My goal is to give readers a quick high level familiarity of major cryptocurrencies without going down too many rabbit holes. So when your crypto-obsessed friend inevitably drops a coin name, you hopefully have a base knowledge of what it is.
According to CoinMarketCap as of 11/28/21:
- Bitcoin (BTC): The OG blockchain system / cryptocurrency conceptualized by Satoshi Nakamoto. It’s a peer-to-peer online currency where transactions happen between network participants without an intermediary. It’s like handing cash to a friend, but online (you don’t have to go through a bank or a payment processor like VISA). Bitcoin is primarily a store of value. It operates on PoW (proof of work), which secures / verifies the network using computing power. A bad actor would need to amass >50% of computing power on the network to change state, which is extremely expensive.
- Ethereum (ETH): A blockchain that supports smart contracts (self-executing code that carries out a set of operations when something happens on the blockchain, e.g think when I send you money, you get a deed to a house). Smart contracts enable dApps (decentralized applications), which are applications that run on a blockchain network in a public, open-source, decentralized environment and are free from control and interference by any single authority (e.g. you could create a dApp for twitter that is free from censorship). Ethereum is currently PoW. Ether is technically the cryptocurrency (or fuel) that Ethereum runs on.
- Binance Coin (BNB): Essentially Ethereum on the Binance blockchain. Binance is the largest global cryptocurrency exchange in the world thanks to its extensive list of trading pairs and original lack of KYC (know your customer) restrictions. Binance was originally founded in China, but moved to the Cayman Islands after China threatened significant regulations. Binance coin operates on the Binance Smart Chain blockchain (despite originally being on Ethereum). It was originally created to support the Binance exchange, allowing users to trade with lower fees, but has undergone upgrades to also support dApps. Binance operates on PoA (proof of authority), which secures / verifies the network relying on the reputation of the participants. Participants must reveal their identity and meet a strict set of criteria. If they act poorly, their reputation suffers. Binance only allows 21 validator nodes in its network, making it quite centralized.
- Tether (USDT): Tether was the first legitimate and is the largest stablecoin (a coin pegged to the market value of some external reference), mirroring the price of the USD. Tether is fiat-collateralized. It achieves its price stability by maintaining a sum of financial instruments in reserves that equal the USD. Tether does not have its own blockchain, instead operating on other blockchains (e.g. Bitcoin, Ethereum). Stablecoins like Tether allow investors to keep value in the crypto ecosystem without experiencing the extreme volatility of other cryptocurrencies.
- Solana (SOL): Solana supports dApps and smart contracts. It aims to achieve decentralization, security, and scalability (a trilemma most cryptos can’t achieve, e.g. ETH lacks scalability, BNB lacks decentralization). Theoretically, Solana can handle 30X as many transaction/sec as VISA. Solana operates on PoS (proof of stake), with a time optimization, PoH (aka proof of history). Proof of stake secures / verifies a network relying on users to stake (lock up) a certain amount of their token in the network. A bad actor would need to amass >50% of cryptocurrency on the network to change state, which is extremely expensive. They can also lose their stake. PoH (which gets very math-y) allows network participants to keep consensus without having to constantly check-in with other nodes on the network, allowing the network to scale significantly more than other PoS algorithms.
- Cardano (ADA): Cardano aims to be a better Ethereum. It was founded by a co-founder of Ethereum and operates on PoS. Cardano relies on academic rigor, only developing and incorporating technology into the protocol that has passed through a process of peer-reviewed research. Ownership of Cardano is decentralized and shared by The Cardano Foundation, IOHK, and EMURGO, each owning a different responsibility to support, build, and promote the cryptocurrency.
- XRP (XRP): XRP is a cryptocurrency used for a digital payment platform called RippleNet (a platform run by a company called Ripple that connects financial institutions together to be able to exchange currencies via an API), which runs on top of a distributed ledger database called XRP Ledger. XRP Ledger is not a blockchain. It’s a distributed database spread across multiple nodes (whereas blockchain is a distributed ledger requiring a historic chain of state aka blocks and encryption). Instead of using a PoX consensus algorithm, XRP Ledger uses a unique node list, which is a list of nodes that Ripple explicitly trusts to determine a majority rule, centralizing who in the network decides the state of the ledger. XRP simply allows financial institutions in the network to easily liquidate against one another or users not in the network (e.g. regular people).
- USD Coin (USDC): USDC is essentially the same as USDT, with better governance and transparency. It was created by Coinbase and Circle, has governance that ensures there is transparency on a true 1-to-1 backing with the USD (Tether has not been formally audited), and makes a great effort to comply with audits and government regulation. It is described as the safest stablecoin.
- Polkadot (DOT): Polkadot is a layer 0 protocol, sitting a layer below typical blockchain solutions (e.g. Bitcoin and Ethereum are layer 1 protocols aka blockchains). It was founded by a co-founder of Ethereum and operates on PoS. It connects other blockchains to facilitate cross-chain transfer of data, making independent blockchains interoperable. Today, Bitcoin cannot naturally communicate with Ethereum. Polkadot makes this possible. Polkadot also enables users to easily create and launch their own custom blockchains.
- Dogecoin (DOGE): Dogecoin is a meme coin and was created as a joke. It has its own blockchain, which is derived from Litecoin’s blockchain. It operates on PoW. Elon Musk likes to tweet about it sometimes.
