Bitcoin developed its image as the “wild frontier” of cryptocurrencies long before any alternative forms of coins have been produced on the network. Other coins, termed “altcoins”, had to stay in their lane. Thousands of altcoins, as well as competing coins, have indeed been produced and incorporated into the cryptocurrency community since Bitcoin was created in 2009.
Although there are many altcoins, many of these cryptocurrencies are not considered significant due to the highly open and accessible creation process of cryptocurrency, making it easy to create a coin using the blockchain technology. A blockchain is a decentralized, digital, and distributed ledger that works as a secure database. The data, once stored here, is impossible to tamper with.
What is an altcoin?
“Altcoin” is short for “alternative coin”. All cryptocurrencies apart from Bitcoin are referred to as altcoins. Yet, since most cryptocurrencies have been forked from any of those two, many people believe altcoins to become all cryptocurrencies apart from Bitcoin as well as Ether (ETH). Like Bitcoin, almost all the altcoins work on blockchain technology.
The first-ever altcoin was ‘Namecoin’ which was introduced to the world in 2011 for a short period and was the only alternative to Bitcoin back then. Soon after, several coins were introduced as alternatives to Bitcoin to provide improved security and privacy and perhaps tackle the shortcomings of the king crypto through different approaches.
Since Bitcoin’s inception in 2009, a plethora of cryptocurrencies have launched in the space, and others keep sprouting up almost daily. These Bitcoin alternatives began diverging further from the Bitcoin consensus mechanism to include various combinations of privacy features, functionalities and supply schedules.
Some altcoins utilize distinct consensus techniques to validate payments and set up new blocks, while others try to differentiate themselves from that Bitcoin as well as Ether by offering new or enhanced capabilities or objectives. Several altcoins have been created and distributed by developers that have a distinct vision or purpose for particular tokens or currencies.
Analysis of altcoins
The term “altcoin” has been derived from the phrase “alternative” plus “coin”. This is commonly used to refer to every cryptocurrency as well as tokens other than Bitcoin. Altcoins relate to specific blockchains for which they were specifically built. Several are Bitcoin as well as Ethereum forks (digital separation of the blockchain which is mismatched with the parent chain).
These forks are usually caused by more than a single factor. Usually, a team of programmers disagrees with others and then leaves to create their separate coin. Many cryptocurrencies are employed to achieve anything inside their blockchains, such as Ether, which would be utilized inside Ethereum to repay transaction fees.
Several developers have produced Bitcoin forks that have resurfaced to match Bitcoin like a payment mechanism, such as Bitcoin Cash. Another fork and promote themselves to collect funding for certain purposes. Bananacoin, for instance, branched from Ethereum around 2017 as a method to generate funding for local banana farms in Laos which promised to cultivate organic bananas.
Altcoins seek to improve around the perceived limits of the cryptocurrencies as well as blockchain from that they have been forked or compete. Litecoin was the very first altcoin, split from this Bitcoin blockchain around 2011. Scrypt (read es-crypt) seems to be a proof of work (PoW) collaboration process used by Litecoin that is less power demanding and faster than this Bitcoin’s SHA-256 PoW consensus technique.
Ether is yet another cryptocurrency. This did not, though, split from Bitcoin. This must have been created to assist Ethereum blockchain, the globe’s biggest blockchain-based dynamic virtual machine, via VitalikButerin, Dr. Gavin Wood, plus a few individuals. Ether (ETH) has been used to compensate network members for the transaction verification work performed by their systems.
Classification of altcoins
There are several methods to classify altcoins. Some may even fall into more than a single category. Because cryptocurrency is still relatively young, the subcategories are constantly developing. Here are a few of the existing key categories into which altcoins may be classified.
Any stablecoin represents the cryptocurrency whose value is tied to another less volatile commodity. Stablecoins are most frequently associated with fiat money, like the American dollar. Stablecoins’ worth might also be tied to precious metals like gold or similar cryptocurrencies. The main crypto Bitcoin, Ether, etc. are volatile and stable coins are made in such a way to be less volatile. These are cryptos backed by stable fiat currencies and commodities.
Memecoins, which have been called after social networking sites jokes as well as puns, is indeed a sort of popular cryptocurrency whose value is determined mostly by crowd buy-in. As an example, Dogecoin is a meme coin that was made as a joke but performs well in the market and is mostly used by enthusiasts and on social media as a tipping coin.
Memecoins usually gain popularity in a short period of time, boosted further by renowned crypto influencers. Despite Bitcoin, whose worth is much more directly related to factors like scarcity as well as total possible market capitalization, memecoins frequently flood the crypto community and are quickly purchased by enthusiastic trend-followers as well as influencers.
3. Tokens of security
Security tokens are similar to traditional equities. They often provide holders equity in the form of ownership or a dividend distribution. This type of ownership incentivizes investors to put their money into it. Security tokens have been tokenized assets that are traded on stock exchanges.
Tokenisation seems to be the process through which value has been transferred from a commodity to something like a token, that is then freely available for investors. Any commodity, like property or equities, may be tokenized. That commodity must be protected and maintained for something like this to function. Therefore, the tokens have no value since they represent nothing.
4. Utility tokens
Within a network, utility tokens are utilized to deliver services. For example, they could be used to buy services, pay network costs, or redeem prizes.
Altcoins are divided into two categories based on mining:
- Proof-of-work altcoins: Proof-of-work cryptocurrencies are created by solving challenging mathematical problems
- Pre-mined altcoins: The coins that aren’t created by an algorithm query are known as pre-mined coins. They are frequently included in an initial coin offering and are distributed before being listed on cryptocurrency exchanges
Most popular altcoins
Here are some of the most popular altcoins.
1. Ethereum (ETH)
Ethereum is the second-largest cryptocurrency after Bitcoin by market cap, and it is the largest altcoin. However, many investors no longer regard it as an altcoin due to its potential for price stability; it is a more risk-adjusted investment than most altcoins and is close to Bitcoin.
2. Litecoin (LTC)
Litecoin is also called the silver alternative to Bitcoin’s gold and is a fork of the original Bitcoin mechanism. It comes with a different hashing algorithm (Scrypt) and has a faster block processing speed, which results in a production capacity of 4x what Bitcoin can supply. However, it’s been dismissed as a redundant (and ultimately unnecessary) Bitcoin fork.
3. Stellar (XLM)
Unlike most cryptocurrencies, Stellar focuses on international bank transfers. Stellar leverages distributed ledger technology (DLT) to exchange value across various boundaries and then exchanges the cryptocurrencies into fiat.
4. Ripple (XRP)
Ripple (XRP) is a popular digital payment platform that hosts crypto coins. It’s also one of the most common cryptocurrencies and uses a consensus mechanism that is different from the traditional proof-of-work (PoW) mining process of Bitcoin.
5. Uniswap (UNI)
Uniswap is the first decentralized exchange (DEX), and it’s hosted on the Ethereum blockchain. Therefore, Uniswap uses the ERC-20 algorithm native to its platform. Since it is open source, it has spawned several copycat competitors in the space, including Sushiswap (on Ethereum as well) and PancakeSwap (on the Binance Smart Chain).
6. Polkadot (DOT)
Polkadot (DOT) is the invention of Dr Gavin Wood, one of the co-founders of Ethereum. Polkadot is a promising blockchain because, like Cardano, much of it is peer-to-peer research-based.
Benefits of altcoins
Given the sheer variety of altcoins on the market today, a person can’t study one and expect to understand all of them. But there are several shared advantages to altcoins you should be aware of if you plan to buy these coins.
- For starters, altcoins can improve upon several of Bitcoin’s potential flaws, such as its slow transaction speed. Some larger enterprises or organizations may decide to use their own, proprietary cryptocurrencies for fast data transfers because of the inherent slowness of Bitcoin and similar blockchain networks
- Additionally, altcoins provide good competition for Bitcoin and other cryptocurrencies on the market. This competitive environment means that each coin developer is forced to do their best to provide the best cryptocurrency possible
- Some altcoins offer a very low transaction fee, making them more affordable for large or international purchases
Because of these benefits, altcoins can still be useful for purchasing goods, sending funds across international borders and other purposes.
Risks of altcoins
Here some risks of altcoins.
- Investing in altcoins can be considered risky, especially for the long term, as most of the altcoins will lose value over time
- Their smaller market cap, as well as lower trading volumes, makes them susceptible to pump and dumps
- They are easier to manipulate by whale (large) investors and bag holders
- The technology they provide might become obsolete once something better comes up
- They are largely impacted by Bitcoin’s price and momentum
A diversified portfolio always wins. If you want to vary your cryptocurrency portfolio, altcoins might be less costly than Bitcoin. If you’re someone that knows and understands cryptocurrencies and parts a “piece of the pie”, altcoins are the perfect way to go, especially to buy assets for a reasonable amount. You can do it even by having some altcoins with Bitcoin. Do your research on the coin and seek out the views of popular analysts in order to make a well-thought-out decision before you invest.