Price of Bitcoin was $977.69 in January of 2017 and it went over $10,000 in November of the same year. Within 10 days into November, it went over $17,000. Price of Bitcoin jumped almost 20 times in just 10 months. South Korea was left ‘speculation frenzy’ controversy along with Kimchi Premium.
Despite that, cryptocurrency is still considered as ‘incomplete altcoin’ infinitely.
Hundreds of cryptocurrencies are being made after Bitcoin, which is considered as the internet for money, came out. However, only 20 different cryptocurrencies are used often out of 1,300 cryptocurrencies.
There has yet to be any accurate information on how they were developed and how they are used. The Electronic Times is going to sort out cryptocurrencies that are being distributed amongst markets through its white paper.
◊Bitcoin That Has Led Popularization of Virtual Money
Bitcoin has a clear characteristic that separates itself from other cryptocurrencies. It does not have a main agent that issues and manages Bitcoin.
Although Nakamoto Satoshi, who created Bitcoin in 2009, developed an entire system of Bitcoin, he is not the main agent who issues Bitcoin. Certain amount of Bitcoin is still issued every 10 minutes even after Nakamoto hid his whereabouts in 2010.
Bitcoin is considered as blockchain technology, which is a distributed open ledger. Blockchain is a combination of a type of ledgers. One bundle, which is single digital file, is expressed as a ‘block’. A term ‘blockchain’ came out because these blocks are connected by chains. Bitcoin creates one block through every transaction that occurred within 10 minutes and connects that block with blocks that were created before. Anyone can check and save into these blocks. Although participants remain anonymous, breakdown of how much cryptocurrency is moved from one wallet to another is shared by every participant of network.
This can prevent double spending. For example, if a guy paid for his diner with 0.1 Bitcoin, fact that he just spent 0.1 Bitcoin is shared by many people and he cannot prove that he still has 0.1 Bitcoin in his virtual wallet after he eats breakfast the next morning. Although this can be seen as a fair assessment, double spending problem is a challenged that needs to be solved by virtual money.
Ultimately, Nakamoto was able to solve double spending problem without any intermediary and this is also seen as a core Bitcoin technology.
To operate Bitcoin, a bundle of transactions needs to be created every 10 minutes. Problem arose when determining who is going to perform such task. Nakamoto was able to solve this problem by giving newly-issued Bitcoin. This process is called mining, which connects a block of transactions with previous blocks. Mining process, which is applied with difficult crypto-technologies and mathematic calculations, is also called PoW (Proof-of-Work). Level of difficulty increases as number of participants increases. Mathematic calculation does not require high level of thinking skills. Computers randomly substitute numbers and computers that were able to insert correct numbers accidently secure breakdown of previous ledgers, renew previous ledgers after gathering new transactions, and send these ledgers back to network. Computers that perform such tasks are responsible for Bitcoin that is newly issued. This process is repeated every 10 minutes.
As a result, it is more advantageous to either have as many as computers possible or have computers with strong calculation abilities to obtain Bitcoin.
However, there is also a problem with this process. Waiting time has become longer since every transaction within 10 minutes is processed through a block with just 1MB. Significant amount of time is spent between buying and paying for an item since amount of transactions that can be stored within a block is limited. Fact that Bitcoin requires enormous amount of power is also a weakness.
◊Ethereum
Ethereum is cryptocurrency that is placed on 2nd place followed by Bitcoin in market capitalization. Reason why it has such high values is because it presented a new direction of cryptocurrency. Ethereum showed potentials of cryptocurrency being more than a payment method. It presented possibilities of changing a structure of internet.
Core technologies of Ethereum are Smart Contract and DApp.
Smart Contract indicates a contract that is operated through a code. For example, a contract that will have a person A pay 300 Ethereum to a person B if it rains in Yeooui-do on the 10th of April of 2018 and have a person B pay 500 Ethereum to a person A if it does not is recorded as a code within Ethereum blockchain. If this contract is linked through a weather center’s weather information system, it can be carried out automatically. If this type of contract is commercialized, coverage of Ethereum can be endless as Ethereum can be used for many contracts such as insurance and car lease that are signed off daily. One does not have to worry about contracts not being carried out due to the fact that codes forcefully carry out contracts. Another strength of Smart Contract is distributed autonomous organization. Many tasks that go through people’s hands are related to execution of contracts. Fact that these tasks can be replaced with codes points to distributed autonomous organization.
For example, if there is a distributed autonomous organization that combines self-driving cars with Kakao Taxi, operation of taxi service can be made possible even without drivers or employees. Self-driving cars will be able to find a nearest person that calls for a taxi and take them to a destination. Payments are automatically calculated based on distance traveled. Self-driving cars are able to find nearest gas station if gas is low and they can receive inspection on their own by visiting an auto shop at a designated date. This kind of a taxi company is called a distributed autonomous organization.
Strength of Ethereum is its distributed application program. Unlike Bitcoin, it can record information about contracts within blockchain and input contracts as codes that make up an application program. Distributed application program provides an environment that makes modification or hacking impossible just like trading account books of Bitcoin. Also, no one can stop a program from running. In other words, Ethereum can lead to a change to internet structure. However, such technology is still in a beginning stage of development.
◊Ripple
Ripple is virtual money created for transfer service between banks. Transfer of funds between banks is taking place through network made by international banks and SWIFT (Society for Worldwide Interbank Financial Telecommunication). However, this service takes long time as banks that transfer money have to wait 2 to 10 days to receive payments.
Ripple drastically reduced payment settlement procedures through distributed ledger technology introduced by Bitcoin. It implemented a technology that makes transfers between banks possible almost instantaneously.
After it was developed in 2012, its network has begun to spread through global financial companies. Standard Chartered Bank from England and SBI Financial Group from Japan invested into Ripple Labs that developed Ripple. 70 or so financial institutions from many countries are also participating as partners of Ripple Labs. Although there are not many examples of actually using Ripple, many financial companies are looking to commercialize Ripple for their services.
Ripple is not issued through mining, but 100 billion Ripples were created initially. Its distributed open ledger, which is a main element of virtual money, also operates differently from other cryptocurrencies. Participants (node) that possess and update ledgers are designated by Ripple Labs. Due to this characteristic, Ripple is considered as a private blockchain.
◊Litecoin
Litecoin is cryptocurrency that as created for transactions that take place in daily lives. In other words, it is lighter and lower currency than Bitcoin. Color that represents Litecoin is silver. If Bitcoin that uses gold color is seen as gold coin, Litecoin is seen as silver coin.
It was developed by Charlie Lee, who is a Chinese-American who worked for Google in the past. He referred to open source code (open source) of Bitcoin, modified some of Bitcoin’s functions, and created Litecoin. He developed Litecoin to surpass limitations of Bitcoin in PoW. Although Bitcoin proved that it was able to be issued and traded through network, its waiting time of payments is long as a block is created every 10 minutes.
However, Litecoin creates a block every 2 minutes and 30 seconds. 84 million Litecoin is also issued. Speed of transaction and issue amount of Litecoin are both 4 times faster and more than that of Bitcoin. Although capacity of a block of Litecoin is also 1MB just like Bitcoin, amount of transactions that Litecoin can process is also 4 times bigger than that of Bitcoin as Litecoin can make 4 blocks every 10 minutes. Speed of transaction and amount of transactions are related to fees for users.
Litecoin takes care of transactions with higher fees as number of transactions that are on hold increase. Ultimately, Litecoin lowered fees and was designed to be used widely within daily lives. How Litecoin creates a block is also different from that of Bitcoin. Although process of clearing encrypted has value is complicated for Bitcoin, Litecoin uses ESCRYPT, which is considerably simplified algorithm. This is the reason why mining of Litecoin is also possible through a personal computer.
◊Qtum
Qtum is cryptocurrency that combines strengths of Bitcoin and Ethereum. Although development of Qtum was led by Chinese programmers, its corporate is in Singapore. After carrying out ICO (Initial Coin Offering) that issued Qtum based on Ethereum in March of 2016, Qtum became independent from Ethereum in October of 2017 and launched its own platform (Mainnet).
Qtum has Bitcoin’s blockchain technology and Ethereum’s Smart Contract and distributed application program function. Speed of its transaction is also faster than Bitcoin as 2MB blocks are created every 2 minutes. Its mining process also takes place through PoS (Proof-of-Stake) instead of PoW.
PoW indicates when authorities for recording blocks are given based on calculation abilities of computers while PoS indicates when authorities are given based on amount of possessed coin. Most of PoW has high chance of monopolization since people with capital bring in large number of computers that require excessive amount of power. As a result, many virtual currencies are looking to convert their mining method from PoW to PoS.
Total number of Qtum issued is 100 million, and 52 million Qtums were issued by the end of November of 2017. Qtum is currently developing a wallet that can be linked to WeChat and is carrying out many projects for developing distributed application programs.
◊Monero
Monero, which means ‘coin’ in Esperanto, is cryptocurrency that has become highly anonymous along with DASH and Zcash.
Monero introduced three technologies to increase its anonymity. First, it introduced a signature method that combines a public key that was brought from blockchain through ring signature and a user’s personal key.
Secondly, it introduced ‘stealth address’, which is a disposable wallet provided to a recipient. It provides anonymity even if an outsider knows the address of a wallet or a personal key.
Thirdly, it introduced ‘ring secret transaction’, which is a technology added as hard fork in September of 2017. Monero is considered as a coin with high level of anonymity out of many cryptocurrencies as it is applied with double and triple security technologies.
Just like Bitcoin, Monero creates blocks through PoW. However, it creates blocks every 2 minutes. Although total number of Monero issued is set at 18.4 million, it actually does not have any limitations in issue amount since 0.3XMR is issued additionally every time a block is created.
◊Zcash
Zcash is cryptocurrency that was created to guarantee anonymous transactions. It was derived from Zerocoin Project that was carried out to increase anonymity of Bitcoin.
Although Bitcoin does not reveal the owner of a wallet, address of a wallet and amount of transactions are revealed as they are recorded into distributed open ledger. Although it is difficult to trace an owner, size of transactions or flow of money can be evidences that particularize the owner of a transaction.
Zerocoin Project, which started in 2013, issued Zcash in October of 2016 to verify a technology that makes a transaction anonymous. A letter ‘Z’ is used because the developer of Zcash used an encryption technology called Zero-knowledge proof. Zero-knowledge proof is a technology that has a person tells other people about the fact that he or she knows secret information of a specific person while not making the information public. When this technology is applied to transactions, people who are involved in transactions can check on effectiveness of transactions while only making limited information public.
Zcash creates a 2MB block every 2 minutes and 30 seconds and has faster transaction speed than Bitcoin. However, only 21 million Zcash are issued just like Bitcoin.
◊ADA
ADA is the first third-generation blockchain cryptocurrency that was developed through Haskell programming language and a blockchain application platform that can perform application programs in various fields at the same time. Bitcoin, which is a first-generation blockchain, was only used as money. Ethereum, which is a second-generation blockchain, added additional functions such as writing contracts. ADA established constitutions and allows a method that approves changes within a corresponding tool. In other words, a person that possesses ADA can vote on a protocol change method, a method that understands intentions of corresponding people, and a method that reduces possibilities of fragmentation. Agreements that are deduced are carried out through soft fork instead of hard fork.
◊Bitcoin Cash
Bitcoin cash was derived from Bitcoin and it was developed by Chinese miners that opposed reorganization of Bitcoin. Its root came from a virtual currency conference called ‘Consensus’ that was held in New York in May of 2017. Many developers agreed to reorganize Bitcoin at this conference and this is called ‘New York Agreement’.
Bitcoin’s problem is its capacity. When Satoshi Nakamoto first designed Bitcoin, capacity of a block that is created every 10 minutes was only 1MB. He designed it this way because it would have been burdensome for participants (node) if capacity of a block was increased within blockchain that stores same data.
However, 1MB block can only process 7 transactions every second. This amount is significantly low considering the fact that Visa takes care of 2,000 items every second.
To solve this problem, developers made suggestions of carrying out SegWit or having capacity of a block to be between 2 and 8MB. SegWit indicates a process of removing signatures within blocks and leaving that spaces to store breakdown of transactions. Developers decided to carry out SegWit in July of 2017 and increase capacity of a block to 2MB in November.
Chinese developers including Bitmain, which is the biggest miner manufacturer in China, opposed to such decisions because special functions of expensive miners do not work when software update that removes signatures is carried out.
‘Bitcoin Cash’ was created when a Chinese business called ViaBTC announced that it was going to mine continuously without SegWit. ViaBTC is a business that operates mines and exchanges of Bitcoin. It is heard that it has Bitmain as one of its major shareholders.
Blockchain update is another reason why Bitcoin Cash was created. Mining is called when participants of blockchain network update ledgers while fork is when software that creates ledgers is updated.
Depending on software update, breakdown of last transactions that are attached to ledgers can be different. Blockchain network that shares ledgers that were made through different software is also divided into different currencies.
OKCoin, which is the biggest exchange in China, listed Bitcoin Cash early and wiped out any concerns. Although Chinese miners did not accept SegWit, they were able to solve a problem regarding capacity of a block through an update (Bitcoin abc).
Miners can increase capacity of blocks by two to eight times through Bitcoin abc. 21 million Bitcoin Cash coins were issued on the 1st of August of 2017. Mining of Bitcoin Cash can be done through PoW method. Bitcoin Cash’s unit is BCH.
◊Ethereum Classic
Ethereum Classic is cryptocurrency that was created through stolen Ethereum obtained through hacking. It has characteristics of traditional Ethereum before its update in 2016. It was created through a hacking incident that took place through a particular project carried out by Ethereum Foundation and blockchain’s characteristics.
Ethereum Foundation issued DAO in June of 2016 to develop a ‘distributed autonomous organization’. At that time, a hacker infiltrated through weak points of this project and stole 3.6 million Ethereum (worth $60.3 million at that time). While discussing about whether to recognize Ethereum that was obtained through hacking, Ethereum Foundation decided to carry out hard fork (update) that invalidates stolen Ethereum on the 20th of July. Although personnel who had influence within cryptocurrency industry supported hard fork, some criticized that idea by saying that it goes against a basic principle of blockchain that has a decentralized structure of decision-making.
In the end, Ethereum Foundation listed ‘Ethereum Classic’, which is a change before a digital asset exchange called ‘Poloniex’ became hard fork.
Ethereum Classic uses blockchain before hard fork and has similar characteristics as Ethereum.
However, it is not applied with various updates and projects that are carried out by Ethereum Foundation. Unlike Ethereum that does not have a set issued amount, Ethereum Classic has a set issued amount at 210 million.
◊Dash
Dash is cryptocurrency that gives leaderships to people who have lots of Dash coin.
Anyone can become a master node if he or she has at least 1,000 Dash coins.
While contributing to conclusion of a transaction, a master node receives 45% from an amount of mining whenever a block is created. Decision on updates is also determine through votes from master nodes.
Dash guarantees anonymity of a person directly involved with a transaction. It was issued in February of 2014, which is earlier than Monero (4/2014) and Zcash (10/2016). Although it was initially named as ‘Dark Coin’, its name was changed to Dash in March of 2015.
It enhances anonymity and speed of payments through distributed network. Master nodes mix breakdowns whenever transactions are signed off. As a result, it is difficult to find out how much of money a person sent to another person.
Miners mine Dash through PoW just like Bitcoin and take away 45% of it. 10% is accumulated as fund to improve Dash’s system.
Total amount of Dash issued is 22.5 million, and a block is created every 2 minutes and 30 seconds. PoS is applied to the fact that a master node, which plays an important role in conclusion of a transaction, receives part of new coins. PoS indicates a way how authorities of recording ledgers is given based on amount of shares owned by participants.
◊EOS
EOS is cryptocurrency and a different blockchain project at the same time.
Its goal is to create a blockchain OS (operating system) that can operate DApp (Decentralized Application).
Possibilities of modification, leakage of personal information, and down servers are low for DApp since flow, storage, and logic of data are decentralized.
EOS supplements weak points of Ethereum. It is applied with consensus algorithm and solves speed and size of payments problems of Ethereum.
Its mining method is different from other cryptocurrencies.
Bitcoin and Ethereum use PoW and PoS methods respectively. On the other hand, EOS uses DPOS (Delegated Proof of Stake) method that gives voting rights to participants.
DPOS entrusts participants with shares and it can process more transactions faster than PoS. Computers do not have to be turned off within 24 hours. However, amount of compensation is lessened as number of participants goes up.
Dan Larimer, who developed EOS, also created a blockchain blog service called ‘Steem’ and a virtual currency transaction platform called ‘BitShares’.
EOS issued initial coins in 2017 and collected about $700 million worth EOS. Total amount of EOS issued is set at 1 billion. Within 5 days from ICO (Initial Coin Offering), 200 million EOS coins were issued. Out of remaining coins, 2 million coins were issued every day for about a year. Characteristic of EOS is the fact that it does not have commission and its unit is EOS.
Staff Reporter Gil, Jaeshik | osolgil@etnews.com & Staff Reporter Ham, Jihyeon | goham@etnews.com