With the advent of Bitcoin, people have seen the potential of cryptography to revolutionise the world of money. Put simply, a cryptocurrency is a decentralised digital exchange medium which relies on cryptography to verify transactions, and also to issue new units of currency or coins.

Bitcoin, though, is not without its flaws. These past few months, Bitcoin has undergone a veritable rollercoaster of price changes, and many investors and users alike have been burned by its volatility. From a stable low of US$200 per coin back in November 2013, it grew to a high of almost US$1200 early in December, before plunging back down to US$500 in mid-December. Since then, its price has rebounded and is dropping slowly, being around US$600 currently. The chart below shows a better illustration of Bitcoin’s wild price swings since November.

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Luckily for cryptocurrency fans and users, the success of Bitcoin has inspired many competitors. These alternatives are all unique in their own way — be it total supply, cryptographic algorithm, or even the difficulty to “mine” new units of the currency. Here we, at e27, brings you the top four alternative cryptocurrencies in terms of market capitalisation according to CryptoCoin Charts, which measures the total value of the currency in circulation and hence, a reasonable gauge of popularity.

Litecoin (LTC)
Touted as the silver to Bitcoin’s gold, Litecoin is the second largest cryptocurrency by market capitalisation. Founded in 2011 by former Google employee Charles Lee, there are approximately US$410 million worth of Litecoins circulating around the world. Since November 2013, the volatility of Litecoin has mirrored that of Bitcoin, causing much worry among investors as its value climbed from US$5 to US$40 and dropped back to US$15.

The situation is better for people who want to generate or mine Litecoin via verifying transactions through solving cryptographic puzzles called hashes, though. Litecoin uses the scrypt cryptographic algorithm as opposed to Bitcoin’s SHA-256, which means that there are less specialised machines optimised for mining than Bitcoin, and so a greater amount can be mined with just a computer graphics card.

Litecoin can be traded at many Bitcoin exchanges, the largest of which is BTC-e. There are also quite a few online shops that accept LTC, which include online games merchant LitecoinGames and food store Jay’s Jerky and Goodies. More can be found in the listing here.

Peercoin (PPC)
With a market capitalisation of US$87 million, Peercoin is the third largest cryptocurrency. Developed by software developer Sunny King and launched in August 2012, Peercoin differentiates itself from its competitors through an innovative hybrid of proof-of-work and proof-of-stake algorithms to verify transactions and generate new coins.

Simply put, proof-of-work means that new coins are generated only when correct answers are gotten from solving hashes. As hashes are intrinsically hard to solve, only users that have put in the required computing power can have access to new coins, reducing the possibility of fraud. Bitcoin and Litecoin, for instance, encode transaction histories in hashes so that as miners are gaining new coins, they are also verifying transactions, contributing to the security of the network.

Proof-of-stake, on the other hand, distributes the task of verifying transactions randomly to holders of the cryptocurrency. This means that users who hold a greater amount of currency get greater responsibility for verification, with the reward being a greater chance of gaining extra coins generated through transaction fees. It works a bit like interest on bank deposits. Peercoin merges these two systems, with new coins generated both, through solving hashes and transaction fees, set at 0.01 PPC per transaction.

Another interesting feature of Peercoin is that the number of coins is not capped, but increases at a rate of 1 per cent every year. This is in contrast to Bitcoin and Litecoin, which have a limit of 21 million and 84 million total coins respectively. The result is that Peercoin requires less computational power to maintain its network, increasing efficiency and saving on power costs.

Right now, Peercoin can be traded on BTC-e, as well as smaller exchanges such as mcxNOW and Crypto-Trade. If you’d like to purchase goods and services with Peercoin, though, you’re out of luck. Right now, pretty much the only place to spend Peercoins is through its forum, although the situation is set to change as Peercoin gets more popular.

What happens when you do away with proof-of-work and use solely proof-of-stake verification as the backbone of your cryptocurrency network? NXT, which claims to be the second generation cryptocurrency, is what you get.

NXT was launched in September 2013 with an initial amount, or block, of 1 billion coins distributed among 73 stakeholders. Since then, these stakeholders have been distributing the coins among other users, growing the network until its current market capitalisation stands at US$60 million, fifth largest according to CryptoCoin Charts. Like Bitcoin, this 1 billion coins represents all NXT that exists, and proof-of-stake forging for coins only nets transaction fees.

Being only five months old, very few online merchants accept payments in NXT. One of the first is nxtBay, which sells NXT-related merchandise like shirts and keychains. Things get better if you’re looking to trade, though. DGEX is the main exchange for NXT, with a transaction volume of up to a hundred Bitcoins a day, amounting to almost US$100,000 at current Bitcoin exchange rates. There are plans for decentralised, peer-to-peer trading of NXT in the future.

Dogecoin (DOGE)
Finally we come to recent upstart Dogecoin, which was created by programmer Billy Markus and inspired by the popular internet meme Doge. Since its launch on December 8, 2013, it has experienced phenomenal growth, and it boasts a current market capitalisation of US$64 million, fourth largest according to CryptoCoin Charts.

As a cryptocurrency, Dogecoin isn’t particularly innovative technologically; like Litecoin and much of Peercoin, it is based off of Bitcoin’s source code, with a few tweaks such as an uncapped coin supply and the usage of scrypt as the hashing algorithm. Nevertheless, its sheer growth on the back of the popularity of the Doge meme has endowed it with characteristics that many more established cryptocurrencies lack.

For one, there are many online stores that accept Dogecoin. These range from marketplaces like Stuffcoins to gambling sites like Doge Lotteries. Many exchanges also trade Dogecoin, for example the aforementioned BTC-e and  Cryptsy. In fact, Dogecoin has an entire culture built around it, with members of its forum greeting each other with phrases from the Doge meme like “so wow” and “much coin”, and describing their growth goals with “to the moon!”

Which cryptocurrency will prevail? Will Litecoin turn out to be a good hedge to Bitcoin? Is it possible for Peercoin to serve as a reserve currency due to its modest inflation rate? Will NXT’s innovative proof-of-work algorithm revolutionise the cryptocurrency market? Can Dogecoin’s popularity last even as the Doge meme fades?

These are just a few of the questions on the minds of cryptocurrency fans seeking an alternative to Bitcoin. In the meantime, the cryptocurrency market is definitely getting more interesting, and opportunities surely abound for enterprising individuals.

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Lead and Featured Image Credit: 123dartist / Shutterstock