Glenn Fleishman - Take Control of Cryptocurrency

Bitcoin may be the 800-bit gorilla, but its now one of hundreds and hundreds of cryptocurrencies. To distinguish among them, theres Bitcoin and altcoinsthats everybody else!

In terms of scale, as I type this in June 2021, Bitcoins total market value based on exchange price is nearly $700 million. The second most-valuable, Ethereum, is half that at about $312 million. The third-highest valued coin similar to those two is Binance Coin at $61 million, and it has three peers that arent far off. The rest of the altcoins drop off rapidly from there.

Bitcoin is not the first cryptocurrency, just like Johann Gutenberg wasnt the first person to print with movable type. (People in China and Korea predate him by centuries.) Both Gutenberg and Bitcoin built off previous innovations by pulling them together into a unique form that caught fire and persisted.

Investopedia has an excellent rundown on Bitcoins crypto predecessors. (And heres a great description of printing before Gutenberg.)

Yet valuation isnt always an indication of importance. Two of the currencies I discuss ahead, .

Not all cryptocurrencies are worth detailing at length, because their value, purpose, stability, or basis of participation (the number of nodes or people helping to keep it running) are low. In the following sections, I detail the biggest, most important, and most important to know about forms of digital currencyand that last category includes warnings as well as uniqueness.

Back in I offered a number of fundamental elements seen as required to call something a cryptocurrency. For each cryptocurrency below, where applicable, I provide information about a few more nitty-gritty elements. Think of this like the difference between understanding how central banking works as a whole and how coins are mined and currency printed.

The salient aspects listed below include:

• Maximum and outstanding coins: Bitcoin launched with a maximum number of coins that could ever be issued within the system. This makes Bitcoin more like literal miningcommodities like gold become ever harder and more expensive to extractthan fiat currency, the supply of which central banks continuously increase. Some cryptocurrencies have opted to have no limit.

• Cadence: Most cryptocurrencies have a built-in expectation for how long it takes to mine a block and a mechanism to reset the cadence after a certain interval has passed when its out of step.

• Difficulty: Back in , you learned how most cryptocurrencies have a dangerous race to the top: the computational power required to mine a block (its difficulty) resets regularly to keep cadence. No increase or decrease in computational capacity truly matters, because the difficulty adjusts to accommodate it to ensure blocks are mined at the same cadence. Difficulty is typically measured in hashing operations per second and usually denominated in trillions of those, or TH/s: trillion hashing operations per second.

With no central authority for any cryptocurrency, how does a new coin get introduced? Its as easy or hard as copying and pasting. Most cryptocurrency systems rely on entirely open-source software, and some cryptocurrency developers took an existing one, like Bitcoin or Ethereum, and made minor to significant protocol changes.

Whether its a forked, derivative, or entirely fresh cryptocurrency, its backers typically provide a white paper that explains its design and mechanisms and then try to drum up business. They need miners, people to run nodes, and often people to invest fiat currency. Promoters generally offer incentives in the form of low-cost initial investments relative to what they allege the value will ultimately be along with early rewards for those who build out infrastructure for mining and software.

Theres a far lower bar to create an initial coin offering (ICO), which relies on tokens created using smart contracts on the Ethereum and similar blockchains. Read more about smart contracts and tokens in .

When talking about non-Bitcoin cryptocurrencies, stablecoins (see ), and tokens, you can use the catchall terms altcoins.

Bitcoin was the first cryptocurrency to use a blockchain, the immutable ledger of transactions described in the previous chapter. It set the stage of coins that followed, for better or for worse. Because Bitcoin still dominates cryptocurrency, youve already read a lot about up to this point in the book.

The main flavor of Bitcoin is often referred to as Bitcoin Core to differentiate it from forks, including Bitcoin Cash. I discuss both in this section.

Below are some of the basics that makes Bitcoin tick, and can help you contextualize its scope and future behavior:

• Consensus mechanism: Proof of work.

• Currency abbreviation: BTC.

• Currency units: 1 unit: Bitcoin; smallest increment is 1/100,000,000th, a satoshi.

• Maximum coins to issue: 21 million (targeted for 2140).

• Outstanding coins: Over 18.7 million.

• Issue cadence: Every 210,000 blocks, or about every four years, the number of coins paid for mining a block halves.

• Current mining reward: 6.25 blocks; next halving is roughly March 2024; last block reward estimated for 2140.

• Block cadence: Every 2,016 blocksroughly every two weeksthe difficulty is reset to target a block every 10 minutes.

• Difficulty: 21 TH/s (as of May 29, 2021).

  Note: Bitcoin difficulty started at 1; the current difficulty is a factor of 21 trillion compared to the original.

• Transactions per block (roughly): Until recently, blocks averaged 2,000 transactions; in 2021, it has trended towards about 1,500 per block.

• Transactions per second: 3 to 5 (about 200,000 per day).

• Transaction fees: about 3,500 satoshis (or $1) in early June 2021, with a host of provisos described below.

One of the only elements left to discuss specific to Bitcoin are transaction fees. Thats in part because miners have politely conspired to keep the space in a block for transactions relatively low compared to the demand placed on the Bitcoin network, thus producing artificial scarcity that drives up fees. Other cryptocurrencies have less pressure, were designed to avoid the problem, or have a pathway to incorporating many more transactions in the future.

Transaction fees are whatever the market is willing to pay on a per-byte basis to a miner to include a transaction in a block within some period of time. Transactions occupy about 250 bytes (for a native SegWit one) to 500 bytes (for a legacy style). Some niche transactions may be much longer because they encode data beyond whats needed in standard transfers, and they pay richly for that privilege.

As I noted earlier in in late 2013 about it!)

This puts a lot of stress on the relationship among those transferring value (individuals, companies, and exchanges), those running nodes, and those mining blocks. The more transactions people want to place on the Bitcoin network, the more some of them are willing to value the transaction, and thus the quicker it gets written into a block and the quicker its effectively immutable.