Cryptocurrencies – What Innovative Approaches Still Exist?

355 percent, that’s how much profit an investor could have made if he had invested in Bitcoin in May 2017. And the profits from the cryptocurrency could have been even higher if investors had exited at the right time.

Has the hype been over since the price slide at the end of 2017, and is Bitcoin finished? A price correction was necessary and in the eyes of many investment experts simply overdue. On the one hand, the profit-taking of some investors was certainly to blame for this development. On the other hand, the cryptocurrencies are still debating how to proceed from a regulatory point of view. Despite all the general conditions, the hype about cryptocurrencies continues. On the one hand, this is clearly evident in the growing number of different crypto currencies, with new ICO (Initial Coin Offering) being announced almost every week. But also the market capitalization speaks a clear language. According to coinmarketcap.com, the five most important cryptocurrencies alone reach a market capitalization of more than 289 billion USD.

Cryptocurrencies with a completely different approach

Since Bitcoin was first mentioned publicly, cryptocurrencies have become a phenomenon that some experts are already describing as a revolution. Among the five most important cryptocoins, according to market capitalization, are

  • Bitcoin,
  • Ethereum,
  • Ripple,
  • Bitcoin Cash,
  • EOS.

However, the database on coinmarketcap.com now contains considerably more currencies. In the last few years, more than 1,600 cryptocurrencies have been created. When the Bitcoin or the concept behind it was first described in 2008 by Satoshi Nakamoto (the true identity of the author is still unclear today), certainly nobody thought of such a development.

What makes cryptocurrencies? A very important point is the use of methods from cryptography to encrypt digital currencies. Special algorithms are used by the individual currencies for this purpose. In order for the concept of cryptocurrency to work, a network is required that connects all participants with each other. The network shares a database, the so-called block chain, which includes all units of the respective currency. The ease of using cryptocurrencies fast and privately online has caused the rise of many BTC poker platforms in recent years, but this is only one example of many where BTC and other tokens are used nowadays.

By referencing individual blocks to their respective predecessors, a chain of individual blocks is created. This form of database/administration is regarded as a building block of counterfeit protection. A second aspect is the fact that the block chain is stored by each participant in the network.

Alternatives to Bitcoin

With cryptocurrencies like Bitcoin, the open source concept is in the foreground. This means: The source code is publicly available and can be modified. This is one of the reasons why the number of crypto currencies has grown so strongly in the past. Developers have repeatedly changed the source code to such an extent that a new digital currency (also known as Altcoin) has emerged.

These “clones” are also called forks. If the source code is changed to such an extent that it is no longer compatible with older clients, a hard fork is created, i.e. a new crypto currency. From such forks are for example:

  • Bitcoin Cash,
  • Bitcoin Gold and
  • Litecoin.

All three are technically based on the Bitcoin or Bitcoin Core. Due to the close proximity to each other, the crypto currencies are similar. There are differences, for example, in the speed with which new blocks are calculated in the network (mining).

Some old coins technically take a completely different approach than Bitcoin and Co. One of the examples is IOTA.

What is IOTA?

IOTA stands for special crypto currency, which has the Internet of Things (IOT) in mind. One of the special features is that IOTA does not use blockchain in the classical sense. Instead, the system uses directed acyclic graphs, which are called tangles in the IOTA concept.

Transactions are performed in a network where users check two existing transactions. Another special feature of IOTA is that all units of the crypot currency already exist. This eliminates the need to mine individual IOTA units, as is standard with other digital currencies. Within the framework of an ICO, the existing IOTA were distributed.

Due to the strong focus on the IOT – IOTA is technically designed for machine-to-machine communication – the crypto currency has received a very strong interest from the industry and IT sector from the very beginning.

Are there other entirely alternative approaches?

The concept behind IOTA is not the only “special path” in the implementation of crypto currencies. Ethereum is another example of special approaches developers are taking with digital currencies. This is a system based on so-called Smart Contracts (contracts in the form of computer protocols). Ethereum is based on decentralization and uses its own internal currency, ether.

A second example for special solutions around crypto currencies would be Ripple. This is not a crypto currency with a bockchain technology. Ripple is a payment network that follows the approach of making payment transactions (also institutional, i.e. between banks) faster and more efficient. The currency of the system (XRP) is only available in finite quantities. Of the 100 billion XRP, 55 billion are intended for distribution in the system. Mining does not exist at Ripple.

Special features of limitation

One of the essential aspects of crypto currencies is that they are not available in infinite quantities. Fiat money can be printed by central banks, for example, if required. The problem: this creates inflation. An identical economic good becomes more and more expensive over time. The shortage of digital currencies is intended to counteract this development.

This is implemented by:

One-way functions and block size limits
limited coin amount with the ICO.

The latter is the case with Ripple, for example. Here, a maximum of 100 billion XRP exist. Bitcoin and Litecoin are representatives of those crypto-currencies where mining is limited. On the one hand, there is a limit on the maximum “diggable” amount, which is why the block size is reduced at fixed intervals. On the other hand, the one-way function to be calculated makes it increasingly difficult to calculate new blocks.

What is this useful for?

Why is this effort made? Behind this is the danger, already described at the beginning, that a calculation of new currency units without any limit must inevitably lead to inflation. Bitcoin and Co. would become worthless over time. In the end, a shortage also ensures that demand remains.

Further demarcations from Altcoins to Bitcoins

The term Altcoin, which is frequently used today, is regularly used by laymen as another term for crypto currencies. However, this is not quite correct. Background: Altcoin rather describes alternative crypto currencies to Bitcoin. In practice, this means: If Altcoins is mentioned, then it refers to digital currencies, with the exception of the pioneer Bitcoin. This includes the ones already mentioned:

  • Ripple
  • Ethereum

or Monero, NEO and Tronix. Some of the Altcoins are simply created by changes in the source code of already existing crypto currencies. For others completely new concepts are developed.

Conclusion: The number of Bitcoin alternatives is growing

A new era seems to have dawned with Bitcoin. Crypto currencies have arrived in the consciousness of many investors at the latest with the strong price increases in 2017. And investors today can not only enter Bitcoin or Ethereum. The number of digital currencies is growing steadily. With this development, however, it is also becoming more difficult to keep an overview. Not all crypto currencies are based solely on the block chain. The examples IOTA or Ripple show that new approaches also have a chance on the market.

The field of crypto-currencies will continue to be very interesting in the future – new ideas can provide high returns here, at least in the short term, whereby the question of possible regulation also arises. The future of the Altcoins will show which ideas will ultimately hold their own.