An introduction to the top five cryptoassets (September 2018)

Without bitcoin (BTC), the cryptoasset market would simply not exist. Although there were precursors to bitcoin, such as b-money and bit gold, it was the invention of blockchain technology – the decentralized digital ledger underpinning it – that changed the game. Hence, bitcoin is considered the original crypto, and laid the foundations on which a majority of cryptocurrencies now operate.

The timing of its launch played a part: In October 2008, only weeks after the collapse of Lehman Brothers, then the fourth largest investment bank in America, the mysterious and still-masked figurehead of the Bitcoin movement published the now famous white paper, Bitcoin: A peer-to-peer electronic cash system. The author (or authors) proposed “a purely peer-to-peer version of electronic cash would allow online payments to be sent directly from one party to another without going through a financial institution”.

The first bitcoin was mined in January 2009, when the global economy was reeling from the last major financial crisis. There were significant concerns over trust, privacy, autonomy, and liberty with the mainstream financial system – many of which persist today – and bitcoin offered a potential alternative solution.

The white paper, which spawned the cryptocurrency craze, states: “No mechanism exists to make payments over a communications channel without a trusted party. What is needed is an electronic payment system based on cryptographic proof instead of trust, allowing any two willing parties to transact directly with each other without the need for a trusted third party.”

“Transactions that are computationally impractical to reverse would protect sellers from fraud, and routine escrow mechanisms could easily be implemented to protect buyers.”

Bitcoin and more advanced cryptos have solved numerous problems outlined by Bitcoin’s founder, causing many experts to posit that this form of digital currency represents the future of money. With an inbuilt safeguard against double spending, fraud and false identity – thanks to the blockchain technology – greater transparency, plus lower fees for cross-country transactions, and by being free from government interference, cryptos have begun transforming payment systems around the world.

Despite being almost a decade old, bitcoin remains the world’s dominant crypto, and as of September 2018, it has amassed a market capitalization value of $113 billion (Sep 2018) – some $90 billion more than second-placed Ethereum.

Like any other crypto, bitcoin relies upon peer-to-peer technology to operate and a method of mining limits the generation and creation of each coin. There’s no central authority involved in its creation, transaction or storage; rather it is administered by the blockchain and governed by community members.

Mining bitcoin involves powerful computers that solve sophisticated puzzles to unlock new coins. As with other cryptos, the more coins mined, the more difficult the mining becomes and the more effort (computer oomph and electricity) it requires.

There are a limited number of coins that can be introduced. As of September 2018 there are close to 17.3 million bitcoins in circulation, meaning 3.7 million of the 21-million total are yet to be mined. That endpoint is expected to be reached in 2140.

Although bitcoin’s been pronounced dead at least 250 times in its short life by the world’s media, interest in it remains high. This was helped by the astonishing bull run in late 2017: bitcoin surged in value from $900 at the start of the year to a record high, just shy of $20,000 in December, and elevated the prices and understanding of other cryptos in the process.

Bitcoin is now accepted as payment by a vast variety of organisations in a wide range of industries – such as Microsoft, Expedia, Bloomberg, Save the Children, Wikipedia, Virgin Galactic, Subway, and Whole Foods.

There were two big “hard forks” – tweaks to the Bitcoin network’s underlying open-source code – in 2017 that many analysts believe precipitated the bull run. The first hard fork happened in August when a cluster of bitcoin developers, activists, digital miners and entrepreneurs forged a new version of bitcoin (bitcoin cash, BCH), following a disagreement on how to scale bitcoin. Then, in November, the Bitcoin Gold project succeeded in creating bitcoin gold (BTG), which aimed to allow coin mining using common computer processing chips, as opposed to specialist processing chips.

In February there was a third significant hard fork, Bitcoin Private, which offers the optional ability to keep information about the sender, receiver, and amount transacted withheld.

So what does its future hold? “Predicting where bitcoin is going to go is anybody’s guess,” says Alon Muroch, Chief Executive of crypto-based social trading platform CoinDash. “It is a beast, and no one can be sure if it will go up or down, or if it will even continue to be a part of the cryptocurrency landscape going forward.”

Ever since the Ethereum network was launched in July 2015, its associated currency – also called Ethereum, or ether (ETH) – has proven hugely popular for investors. This is because of its faster transaction speed compared to bitcoin, and also its widespread adoption.

To appreciate the benefits of the Ethereum cryptocurrency, it’s worth understanding the Ethereum network. It is a decentralized, open-source, public-distributed computing platform that runs smart contracts: applications that run exactly as programmed without any possibility of downtime, censorship, fraud or third-party interference.

The Ethereum network has given rise to almost 2,000 decentralized applications (DApps), built and deployed by developers. This programmable blockchain technology has many applications; digital currency is only one of them.

What’s so special about the Ethereum platform? Until recently, developers seeking to build blockchain applications have needed a background in coding, cryptography, and mathematics, as well as significant resources. Ethereum’s changed that. Previously unimagined applications – from electronic voting and digitally recorded property assets to regulatory compliance and trading are now actively being developed and deployed faster than ever before – have been made possible by providing the tools with which the developers can build DApps.

In the Ethereum protocol and blockchain there is a price for each operation. Ether is simply the unit of cryptocurrency used on the Ethereum blockchain, and is used to pay for computer processing time and for transaction fees. It’s frequently compared to bitcoin, the founding crypto that was launched in early 2009, but it’s not actually a competing currency.

However, it didn’t take long for the cryptocurrency of the Ethereum platform to be established as the second-biggest in terms of market capitalization. In September 2018, ether still sits behind only bitcoin, and was valued at $21 billion.

Ethereum’s November 2013 white paper set out the desire to create a platform on which decentralized applications could be built. It was the most exciting development in the cryptocurrency world since the mysterious (and masked) Bitcoin founder introduced the crypto.

The Ethereum project raised just over $18 million in pre-launch funding in July and August 2014, and when ether was introduced it was valued at $2.80 per token. By March of the following year it had hit $10, and as transactions on the Ethereum blockchain skyrocketed, a raft of organisations begin backing the crypto. The United Nations, Toyota, Deloitte, Samsung, among others sought to take advantage of its shared global infrastructure. Before long its price reached $300, and Ether’s value peaked at $1,377 in January 2018.

Ethereum and ether wouldn’t have been possible without bitcoin, and there are many similarities between the two. For example, they’re both blockchain-based cryptocurrencies and can be mined by users around the world.

There are some key differences, though. While the annual supply of ether is limited to 18 million, Ethereum could theoretically continue to introduce new currency and make its supply unlimited. Conversely, bitcoin’s supply is capped at 21 million. Another key contrast is the processing speed; bitcoin transactions take around 10 minutes, whereas an ether transaction takes an average of 15 seconds.

Like bitcoin, Ethereum isn’t free from controversy. After $500 million worth of ether was hacked and stolen in June 2016, the Ethereum community voted to split off a new cryptocurrency (a.k.a. hard fork the blockchain) to restore all funds. A small group of dissenters resolved to continue to mine the old blockchain. Thus, Ethereum has been broken in two separate, active blockchains, each with its own cryptocurrency: the newer one, Ethereum (ETH), and the old one, Ethereum classic (ETC).

XRP (XRP) by Ripple Labs, Inc is a popularly owned cryptocurrency. Data from Q4 2017 reveals that almost a quarter of cryptoasset investors owned some XRP; bitcoin was the second most popular with around 17%.

Despite popular belief, XRP is not Ripple, it’s a digital currency created by Ripple Labs alongside 3 other products called xCurrent, xRapid and xVia. xCurrent is Ripple’s flagship product, which gives banks the ability to efficiently move money across borders and doesn’t utilize XRP (this is what most of its financial partners are using). xVia is similar to xCurrent, but targets non-financial institutions, such as corporations and payment providers, helping them to send money through banks (this also doesn’t use XRP). xRapid helps banks improve liquidity when trading in emerging markets, for example, and does make use of XRP.

In early January 2018, XRP peaked in value at over $3 per token, though there has been a considerable pull back in the market since then. Months of low-level climbs and falls have seen the price hover around $0.30-0.50 per token.

Ripple can handle 1,500 XRP transactions per second, which is in a different league than bitcoin’s 7 per second (although this may change with the introduction of the lightning network, which promised millions of transactions per second). Transaction speed is important to compete against mainstream debit and credit card giants – Visa tops the market with 45,000 transactions per second.

Further, XRP tokens are not mined – unlike bitcoin and others – but each transaction on Ripple’s distributed network destroys a small amount of XRP that adds a deflationary measure to the Ripple token but which may add an inflationary measure to its price.

Ripple Labs’ software is starting to be adopted by banks but the native XRP token has yet to be used by financial institutions on a significant scale. Critics cite Ripple’s relative centralisation compared to other cryptos, as well as its price volatility, as two key risks.

Some expect that as soon as one bank uses XRP, the rest will quickly follow. According to the CEO of CryptoCompare.com, “Right now the big question on everybody’s lips is whether banks are going to adopt the native token, XRP. Their main worry is whether they can hedge their liquidity risk.” He adds,“As long as their markets keep deepening, and the liquidity broadens globally then its use case will improve. As soon as the first bank hops on board with XRP I think the floodgates will open.”

Bitcoin cash (BCH) burst on to the crypto scene in early August 2017, and was the result of the first major “hard fork” in the history of digital currency. The resulting “altcoin” was created by force when bitcoin’s blockchain ledger was successfully split by a group of disgruntled crypto activists, digital miners and entrepreneurs within the community.

They forged a new version of the world’s most famous cryptocurrency (bitcoin) because they were frustrated by its sluggish processing speed and inability to cope with a large number of transactions. At peak trading times bitcoin transactions could take hours. In short, bitcoin had grown too big for its own good, and the Bitcoin network could not cope.

Bitcoin cash is similar to bitcoin in terms of protocol – it’s capped at a supply of 21 million tokens; the same block times and reward system – however, it’s superior in terms of block size (32MB rather than 1MB), meaning it can store more information (transactions) in each block. It also uses a slightly modified algorithm to speed up the mining process when the network is congested.

It didn’t take wry commentators long to name the hard fork “Bitexit”, and it the incident divided opinion. Many commentators insist the bitcoin cash hard fork, and the global news it generated, precipitated the bull run enjoyed by bitcoin and the other cryptos. Whatever the case, bitcoin cash – described by those behind the project as “the best money in the world” – quickly became a highly sought-after investment instrument, and as of late September 2018 it is the fourth largest crypto by market capitalization ($9 billion).

Bitcoin cash’s long-term success is dependent upon bitcoin’s progress. As the two cryptos stem from the same network they remained tethered, though they are rivals, and when the price of one asset goes up the other usually falls.

Can EOS.IO be the “Ethereum killer” that its numerous and avid supporters predict it may become? The early signs are promising... The white paper on the Hong Kong-based project was only published in 2017, and it didn’t take long for EOS (EOS) – the cryptocurrency token of the system that offers a decentralized application (DApp) platform (allowing developers to more easily create apps, of which cryptocurrency is just the start) – to break into the top 10 cryptos in terms of market capitalization.

Like Ethereum – whose ether (ETH) is the second-largest crypto by market cap at the moment – EOS.IO is aiming to become a significant player in the blockchain arena. It has set out to do this by creating a benchmark platform for utilising the nascent technology that could transform finance, healthcare and many other industries. Written in the coding language of C++, EOS.IO hopes to become a catalyst for mass blockchain adoption.

EOS.IO aims to have greater functionality than the Ethereum platform, and boasts much quicker transaction speeds. Additionally, no user fees and its significant financial backing make EOS an attractive cryptocurrency to investors.

EOS’s value peaked in value at $20.78 on April 29, 2018. Although its value has dipped since, like several other cryptos.