Bitcoin (BTC-GBP) celebrates its 10th birthday this week.
On 31 October 2008, an academic paper “Bitcoin: A Peer-to-Peer Electronic Cash System” was posted to a cryptography mailing list. Authored by the still unknown Satoshi Nakamoto, it led to the creation of bitcoin, the world’s first cryptocurrency. It also sparked a wave of innovation around digital currencies and blockchain, the cryptographic database technology that underpins the bitcoin network.
Today there are over 2,000 cryptocurrencies. Collectively, they are worth over $200bn (£156bn) despite a collapse in the value of most cryptos in 2018. (All values are correct as of Monday 29 October.)
We’ve listed the 10 largest cryptocurrencies by market cap to give you an idea of what they do and how they fit into the broader ecosystem. Collectively, they fall into one of two buckets: a true cryptocurrency that aims to be a form of digital money; or a crypto token, which will be used to power a crypto-based network. In the token example, the value of the asset is derived from the popularity of the network being built.
Here’re the top 10:
1. Bitcoin (BTC-GBP) — Market capitalisation: $112.2bn
The original cryptocurrency, and still by far the largest by value, is bitcoin. It was originally created as a form of “digital cash” that would allow people to anonymously transact over the internet without the need for any middlemen. Digital anarchists and anti-censorship activists were early advocates.
The value of all bitcoin in circulation represents over 50% of the value of the entire cryptocurrency ecosystem, in part due to its first mover advantage. Bitcoin’s underlying code means there will only ever been a maximum of 21 million in circulation, which is meant to underpin its value by creating scarcity.
About $3-4bn of bitcoin changes hands daily but the majority of transactions are between traders and investors. Bitcoin has struggled to gain much traction as a means of buying things due to its price volatility and transaction speed. Proponents hope that projects currently under development, such as the Lightening Network, will help fix these issues.
2. Ethereum (ETH-GBP) — $21bn
Inspired by bitcoin’s underlying network, Ethereum (ETH-GBP) was developed by programmers Vitalik Buterin, Gavin Wood, and Joseph Lubin. It launched in 2015 after several years of development and exploded in popularity last year.
Ethereum’s big innovation is cryptocurrency that can be programmed. Essentially, it allows the creation of “smart” money. You can programme an ether (the correct name for the currency that runs on the ethereum network) to move from one digital wallet to another only once a certain action is complete. It would be like buying something on Amazon and telling your dollars to only go to the company once the package landed on your doorstep.
So far the “killer app” for ethereum has been so-called initial coin offerings (ICOs). This is where startups launch their own crowdfunding campaigns, independently of any centralised platforms. The money is raised in ether, which can be programmed to go to the company’s wallet once a certain level of total funding is reached. Billions were raised through this method last year, causing a surge in the value of ether. However, concerns about ICO scams and startups selling the ether they raised for dollars have hit the price of the asset this year.
3. XRP (XRP-GBP) — $18.4bn
Launched in 2012, XRP (XRP-GBP) is a cryptocurrency specifically designed for cross-border payments. Its code allows quick and cheap transfer of value internationally, whether it be dollars or loyalty points. The value is transferred by converting it it XRP, which is then sent across the network to the destination and converted back into the original asset.
XRP is sometimes known as Ripple but Ripple refers to the name of the company that is closely associated with the cryptocurrency and helped to develop it. The company insists that XRP is decentralised and open-source but it holds over 50% of all XRP in circulation, which critics say means it technically controls the currency.
Ripple is currently trying to pitch XRP to money transfer companies as a solution for liquidity and cross-border payments. Several are testing it, including Western Union and Moneygram, but there have been no large scale deployments to date. Daily turnover of XRP is about $250m.
4. Bitcoin cash (BCC-GBP) — $7.6bn
Bitcoin cash (BCC-GBP) was created last year after massive disagreements within the bitcoin developer community. It was created by “forking” the bitcoin code — copying the vast majority of it but editing certain key details. Those who continued to use the original code remained on the bitcoin network. Those who used the new code were handling bitcoin cash. (It is possible to use both separately.)
The split came because some within the bitcoin developer community wanted to make changes that would allow transactions to be processed faster. The bitcoin cash advocates wanted the faster processing speeds and grew frustrated with the other solutions proposed by developers in the community, hence the split. Daily turnover is about $220m.
5. EOS (EOS-GBP) — $4.8bn
Like Ethereum, EOS (EOS-GBP) is more about the underlying blockchain network than the cryptocurrency itself. EOS tokens are used to power the network and so their value will be derived by how much — or how little — people use the system.
EOS aims to develop a network for people to build “decentralised apps.” Imagine an Uber or Airbnb or Facebook that wasn’t controlled by any one company and instead operated like an email protocol or peer-to-peer file sharing network. In the Uber or Airbnb example, service users could pay service providers directly using EOS without any added fees or costs going to companies in the middle.
Block.one, the private company developing the EOS.IO network, raised $4bn in May. The network launched in June but hacks of decentralised apps developed on the network have highlighted teething problems.
6. Stellar (XLM-GBP) — $4.3bn
Stellar (XLM-GBP) — also known as Stellar Lumens or sometimes just lumens — is another cryptocurrency designed to make cross-currency or cross-border money transfers easier and cheaper. It was created in 2014 by Jeb McCaled, one of the cofounders of Ripple and early bitcoin exchange MtGox.
Stellar is pitched at companies and, like XRP, hopes to become integrated into the mainstream financial system as the backend infrastructure of things like remittances and money transfer. The network can handle 1,000 transactions a second, compared to about 20 for the ethereum, which should make it more scalable. IBM is developing a remittance product using the Stellar network.
7. Litecoin (LTC-GBP) — $3bn
Litecoin (LTC-GBP) is designed to be very similar to bitcoin, in that its ambition is to be a true “digital currency” that can be used to transact and store value. Charlie Lee, the former Googler who created litecoin in 2011, likes to say that if bitcoin is digital gold, then litecoin is digital silver.
Transacting with litecoin is cheaper and faster than bitcoin, although it has been surpassed on both fronts by subsequent cryptocurrencies. However, its relatively longevity in the crypto world means it still has many supporters and users: 24-hour transaction volume is regularly above $250m, placing it in the top five cryptos by daily usage.
8. Tether (USDT-GBP) — $1.9bn
Perhaps the most controversial cryptocurrency is tether (USDT-GBP). The cryptocurrency, launched in 2014, is a so-called “stablecoin” — a cryptocurrency designed to have the price stability of a traditional currency. It achieves this by having a reserve-backed peg to the dollar.
The main use case for tether has been in allowing cryptocurrency exchanges to offer dollar-like liquidity to customers. Many exchanges are shut out of the traditional banking system because banks are wary of dealing with crypto. If exchange customers want to trade out of a volatile cryptocurrency into dollars, buying tether is the next best thing.
However, there is growing concern over whether tether is actually backed by the dollar reserves it claims. Critics have repeatedly called for full audits of reserves and disclosure of management structures and other governance issues.
9. Cardano (ADA-GBP) — $1.8bn
“This exciting network is more of a collection of philosophical principles and computer scientists than a start-up with a product,” according to Mati Greenspan, a senior market analyst with eToro who authored a paper on Cardano earlier this year.
The network and crypto token that runs on it were launched last year and the project was spearheaded by Charles Hoskins, one of the key developers behind ethereum. It aims to essentially be a next-generation cryptocurrency platform, folding in as many of the innovations and developments that have occurred since the creation of bitcoin as it can.
The big issues it is hoping to address are the energy usage of the network (a big problem with things like bitcoin), and the scalability and flexibility of the network. There is a fixed supply of ADA tokens (ADA-GBP), which run on the Cardano network, to underpin their value.
10. Monero (XMR-GBP) — $1.7bn
Although bitcoin was originally intended to be a currency that let people anonymously transact online, the blockchain that underpins the network records and publicly shows bitcoin being transferred from one wallet to another. Although the owner of the wallet isn’t clear, this digital trail unnerved some hardcore privacy advocates who feared their identities could be compromised.
Monero (XMR-GBP), launched in 2014, is meant to be a truly anonymous cryptocurrency. The underlying network allows people to send Monero but observers cannot see the amount, source, or destination. This has understandably made it unpopular with law enforcement. London’s Metropolitan Police specifically named Monero as a cryptocurrency it has a problem with.