Source: U. of Cambridge website, 2017
Bitcoin began operating in January 2009 and is the first decentralised cryptocurrency, with the second cryptocurrency, Namecoin, not emerging untl more than two years later in April 2011. Today, there are hundreds of cryptocurrencies with market value that are being traded, and thousands of cryptocurrencies that have existed at some point.1
The common element of these diferent cryptocurrency systems is the public ledger (‘blockchain’) that is shared between network participants and the use of native tokens as a way to incentivise partcipants for running the network in the absence of a central authority. However, there are significant differences between some cryptocurrencies with regards to the level of innovation displayed (Figure 1).
The majority of cryptocurrencies are largely clones of bitcoin or other cryptocurrencies and simply feature different parameter values (e.g., different block time, currency supply, and issuance scheme). These cryptocurrencies show little to no innovation and are often referred to as ‘altcoins’. Examples include Dogecoin and Ethereum Classic.2
In contrast, a number of cryptocurrencies have emerged that, while borrowing some concepts from Bitcoin, provide novel and innovative features that offer substantive differences.
These can include the introduction of new consensus mechanisms (e.g., proof-of-stake) as well as decentralised computing platorms with ‘smart contract’ capabilities that provide substantially different functionality and enable nonmonetary use cases.
These ‘cryptocurrency and blockchain innovatons’ can be grouped into two categories: new (public) blockchain systems that feature their own blockchain (e.g., Ethereum, Peercoin, Zcash), and dApps/Other that exist on additional layers built on top of existng blockchain systems (e.g., Counterparty, Augur).4