Discovering Bitcoin in itself is quite overwhelming so imagine finding out that there are other cryptocurrencies as well!
According to coinmarketcap, there are currently 2086 existing cryptocurrencies (as of January 2019) but why are there so many? Simply put, they are easier to make. Thanks to the underlying blockchain technology, it is easier for programmers to create different cryptocurrencies for different functionalities. No one specifically owns the blockchain network and therefore anyone with proper knowledge about the technology can create their own cryptocurrency. These are what we refer to as “altcoins” or alternative bitcoins. A couple of popular altcoins are Ether, Bitcoin Cash, Ripple, and Litecoin.
Another reason why there are a lot of cryptocurrencies is that of forks. While most of you may know it as a tool for eating, in the crypto-sphere it generally means that there is a software or protocol update. Forks create an alternate version of the blockchain, leaving two blockchains to run simultaneously on different parts of the network depending if it is a hard fork or a soft fork.
A well-known fork that has been causing a lot of controversies is Bitcoin Cash which was created to increase bitcoin’s block size from 1MB to 8MB to deal with scalability. But other people are against this because that would mean large miners could potentially take over and small miners wouldn’t have a chance to compete.
Initial Coin Offerings
Initial Coin Offerings or ICO’s are another reason why cryptocurrencies are born. It’s a new method of funding for start-ups where new coins or tokens are issued. Almost anyone can create their own ICO. You just need a white paper, where you describe how the system would work and a website to showcase the features of your coin and why it would be useful. Then you raise money to fund your coin.
It’s very much similar to an Initial Public Offering (IPO). The only difference is that investors won’t have an ownership stake in the company.
Mining and Scalability
There have been numerous complaints about bitcoin’s scalability in terms of transaction speed and energy efficiency and with those problems come new cryptocurrencies promising to provide a solution. Common consensus algorithms used by cryptocurrencies that you may encounter are Proof of Work (POW), Proof of Stake (POS), and Proof of Importance (POI). You’ll also find Proof of Space-Time and Delegated Proof of Stake.
Bigger isn’t always better
Although the amount of cryptocurrencies is growing, that doesn’t necessarily mean that it’s a good thing. As with any product and with so much competing against one another, a lot are prone to failure. Which is why it’s very important to do your own research before investing in any cryptocurrency. Only a few will stand out and survive the test of time.
Which crypto do you think will stick around? Let us know in the comment section down below!