emerge. In September 2012, a group charged with the promotion and protection of Bitcoin known as the Bitcoin Foundation was launched and since then, Bitcoin has hit many major milestones including a record value of almost $20,000 in December 2017.
Ethereum is a peer-to-peer based platform on which decentralized applications can be built. Since its release in July 2015, Ethereum has risen to the top as the second largest cryptocurrency with a market cap of approximately $50 billion.
In a market flowing with thousands of cryptocurrencies, it has quickly become the topic of many debates, not just for its similarities to Bitcoin, but its differences as well. So what makes it so unique?
Ethereum was proposed in 2013 by Vitalik Buterin, a Canadian-born cryptocurrency developer. Later in 2014, it was funded via a crowd sale event in which there were 11.9 million pre-mined ETH. It was fully released in 2015 and has quickly risen since then. Ethereum tokens, known as “Ether” have become a conventional means of exchange on various blockchain-based applications and continue to grow in value.
On the surface, Ethereum works just like any other cryptocurrency. The common conception is that ETH is just like BTC— a store of value, especially for payments. It can be exchanged for fiat currency and just like Bitcoin, the transactions are confirmed on a blockchain. It’s also completely decentralized with no need for third-party validation.
Just like Bitcoin’s blockchain, Ethereum once had miners who also ran complex computational algorithms to get mining rewards. While these similarities exist, the currency is quite different from Bitcoin in a lot of significant ways.
Unlike Bitcoin, the Ethereum platform was designed in a way that allows decentralized applications (DApps) to be built on it. In fact, 1,629 applications have currently been built on its blockchain.
According to the Ethereum website, its platform is a decentralized foundation for applications that run precisely as they’re programmed. They also claim that the platform erases third parties as well as any chance of fraud or censorship. This means that ultimately, code written on its blockchain is immutable due to cryptographic technology.
Ethereum allows users to create and execute smart contracts on its platform, which form the basis of DApps. Solidity, the platform’s inbuilt programming language is used to develop these smart contracts and DApps. Ether, the ETH token, acts as their primary facilitator. For this reason, Ethereum is commonly called programmable money.
Litecoin is a peer-based cryptocurrency that was created to address some of the issues associated with the Bitcoin blockchain. These issues include transaction confirmation speed, scalability, mining process, and transaction fees. It was created by Charlie Lee, a Google developer at the time.
Lee was unimpressed with the wait time of 10 minutes or more that users have to endure when using Bitcoin. He set about working on his cryptocurrency by copying the Bitcoin open source software and making changes to it. In October 2011, Litecoin was released, and by November 2013, it had reached a market cap of $1 billion.
Litecoin is currently the sixth largest cryptocurrency by market cap after Bitcoin, Ethereum, Ripple, Bitcoin cash, and EOS. The value of its market cap currently lies at approximately $5.7 billion and its price is currently about $100, with a peak price of $375.29 in December 2017.
Litecoin operates using blockchain technology, just like Bitcoin. While Litecoin is a separate entity from Bitcoin, the two cryptocurrencies work in very similar ways. However, their differences also play a significant role in the progression of Litecoin.
Initially, Litecoin was mainly created to solve the problem of transaction speed. On the Bitcoin blockchain, it takes roughly 10 minutes for miners to add a new block to the blockchain. Transactions on the platform cannot be confirmed without this mining process and in cases where there are any mining problems, users may have to endure an even longer wait time.
Litecoin, on the other hand, has a transaction speed of 2.5 minutes, which is better for several reasons. Firstly, merchants can now transact freely in four times the amount of time it would take with Bitcoin. Frequent micropayments can also be achieved using Litecoin because if one transaction takes 2.5 minutes then, theoretically, each person would be able to carry out over 500 transactions each day.
The transaction speed is also great for miners. Where Bitcoin mining power is controlled by a concentrated batch of people, Litecoin mining is more decentralized. Theoretically, the fast block confirmation time allows more miners to mine blocks and receive rewards. This leads to a better distribution of rewards.
Another difference between Bitcoin vs Litecoin is that while the former will only have 21 million tokens in existence, the latter will have 84 million. Due to the transaction confirmation time of 2.5 minutes, Litecoin blocks get mined four times faster than Bitcoin.
To make up for the speed and ensure the gradual progression of the system, the total supply of LTC is capped at four times that of BTC. Litecoin also has lower transaction fees than Bitcoin, making it easier to carry out several transactions on its blockchain. The average transaction fee is $0.108 with a median fee of $0.036.
Whether a user is new to cryptocurrency or not, the whole exchange process can be very confusing. There are a lot of questions, such as Ethereum pass Bitcoin? Is Ethereum better than Bitcoin? How do you even go about exchanges? And, can you exchange one cryptocurrency for another like maybe Bitcoin for Litecoin and vice versa? Apart from questions like these, there are other technicalities like market analysis and coin-watching.
The best way to go about unbundling blockchain is by studying the facts and taking little steps. For pricing, the facts are simple when comparing Bitcoin vs Ethereum. The former had a price growth of about 1,000% while the latter grew by about 10,000%. Despite having a higher overall price, the figures show that Bitcoin may not be as good for investment as Ethereum. As for Bitcoin vs Litecoin, the same trend appears where the smaller cryptocurrency had a better price growth than Bitcoin.
Figuring out which of the cryptocurrencies is better will depend on the user’s preference. All three coins have shown potential to revolutionize investing in their different ways. However, one thing is clear: they all seem to yield better results from long-term investment. These days, anyone can make a Litecoin, Bitcoin or Ethereum price prediction. It’s important to weed out the ones that don’t show any true logic behind them before using them as an investment guideline.
Price-monitoring can be done on sites like Coinmarketcap to see the rise and fall of both the prices and a market cap of different coins. Exchanges like Binance also show current prices and allow users to exchange one cryptocurrency for another. It’s possible to exchange Bitcoin for Ethereum, Bitcoin for Litecoin and so on.
Cryptocurrency is relatively new and is still being studied and continuously improved upon. Market experiments are still occurring, and businesses continue to find new ways to accept blockchain technology. This is evident in the fast growth of platforms like Ethereum, the Enterprise Ethereum Alliance and recent partnerships like that of sites like Pornhub and Verge cryptocurrency.
While this may sound exciting, investors should not get too carried away as there are many ways to lose money in crypto investing. Research the market and how it constantly changes while leaving room for unpredictable outcomes. Although the field of cryptocurrency is still quite young, Bitcoin, Ethereum, and Litecoin have earned their places as giants that continue to drive innovation in one way or the other.