Bitcoin, Litecoin, Ethereum. The big players in the world of cryptocurrency have jumped in value in recent months as people come to grips with online wallets and try their hand at getting some of these new currencies. But while on the surface they may seem the same, offering easy ways to transfer money across the internet, their key differences in technological underpinnings mean they could find use with other internet applications.
Although they don’t currently hold the same household stardom as Bitcoin, these alternatives are making their own waves in the financial transactions field. CryptoKitties, a cryptocurrency game that went viral earlier this month, uses Ethereum technology to power a fun cat game. Similarly, Litecoin attracted attention after a meme compared the cryptocurrency to characters in Dragon Ball Z, a comparison that caught on like wildfire.
This chart, from BitInfoCharts, shows how Ethereum and Litecoin have exploded in terms of transactions per day.
Here are the key differences between the three.
The original. First outlined in a 2008 white paper published to the P2P Foundation’s website by a mysterious figure known only as “Satoshi Nakamoto,” Bitcoin introduced a number of key ideas that have underpinned several other cryptocurrencies since. This includes the blockchain, the public ledger that enables communities to share a decentralized cryptocurrency without fear of doubling over on transactions.
In terms of price, Bitcoin has exploded over the past few months, with a price of $2,000 in May skyrocketing to almost $8,000 in November, and reaching $14,000 in December.
Introduced in 2013 by then 19-year-old Vitalik Buterin, on the surface Ethereum seems a lot like Bitcoin. It’s better to think about it as a software platform, though. One where decentralized apps —or “dApps” — use the blockchain to undertake transactions. At the time of writing, one ether is worth $676.63.
Ethereum can run what are called “smart contracts,” which are best thought of as simple instructions that can move the “ether” cryptocurrency around. It’s a bit like an instruction to the bank, except it’s instant and handled by computers. This allows for ambitious sets of instructions; insurance firm AXA has experimented with smart contracts that trigger a payment request if a flight is delayed by two or more hours.
Created by Charlie Lee, a former director of engineering at Coinbase, Litecoin is all about transfer speed improvements. At the time of writing, one litecoin is worth $321.20.
Bitcoin uses the SHA-256 algorithm to “mine” new coins, leading to giant setups that use tons of specially designed mining hardware to crank out more coins. Litecoin, on the other hand, uses Scrypt, which demands memory instead of processor resources. That stops these giant setups from easily switching to Litecoin.
The currency is also meant to be faster than Bitcoin, leading to the comparison of Bitcoin as gold just as Litecoin is to silver. Where it takes ten minutes to log a Bitcoin transaction into the blockchain, it takes just two and a half minutes for Litecoin to do the same.
“Litecoin was never intended to replace Bitcoin but to complement it like the silver to Bitcoin’s gold,” Linda Xie, the co-founder of Scalar Capital, said in a Coinbase blog.
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