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Bitcoin, Ethereum, and Ripple: The Differences

Bitcoin – The Alternative to Fiat Money

Bitcoin is a household name across the cryptomarket, being the first of the cryptos, launched in the wake of the Global Financial Crisis by founder Satoshi Nakamoto.

The principal of Bitcoin was to remove control from governments and central banks, by launching a digital currency with a decentralized platform using a technology referred to as the blockchain, which is certainly better known today than even a year ago.

With both consumers and businesses facing heavy transaction fees, Bitcoin’s peer-to-peer platform was aimed at removing the involvement of financial institutions from the payment process.

Bitcoin can be referred to as a true cryptocurrency, in that it is an alternative to fiat money and its classification will be all the more important from a tax perspective, as other cryptocurrencies get classified as securities.

By market capitalization, Bitcoin is ahead of the pack, with a market cap of $192.96bn, accounting for 41.8% of the total market cap of the 1,535 cryptocurrencies in existence at the time of the article.

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Ethereum – Not an Alternative but A valuable Cryptocoin

Ethereum was launched in 2015. While also classified as a cryptocurrency that is powered by blockchain technology, Ethereum’s function is not to co-exist alongside fiat money, it aims at attempting to reduce the power of central banks and governments by providing an alternative virtual currency.

Ethereum was created to resolve one of the main issues of the Internet, the vulnerability of user information to hackers in what has, essentially, evolved into a centralized warehouse of personal data. Its purpose was to compete against web-based companies that house data.

Ethereum is best known for its smart contracts, which are encoded contracts uploaded onto Ethereum’s blockchain making them, not only protected from hackers but also secure from theft or manipulation. The use of smart contracts also removes the need for middlemen, such as banks and lawyers, which provides a cost incentive.

Ethereum’s smart contract offering has also meant that it is the cryptocurrency of choice for companies and projects raising funds in the initial coin offering market.

In spite of Ethereum being created with an alternative purpose in mind, it is possible to transact with Ethereum’s Ether coins with vendors that accept them, though there are fewer than those accepting the likes of Bitcoin.

Ethereum’s market capitalization stands at $83.80bn (at the time of writing), placing it in a comfortable second-position, just behind Bitcoin.

Ripple – Innovative and Advanced

Ripple was released in 2012 and is a blockchain driven platform that facilitates cross-border transactions at significantly lower costs and at far greater speeds than traditional non-distributed ledger platforms are able to offer.

Transactions are settled in a matter of seconds, which is significantly faster than the hours or days it can take for a bank to carry out a wire transfer by more traditional means.

Unlike Bitcoin, Ripple’s XRP coins are not in competition with fiat currencies but are considered to be a link between fiat currencies during a cross-border transaction, for example linking a U.S Dollar remitter to a UK Pound receiver.

While each transaction is verified across the Ripple network, there are no coins awarded for verifications, with a maximum supply of 100 billion XRPs released at the time of launch.

Ripple’s market capitalization stands at $35.42bn, placing it third in the overall crypto market cap rankings.


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The Top 3 Cryptocurrencies – What are the differences?

There are some distinct differences between the top three cryptocurrencies, in the underlying blockchain technology and algorithms, as well as the functional differences that have been described above.

Bitcoin Ethereum Ripple
Algorithm Proof-of-work

SHA-256

Proof-of-work

Ethash

Consensus

Ripple Protocol Consensus Algorithm

Mining  Yes Yes No
Mining Hardware ASICs GPUs N/A
Mining Intensity Processor Memory N/A
Maximum Supply 21 billion 18 million per year 100 billion
Average Trans. Time 10-minutes Up to 14-seconds 4 seconds
Transaction Fee $40 $1.13 $0.004

As indicated in the table above, the key issue for the markets and the competitiveness of a cryptocurrency is its blockchain transaction speed and associated fees. Bitcoin’s heavy fees and slow transaction speeds have certainly limited its use in the real world as an alternative to fiat money. While the adoption of SegWit has improved both fees and speeds, both s remain an issue today, with an increase in usage creating a lengthier speed and fee environment.

In stark contrast, Ripple’s transaction speeds have contributed to the Ripple team’s success in the real world, with financial and non-financial institutions adopting Ripple’s platform for the purposes of cross-border transactions, significantly cutting down wire transfer times and costs for institutions across the world.

When looking at Ethereum, while some will look to classify Ether as another alternative to fiat money and in direct competition with Bitcoin, Ethereum was not developed to compete with Bitcoin and is identified for its smart contract offerings. Transaction speeds and fees may be more favorable than Bitcoin and the option is available to transact with Ether coins, but businesses and vendors who accept Ethereum are fewer, with the Ethereum team not looking for merchants in the marketplace to accept Ether as an alternative to Bitcoin or fiat currencies.

While the cryptocurrency majors sit well below the record highs seen in through December and early January, interest remains high, with traders switching from more mature asset classes to the cryptocurrency market. Many of the exchanges offering a suite of products including cryptocurrencies CFDs, leveraging, with the option to go both long or short on a particular cryptocurrency.

Admiral Markets is a reputable broker that supports the trading of cryptocurrencies through CFDs, with the continued volatility within the cryptocurrency market drawing-in traders that are looking to trade in a more regulated environment.

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