There are many types of cryptocurrencies. Based on Coinmarketcap data as of August 3, 2021, there are nearly 6,000 crypto assets in the world.
However, there are three types of cryptocurrencies that you need to understand when studying the crypto world: Bitcoin, Ethereum, and alternative coins called Altcoins.
Bitcoin was the first cryptocurrency and the pioneer of innovation of all kinds of crypto assets that came after it. Following are the core features that Bitcoin has.
Limited stock, only 21 million pieces
Unlike fiat money, such as US Dollars which can be printed by the US central bank The Fed, Bitcoin supply is fairly fixed thanks to its algorithm.
Bitcoin miners' rewards (block rewards) also drop by half after they finish mining 210,000 transaction blocks, which usually occurs every four years, in a phenomenon known as a halvening.
So far, there have been four halvenings since Bitcoin was launched in 2009.
So far, no one has been able to hack the Bitcoin blockchain network. To be able to hack it, the hacker needs to collect 51% of all hash power on the blockchain network or known as Sybil attack (Sybil Attack).
If hackers succeed in carrying out the attack, then they can validate their illegal transactions on blockchain technology.
However, now the risk of such an attack is almost impossible given that Bitcoin chips are widely distributed.
This is an example of the network effect, where the quality of a product gets better as more people adopt the product.
Have the largest liquidity and market capitalization
As the first and most popular crypto asset, it is no wonder that Bitcoin has the largest market capitalization in the crypto universe.
Bitcoin's market capitalization had touched above US $ 1 trillion and always took a portion of 30% of the entire cryptocurrency market capitalization.
Usually, these conditions indicate that Bitcoin is a coin that changes hands frequently (liquid) and has lower price fluctuations than other crypto assets.
Because of these characteristics, Bitcoin can be derived into derivative products such as options contracts, futures contracts, and other products.
Bitcoin can also be referred to as an easily exchanged asset (reserve asset) in the crypto asset class.
For example, investors only need to place money in Bitcoin just to gain exposure to the entire crypto asset market.
However, Bitcoin also has some disadvantages, including:
1. Low transaction scalability.
Bitcoin blockchain technology can only process 4.6 transactions per second, while payment company VISA can process more than 1,700 transactions in the same time span.
These conditions make Bitcoin difficult to use as a medium of payment.
2.Not equipped with a smart contract feature.
As a cryptocurrency pioneer, Bitcoin blockchain technology can only be used for value transfer. Thus, it does not have other functions that users need in order to execute smart contracts.
3. Waste of energy.
In operation, the Bitcoin blockchain uses a consensus algorithm called Proof-of-Work, in which each miner competes with each other to solve cryptographic puzzles or math problems in order to validate transactions and earn Bitcoin chips in return.
Unfortunately, this activity requires a large amount of electrical energy, even the amount is equivalent to Finland's electricity needs every year.
Bitcoin may be lined up as a cryptocurrency pioneer and has the status of the most popular coin. However, the technology still has some drawbacks. To make up for this shortcoming, Vitalik Buterin created Ethereum technology in 2013.
Quoted from its whitepaper, Ethereum aims to build a “Smart Contract for Next Generations and Become a Decentralized Application Platform”.
Some of the benefits of Ethereum include:
Emphasize position as a platform.
While Bitcoin was aiming to be a currency that could be used as a medium of payment, Ethereum chose to be a platform that could manage smart contracts, a feature that enhances the usability of blockchain technology.
As an analogy, you can imagine that Ethereum is a blockchain platform that functions like the App Store or Android App Store, while Bitcoin has the characteristics of a commodity like gold or other store of value assets.
For an even easier explanation, you can also listen to the following example.
Let's say you want to create an application that allows users to bet on the outcome of a sporting event, such as the NBA basketball league final. You can't build those apps over the Bitcoin network.
However, by using Ethereum, you can create smart contract based applications, where users can bet before the match starts.
When the game is over, the smart contract will then use a technology called an oracle, such as Chainlink (LINK), to scan sites displaying NBA finals results, such as ESPN.com, in search of the league winner.
After the results of the match are verified, smart contract technology will then give prizes to users who have correctly guessed the winner of the NBA league finals.
Because of these characteristics, Ethereum can create an application ecosystem, where each application has its own cryptocurrency and all runs on top of Ethereum technology.
Emphasis on transaction speed.
Bitcoin blockchain technology emphasizes security over transaction speed. Ethereum is capable of processing multiple transactions in less than 20 seconds (assuming no issues), while Bitcoin takes 10 minutes to do something similar.
Unlimited supply of coins.
The number of Bitcoins in the world is limited to only 21 million pieces. On the other hand, the amount of Ethereum supply is not restricted at all.
However, the rate of production of new ETH chips continued to decline between periods.
Due to its usability and benefits, the users of the Ethereum network and the ERC-20 network have increased dramatically over the years.
In fact, in 2021, the number of users has exceeded the previous record set in 2018.
But now, Ethereum is experiencing a problem called network congestion and transaction fees are increasingly expensive.
Because the Ethereum network usage fees (known as gas fees) are paid using ETH, the increase in the price of the coin will automatically raise transaction fees on the network.
All of these issues will be resolved when the Ethereum organization updates the network to Ethereum 2.0.
The release of Ethereum has inspired the crypto community to release other coins and tokens. All of these digital assets were then considered as alternatives to the first cryptocurrency, namely Bitcoin, so they were later named as altcoins.
Because altcoins are coins other than Bitcoin, Ethereum is also automatically included in the altcoins class.
Altcoins come in many forms and provide many functions. Some coins have big ambitions like Ethereum, while other coins have special functions.
In fact, some coins take advantage of the infrastructure provided by other coins.
For example, decentralized cryptocurrency exchange platforms like Uniswap leverage Ethereum's ERC-20 blockchain and act like an application on top of the Ethereum network.
This condition is similar to an Android application that is above the Google Playstore.
Although there is no standard way to categorize them, altcoins can be grouped according to their function and ecosystem.