There’s alternative cryptocurrencies besides Bitcoin?
Yes, we’ve been featuring Bitcoin because it’s the most well-known and widely-used cryptocurrency right now. But, there are dozens of other cryptocurrencies, or alternative coins. Some of the more popular “alt-coins” in the news have been Litecoin and Dogecoin.
So many coins. What are the differences?
The two major differences in alternative cryptocurrencies are their algorithms and parameters.
Algorithms?
These algorithms dictate how new coins are found. Bitcoin’s algorithm is SHA-256 while most of the other popular alternative coins are Scrypt algorithm based.
In the beginning, your computer’s CPU (central processing unit) was powerful enough to mine/solve the algorithms of Bitcoin. Then, it was discovered that graphics cards, or GPUs, were much better at mining. And since SHA-256 was not memory intensive, ASICs (application-specific integrated circuits) were developed from the ground up to only solve the SHA-256 algorithm. A handful of companies sell these expensive and powerful mining rigs which totally dominate the mining playing field. You don’t stand a chance if you are still mining with your CPU or GPU.
Three GPUs
Three GPUs
Butterfly Labs SHA-256 ASIC
Butterfly Labs SHA-256 ASIC (butterflylabs.com)
In light of the ASICs, Scrypt was developed to be memory intensive so ASIC chips could not be easily created for the sole purpose of mining. As of Q1 2014, GPU mining for Scypt based alternative cryptocurrencies is still the gold standard. Scrypt ASICs are in development but current specifications show they will not dominate the playing field like SHA-256 ASICs.
In addition to SHA-256 and Scrypt, there have been CPU algorithm based coins which play on the strengths of CPUs while taking advantage of the weaknesses of GPUs.
Parameters?
All cryptocurrencies have different variations in some core specifications in addition to the algorithm. Below are just a few of the more important specifications for Bitcoin, Litecoin, and Dogecoin.
Block time: time estimate needed to solve the computational challenge in order to certify a “block” of transactions
Initial rewards per block: number of coins received when a block is solved
Coin supply: total coin supply possible
Difficulty adjustment: number of blocks after which difficulty is scaled
Bitcoin
Algorithm: SHA-256
Block time: 10 minutes
Rewards per block: 50
Coin supply: 21 million
Difficulty adjustment: 2016 blocks, ~2 weeks
Litecoin
Algorithm: Scrypt
Block time: 2.5 minutes
Rewards per block: 50
Coin supply: 84 million
Difficulty adjustment: 2016 blocks, ~3.5 days
Dogecoin
Algorithm: Scrypt
Block time: 1 minutes
Rewards per block: random between 0 to 1,000,000
Coin supply: 99 billion + 5 billion added every year
Difficulty adjustment: 4 hours
Just a quick glance shows that the later alternative cryptocurrencies increase the total number of coins, as well as decrease the block time. This allows for faster mining and faster transactions. Dogecoin takes it further with 99 billion coins, super fast block times, and a built in inflation of 5 billion coins a year.
Conclusion
We’ve gone over just a couple differences of alternative cryptocurrencies versus Bitcoin. Most change the algorithm and parameters to try and make it “better” than Bitcoin. Only time can tell which cryptocurrency becomes “the” cryptocurrency.
Check out the next lesson to learn more about mining!
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