Most people in the banking world today are familiar with the term blockchain. The first thing that springs to mind when blockchain is mentioned is Bitcoin. It is the cryptocurrency and digital payment system created by the mysterious Satoshi Nakamoto, which has grown exponentially since its inception in 2009.
The value of Bitcoin has grown from around USD 2/Bitcoin in December 2011 to above USD 2,300/Bitcoin this year. Investment in Bitcoin sky-rocketed after a surge in traded volumes and increased Bitcoin prices in the Asian Market.
Investors are opening up Bitcoin wallets in the fear of missing out. As investors rush to ride the wave, not only has investment in Bitcoin spiked, but so too has the investment in “altcoins” (the cryptocurrency alternatives to Bitcoin). Some of the largest and most dominant of these are, inter alia, Litecoin, Ethereum, Ripple and Monero. Each cryptocurrency offers something different, and if deciding to invest in these long-term, it would only be prudent to understand more about what they do.
Let’s start with the world’s leading cryptocurrency, Bitcoin. In addition to boosting financial inclusion, Bitcoin aims to make near real-time cross-border transactions possible on a global scale. In South Africa there are already online merchants that are accepting Bitcoin payments. Some of them are well known brands: BidorBuy, Takealot, Superbalist, Runwaysale, Raru and Appliance Online. Additionally, all merchants on the payfast.co.za platform (30 000 websites), accept Bitcoin.
Ethereum differs slightly from Bitcoin, with more focus on technical blockchain development. It is an open source platform used to build decentralised applications. Examples of Ethereum applications include self-executing smart contracts and native tokens. A number of interesting developments on the Ethereum blockchain are emerging. WeiFund, a crowdfunding solution, operates similarly to conventional crowdfunding platforms such as GoFundMe and Kickstarter. However, instead of using fiat currency, WeiFund raises funds using the Ether cryptocurrency. Users can contribute and manage crowdfunding campaigns with the use of smart contracts to turn donations into complex agreements.
Litecoin was created by Charles Lee, a former engineer at Google, with the intention of becoming the second most valuable cryptocurrency. When it was written, it was the second biggest cryptocurrency by market capitalization, but has since fallen to the 6th largest as it has yet to see much more investment. Litecoin is similar to the Bitcoin. The main difference is that it takes an average of two and a half minutes to generate a block, contrast to an average of ten minutes that Bitcoin takes to generate a block. This means that Litecoin can confirm transactions at a faster speed than Bitcoin. However, it is important to note that transactions occur instantly, whilst confirmation of transactions occur as the blockchain propagates.
Monero is attempting to take on Bitcoin by providing greater transaction anonymity. Bitcoin is known for supporting anonymous transactions; however, each transaction has a sender, receiver and amount recorded on the blockchain. Each wallet has an address which can be traced back to the owner through IP addresses and service providers. To combat this, Monero makes use of a ring signature to provide for more privacy.
Ripple’s digital currency XRP is similar to Bitcoin as they are both digital currencies that can be mined and sent from peer-to-peer without an intermediary. Ripple is used as a currency agnostic value exchange. It is a real-time gross settlement system enabling real-time global payments anywhere in the world. The advantage of this is that it can be in any form of currency (Dollars, Yen, Euros, etc.). Ripple enables secure, instant and inexpensive global financial transactions and may assist Bitcoin in accessing the rest of the financial world.
There are over 700 different cryptocurrencies currently in issue which opens up a broad investment base. Hopefully some of these points spark your interest to delve deeper into each cryptocurrency’s ambition and that the summary above has given you a starting point for further research.
by Matthew Shaw