What are crypto currencies?

A cryptocurrency (crypto currency) is a digital medium of exchange that functions similar to traditional money, but has no physical equivalent and is only in digital form. The first major cryptocurrency that kind of started it all was Bitcoin in 2009, and since then a lot of other alternative cryptocurrencies have become available thanks to the huge popularity that Bitcoin has managed to generate. Cryptocurrencies are a form of digital currency that uses the principles of cryptography to implement a distributed, decentralized and secure economy where you can mine and trade them. When comparing cryptocurrencies to fiat money, the most notable difference is in how no group or individual may influence significantly the production of money (in the case of crypt it is called mining), instead only a certain amount of cryptocurrency is produced by the entire cryptocurrency system collectively, at a rate which is bounded by a value both prior defined and publicly known.

Dozens of cryptocurrency specifications have been defined, most are similar to and derived from the first fully implemented cryptocurrency protocol, Bitcoin. Within cryptocurrency systems, the safety, integrity, and balance of all ledgers is ensured by a swarm of mutually distrustful parties, referred to as miners, who are, for the most part, general members of the public, actively protecting the network by maintaining a high hash-rate difficulty for their chance at receiving a randomly distributed small fee. Averting the underlying security of a cryptocurrency is mathematically possible, but the cost may be unfeasibly high. For example, against Bitcoin’s proof-of-work based system, an attacker would need computational power greater than that controlled by the entire swarm of miners in order to even have 1 / 2^(# authentication rounds for this cryptocurrency – 1) of a chance, which means directly circumventing Bitcoin’s security may be a task well beyond even a technology company the size of Google.

Most cryptocurrencies are designed to gradually introduce new units of currency, placing an ultimate cap on the total amount of currency that will ever be in circulation. This is done both to mimic the scarcity (and value) of precious metals and to avoid hyperinflation. As a result, such cryptocurrencies tend to experience hyperdeflation as they grow in popularity and the amount of the currency in circulation approaches this finite cap. Compared with ordinary currencies held by financial institutions or kept as cash on hand, cryptocurrencies are less susceptible to seizure by law enforcement. Generally cryptocurrencies are considered a pretty anonymous and untraceable means of payment.

The first cryptocurrency was Bitcoin that was created in 2009 by developer referring to himself as Satoshi Nakamoto (probably not a real person). Bitcoin uses SHA-256 as its proof-of-work scheme, later on the Litecoin appeared which uses scrypt as a proof-of-work, as well as having faster transaction confirmations. Another more notable alternative coin is the Peercoin (XPM) which uses a proof-of-work/proof-of-stake hybrid different from the other two. There are of course a lot more alternative crypto currencies available, but many of them are just clones of the major ones that add none at all or just a few innovations in order to generate a lot of user interest like the major cryptos already mentioned.

Bitcoin (BTC) and other major SHA-256 crypto currencies

Bitcoin is a peer-to-peer digital crypto currency introduced as open source software back in 2009 by a developer referred as to Satoshi Nakamoto, though it seems that nobody knows the real developer’s name. Bitcoin is called a cryptocurrency, because it uses cryptography algorithms to control the creation and transfer of the digital money. Users send payments by broadcasting digitally signed messages to the P2P network and participants in the decentralized network known as miners verify and timestamp transactions into a shared public database called the block chain. Bitcoins can be obtained by the process of the so called mining or in exchange for products, services, or other real currencies. There are multiple Bitcoin exchanges where you can trade BTC for other crypto currencies or real money, both buying and selling.

Commercial use of Bitcoin is still very small in the form of goods or services that you can purchase for bitcoins compared to its use by speculators on exchanges, which has fueled price volatility. The fact that the exchange rate of a single BTC can greatly vary not only form day to day, but it can also change very quickly in just a minute is one of the most serious concern to merchants that are considering of accepting bitcoins as a means of payment, but still the high exchange rate that is currently over $2,000 USD for 1 BTC makes it attractive alternative to real money, especially when you also consider the very minor taxes you need to pay for a Bitcoin transaction as compared to credid card processing taxes for example.

Bitcoin is the biggest and most widely known crypto currency nowadays, in fact it is the crypto that started it all and since it generated so much attention many other crypto currencies have appeared. Nowadays it is hard to just mine bitcoins with your computer and in order to actually mine bitcoins at a good rate per day you need a specialized hardware called Bitcoin ASIC or Bitcoin Miner. In the earlier days you could mine with just the processor of your computer, then it was possible to use your video card, but nowadays the network difficulty has gotten so high that mining Bitcoins with your computer you would not be able to just cover the electricity bill with what you earn. Bitcoin uses SHA-256 as its proof-of-work scheme, but there are a few other major alternatives of Bitcoin that use SHA-256 and can be mined the same way as Bitcoin and with the same hardware including the specialized Bitcoin ASIC hardware miners. These are Acoin, Crown, Curecoin, eMark, Joulecoin, Mazacoin, Peercoin and others. You can mine these coins and then trade them at crypto currency exchanges for Bitcoins and sometimes mining an alternative crypto currency and then trading it for BTC can yield a better profit than mining Bitcoins directly, especially if you have dedicated powerful hardware for that. And one of the latest trends is not buying directly the hardware, but renting it instead and as you can expect it is called cloud mining.

Litecoin (LTC) and other major Scrypt crypto currencies

Litecoin (LTC) is the second most popular peer-to-peer digital crypto currency released as an open source software project after Bitcoin has gained quite a lot of popularity. Similar to Bitcoin (BTC), Litecoin generation and transfer is based on cryptographic proof-of-work scheme and is not managed by any central authority and is relaying on a P2P network consisting of the users that are mining the crypto currency. Litecoin is intended by its developers to improve upon Bitcoin, offering new improvements and relying on a different crypto algorithm that made it a popular alternative to Bitcoin. Litecoin was released in 2011 by Charles Lee, a former Google employee, who used the Bitcoin-Qt client as a basis, bud modified it in order for the Litecoin to have a decreased block generation time, increased maximum number of coins, different hashing algorithm, and a slightly modified GUI.

What made the Litecoin very popular and the second-largest cryptocurrency by market capitalization at the moment is the fact that it was one of the earlier alternative crypto currencies that offered both differences and new things that set it apart from the competition. But the most important thing was the fact that it is a Scrypt based and not SHA-256, making it ASIC-proof or with other words not being able to mine LTCs with the already available Bitcoin ASIC miners. This brought back the GPUs as the primary mining solution for generating Litecoins, something that has been left in the past by Bitcoin, so you can say that Litecoin is following in the footsteps of Bitcoin. Another way to look at the to crypto currencies is if we compare the Bitcoin to Gold and the Litecoin as Silver.

Much like with Bitcoin, Litecoin also has a lot of alternative crypto currencies based around its basic code and concept, in fact LTC has much more alternatives that cannot be mined with Bitcoin ASIC. And the fact that Bitcoin ASIC miners are so powerful nowadays there is not much point in releasing SHA-256 based alternative crypt currency similar to Bitcoin, it is better to have it based around Litecoin and scrypt. Some of the more interesting and notable alternatives to Litecoin that are also Scrypt-based are: FeatherCoin, WorldCoin, DogeCoin, Lottocoin and many others appearing all the time, though a lot of these don’t get much attention from the users and die quickly.