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Bitcoin, Ethereum or Litecoin: Which is best for you?

A primer on the most visible cryptocurrencies.

Before you jump into this overview of a few cryptocurrency alternatives, check out our first two articles in this series, Bitcoin, explained and Buying and selling bitcoin.

US-IT-FINANCE-BITCOIN

Bitcoin has spawned hundreds of cryptocurrencies.

Karen Bleier/AFP/Getty Images

Bitcoin was the first. Since its release in 2009, it's become the most famous, established and valuable cryptocurrency. But it's not the only game in town.

Litecoin followed in 2011. Created by Charles Lee, an engineer who later helped build Coinbase, the leading cryptocurrency exchange, Litecoin is based on the same code as bitcoin but with a few tweaks designed to address two of its predecessor's limitations: transaction speed and access to the mining process.  

And in 2015, Ethereum made its debut, incorporating bitcoin's basic blockchain premise and Litecoin's pursuit of faster transaction speed, but adding a few of its own twists -- including the ability to process little chunks of code, called "smart contracts" -- and on its virtual peer-to-peer network as opposed to a dedicated server or mining rig.

Ripple logo

Ripple's market cap now exceeds $40 billion. 

Ripple

Coinbase's support for bitcoin, Litecoin and Ethereum -- as well as Bitcoin Cash, a new branch of the bitcoin blockchain created in August 2017 -- helped install and keep them among the most visible and well-capitalized cryptocurrencies. Rounding out the top 10, in terms of market capitalization, is a dynamic shortlist that has included established coins and upstarts like Ripple, Cardano, NeoStellar, Eos and IOTA.

For the purposes of introducing some of the prevailing concepts behind the growing population of cryptocurrencies, we'll take a closer look at the technologies behind Litecoin and Ethereum, how they compare to bitcoin and what they each bring to the table for prospective investors, miners and traders.

coinmarketcap

The top six cryptocurrencies represented roughly $315 billion in market capitalization as of Feb. 12, 2018. 

coinmarketcap.com

Litecoin 101

Litecoin is closely based on bitcoin -- they're built on the same underlying code -- but with a few distinctive tweaks. The central difference is that Litecoin is mined using the Scrypt algorithm, which is rooted in mathematical computations that are simpler than those used by bitcoin's SHA-256 algorithm. As a result, in contrast to the specialized, super-expensive, energy-intensive mining rigs required to mine bitcoin, you can mine Litecoin with a decent laptop or desktop PC, especially if it's tricked out with a powerful graphics card. 

Litecoin logo

Litecoin

And because Scrypt is less mathematically complex than SHA-256, Litecoin mining is way faster than bitcoin mining. A Litecoin block takes only 2.5 minutes to hash, compared to the 10 minutes it takes to hash a bitcoin block. So Litecoin transactions are also faster to process and confirm. 

Ethereum 101

Ethereum logo

Ethereum.org

Like Litecoin, it's based on the same fundamental blockchain concept as bitcoin, with blocks and hashes and such, but Ethereum adds its own distinctive twist. Funded in 2014 through an initial coin offeringEthereum fancies itself "an enormously powerful shared global infrastructure" that, in addition to serving as a digital currency, runs special applications called "smart contracts."

This collective, distributed computing network, called the "Ethereum Virtual Machine," can be, in a sense, rented out. Participants who consume computing power pay for it with tokens, called Ether; those who contribute processing power can earn them. Of course, buyers and sellers can simply trade Ether independently of these activities.

Consider that bitcoin mining is akin to thousands of chefs feverishly racing to prepare a new, extremely complicated dish -- and only the first one to serve up a perfect version of it ends up getting paid. In the Ethereum kitchen, miners serve as the restaurant's landlord, compensated for providing the infrastructure so that Ether chefs can invent new types of cuisine.  

In fact, a group of companies and universities has formed a nonprofit expressly to legitimize Ethereum; promote it as an open-source platform and not a commercial enterprise per se; and develop and support those applications that run on it. And these are not rinky-dink startups -- we're talking about major technology players like Intel and Microsoft and financial behemoths like JP Morgan and Credit Suisse.

Which cryptocurrency is the most valuable?

Bitcoin remains the most visible and frequently traded cryptocurrency. After a remarkable surge in November 2017, it crested at just shy of $20,000 in late December 2017, and after settling in around $15,000 for a few weeks, shed another 50 percent of its value after South Korean regulators publicly mulled banning trading. The price of Litecoin, sometimes referred to as the "silver" to bitcoin's "gold," followed a valuation trend similar to bitcoin and now sits at around $160. Though all three have increased in value during the past 12 months, Ethereum has charted its own distinct path, spiking in June 2017 and surpassing $1,000 in early January 2018.

Which one's the best for you?

If only it was that easy. No one knows whether any cryptocurrency will increase in value -- or even be around in a year's time (though we think the ones outlined in this article will check both of those boxes). None of them are regulated (yet) and only individuals with the highest capacity for risk should get into the cryptocurrency market. That noted, there are significant differences among these three that could be used to form a rational basis for investing in or mining one over another.

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Bitcoin is the mainstream choice. If you're looking for a cryptocurrency with first-mover advantage, unmatched popular visibility and the highest market capitalization, it's a no-brainer. On the downside, it's now nearly impossible to mine profitably, incredibly energy-intensive and, after rising more than 1,000 percent over the past year, could have expended most of its potential for growth. (This is debatable. No one knows anything.)

Litecoin offers its own advantages. Its creator is a known and active entity in the cryptocurrency community. It has a capacity for faster transactions -- a potential advantage in and of itself, which also provides for a different set of use cases than bitcoin. And it still offers the potential for profitable mining, unlike bitcoin.

Enterprise Ethereum Alliance

The Enterprise Ethereum Alliance brings together Fortune 500 companies, research institutions and tech companies and startups.

Enterprise Ethereum Alliance

Ethereum has the backing of some boldface names -- which could be a benefit or drawback, depending on your opinion of the modern financial industrial complex. It has the potential for intrinsic value like Litecoin or bitcoin but also more obvious commercial applications as well. And, like bitcoin, it has spawned hundreds of other coins that have been built using its underlying blockchain technology.

Regardless of which sounds the most appealing to you, do your research before investing in any of these cryptocurrencies. 

Buying and selling bitcoin: A quick and dirty introduction to trading cryptocurrency.

Initial coin offerings, explained: How can this possibly be a legitimate way to raise money?

Editor's note: This article was updated on Feb. 12, 2018 to reflect recent market fluctuations.

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