7 CRYPTOCURRENCIES AND THEIR USE CASES
March 16, 2021
1. Bitcoin: Bitcoin is a digital currency created in 2009 by a mysterious figure using the alias Satoshi Nakamoto. It can be used to buy or sell items from people and companies that accept bitcoin as payment, but it differs in several key ways from traditional currencies. Most obviously, bitcoin doesn’t exist as a physical currency. There are no actual coins or notes. It exists only online and was the first cryptocurrency ever created. It has many different use cases depending on what you need it to do.
For many, it is simply a store of value and a hedge against inflation. It is often referred to as digital gold due to its scarcity and in late 2020 and early 2021 we have seen it adopted as a treasury asset for large financial institutions and funds. In poorer parts of the world where inflation has already completely destroyed the national currency it is used as money and a means of survival. For example in parts of Africa and central America people are completely dependent on it to go about their day to day lives within decentralised economies that have replaced ruined central banking systems.
2. Bitcoin Cash: Bitcoin Cash is basically Bitcoin’s evil twin brother. It is the result of a Bitcoin hard fork occurring in August 2017. Bitcoin Cash was created to accommodate a larger block size compared to Bitcoin, allowing more transactions into a single block after many in the industry disputed that Bitcoin wasn’t scaleable enough. Following further disputes, it split again in November 2018 into Bitcoin Cash and Bitcoin SV (Satoshi Vision) after another dispute about how the project should move forward. Many in the industry believe that Bitcoin Cash is not Bitcoin and shouldn’t be allowed to use the Bitcoin name, myself included. Currently, Bitcoin Cash miners get only 0.05% of revenues from the transaction fees.
By comparison, Bitcoin miners, get transaction fees in the amount of approximately 10% of their revenues. This is very important for the long-term security of the network. At some point in time, there will be no or only very small block rewards. Probably one of the most worrying aspects of the Bitcoin Cash network is the current security. The lower hash rate makes the Bitcoin Cash network more vulnerable to attacks. In my opinion, Bitcoin Cash’s days are numbered and it is only a matter of time before it is rendered completely useless.
3. Ethereum: Founded by Russian computer genius Vitalik Buterin and launched in July of 2015, Ethereum is the largest and most well-established, open-ended decentralised software platform.Ethereum enables the deployment of smart contracts and decentralised applications (dapps) to be built and run without any downtime, fraud, control or interference from a third party. Ethereum comes complete with its own programming language which runs on a blockchain, enabling developers to build and run distributed applications. The potential applications of Ethereum are wide-ranging and are powered by its native cryptographic token, ether (commonly abbreviated as ETH). In 2014, Ethereum launched a presale for ether, which received an overwhelming response.
Ether is like the fuel for running commands on the Ethereum platform and is used by developers to build and run applications on the platform. Ether is used mainly for two purposes—it is traded as a digital currency on exchanges in the same fashion as other cryptocurrencies, and it is used on the Ethereum network to run applications. In the last year we have seen the rapid rise of Decentralised Finance built on Ethereum, which has grown in value from under $700 million to a staggering $23 billion at the time of writing and many believe it is just getting started. Decentralised finance is an experimental form of finance that does not rely on central financial intermediaries such as brokerages, exchanges, or banks, and instead utilises smart contracts on blockchains. DeFi tokens such as Aave, Synthetic, Yearn Finance, Sushi Swap, Uniswap, Compound and Kusama have been some of the best performing alt coins of the last year. There is no doubt in my mind that Ethereum is clearly the second most valuable cryptocurrency after Bitcoin and maybe one day will become even more important than Satoshi Nakamoto’s flagship digital currency, I guess only time will tell.
4. Litecoin: Litecoin (LTC) is a peer-to-peer digital currency created in 2011 by the MIT graduate and former Google employee Charlie Lee. Lee designed Litecoin based on the Bitcoin code and protocol, with some modifications that he believed addressed certain barriers to its wider adoption. Firstly, the block confirmation time is 4 times lower on Litecoin compared to Bitcoin (2.5 min vs. 10 min) which allows Litecoin to confirm transactions much faster. Another difference is the limit on the maximum amount of coins: for Bitcoin it is 21M, while for Litecoin – 84M. Finally, some technical elements of Litecoin make it less susceptible to centralisation of mining operations and more attractive to smaller-scale miners. Litecoin was one of the first alt coins to spring from the Bitcoin protocol. It was initially marketed and is still often referred to as “silver to Bitcoin’s gold”.
Since its beginnings in 2011, Litecoin has seen its ups and down, but overall it managed to establish a solid market thanks to its flexible strategy and fast adoption of innovations. It is also the only other coin aside from Bitcoin which has no pre-mine, a severely underrated factor in my personal opinion as the people holding it have a vested interest in the project unlike many modern coins which have large pre-mines. For anyone that doesn’t know what a pre-mine is it is a condition of some new cryptocurrencies, where some or all of the supply has already been created before being made publicly available. Mining is a computer process of recording and verifying information on the digital record known as the blockchain.
5. Chainlink: Chainlink is a cryptocurrency aiming to incentivise a global network of computers to provide reliable, real-world data to smart contracts running on top of blockchains. If you’re unfamiliar, smart contracts are agreements programmed to execute if and when certain conditions are met. To date, smart contracts have been used for everything from creating novel crypto-financial products to developing new crypto assets. However, an issue that has persisted is that most smart contracts need to rely on some kind of external data source to properly execute their terms. For example, smart contracts seeking to replicate bonds or insurance agreements may need access to APIs reporting on market prices or Internet of Things data. Chainlink was created to address this issue by incentivising data providers (called “oracles”) to act as a bridge between blockchain smart contracts and external data sources. Every oracle within the Chainlink network is incentivised to provide accurate data since a reputation score is assigned to each. Further, when nodes follow the software’s rules and provide useful data, they are rewarded in Chainlink’s cryptocurrency, LINK.
There is no doubt that Chainlink has one of the most important use cases in crypto, simply put it is a bridge between crypto applications and non crypto applications. The value of the token has gone up exponentially over the last four years and it is the 8th biggest cryptocurrency by market cap at the time of writing. I have a personal soft spot for Chainlink as it is one of the first alt coins I ever bought at a mere $0.14 and was one of the few coins it actually payed off to hold onto throughout the bear market that followed the 2017/18 bull run. Many in the crypto space have questioned the centralised nature of Chainlink’s supply and claim is far too centralised, sadly they have a point. At the time of writing Chainlink node operators hold 35% of the supply, the team holds almost 25%, and exchanges hold 16% however some in the industry claim that many of these nodes are run by Chainlink themselves, though this is hard to prove.
6. Cardano: Created as an alternative to Ethereum and started by Ethereum co-founder Charles Hoskinson. Cardano is the first peer-reviewed decentralised blockchain protocol utilising a scientific approach. Cardano’s developers aim to create a blockchain platform that can process more transactions at a low cost. At the same time, to protect users’ data by integrating the distributed ledger technology and the smart contract infrastructure. The Cardano blockchain allows people to build smart contracts, create decentralised applications and protocols, and instantly send and receive funds with minimal fees. The Cardano utility token ADA is used as a transfer of value like many other tokens. But it differs from other cryptocurrencies with its functionalities. Stake pool operators use it in the staking system to maintain the security of the protocol. And those who stake their ADA tokens on the blockchain use them to verify transactions.
Apart from that, active users are also rewarded with ADA coins for participation in safety provision. For instance, ADA holders use their coins to vote on changes or improvements to the protocol, thus taking part in its development. In contrast, the developers use it to power their smart contracts that run on the Cardano blockchain. Last year the ambitious third-generation blockchain finally introduced its staking era after almost five whole years of development—an event that put IOHK into overdrive when it comes to releasing new functionalities of the blockchain. Cardamon is essentially a direct competitor to Ethereum, though thats not to say they can’t both exist simultaneously.
7. Monero: Monero is one of the most popular cryptocurrencies in the world because of its ability to provide anonymity compared to cryptocurrencies like Bitcoin. Whenever a transaction takes place using Bitcoin the recipient has to divulge their public address to the sender. This allows the sender a window into the recipient’s wallet and they can see how much Bitcoin you own. On top of this, all Bitcoin transactions are recorded in the blockchain which is essentially a public ledger. This means that if someone really wants to, they can figure out exactly how you’re spending your money. This is where Monero is different. When you send funds to someone using Monero, you are not able to view the recipient’s holdings. The coins you send are instead routed through a randomly created address used only for that transaction. The Monero ledger only records the one-time address and doesn’t link the sender or the recipient. Monero does allow its users to give others a view of their accounts. If they share their view key then another user can view the account holdings without being able to spend any funds.
This is useful for someone who wants to give the authorities access to their account in order to audit their assets. Monero’s focus on anonymity has gained it some notoriety due to its popularity on the dark web. That being said it is also used by many people with entirely legitimate intentions. It helps users avoid having their purchases tracked by advertising companies. It also helps to protect individuals who might not want their spending habits to be known by less permissive governments. There is no doubt that Monero’s use case is one that will become more and more important as the years go by and I truly believe it is one of the most important coins in the space. However, from an investment point of view I would steer clear, governments have already begun cracking down on the use of privacy coins and as cryptocurrency regulation becomes more mainstream worldwide, which we can already see signs of in early 2021, privacy coins like Monero will be top of the list and are by far the most likely coins to be made illegal in my opinion.