Special Types of Coins
Bitcoin was the first cryptocurrency but that doesn’t mean that it was perfect. Bitcoin’s success has drawn interest to the space and inspired people to develop their own versions of cryptocurrencies to get into the market. To gain market share, some cryptocurrencies are designed and marketed to fix one of Bitcoin’s acknowledged shortcomings. In this section, we discuss some of these deficiencies and the types of coins that have sprung up to take advantage of and correct them.
Hosting a cryptocurrency node and creating new blocks for the blockchain costs money both in equipment usage and electricity. In order to get people to host nodes (which is vital to the health of the network), Bitcoin includes transaction fees where users pay per transaction and the proceeds go to the miners. These operate similar to bribes in that users can pay extra to “jump the line” and make it into the next block when the network is congested.
Since the blockchain has limited capacity, it’s possible for it to get congested, driving transaction fees up. If fees are a significant portion of a purchase (like paying a dollar in fees for a five dollar cup of coffee), users get upset. To address this, some cryptocurrencies have been designed to have low or no transaction fees.
Fast Transaction Coins
If you are a private person, Bitcoin might not be the best choice for you. Since Bitcoin was designed so that every transaction is publicly verified on the blockchain, every piece of information about a Bitcoin transaction (including the sender, recipient, and amount of the transaction) is stored on the blockchain for anyone to see, forever. This also means that anyone can find out the amount in anyone else’s Bitcoin account and everyone that they’ve ever done business with on Bitcoin. Since this is essentially the contents of your credit card and bank statements combined, it is obvious why this may make some people a bit uncomfortable. Some cryptocurrencies are marketed solely on improving the level of privacy available to investors and users. A zero-knowledge proof is a cryptographic operation in which one person proves that they know a secret without revealing it. This has been applied to verifying transactions on the blockchain by allowing people to prove that they own enough currency to perform a transaction without revealing the amount included in the transaction or in their accounts.
This and other technologies have improved the privacy of cryptocurrency to exceed that available in the traditional financial industry (since your bank and credit card provider both know the status of your account and the amount and recipients of your transactions).
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