What are altcoins and how are they different from Bitcoin?

When Bitcoin launched in 2009, it raised eyebrows and evoked a sense of confused curiosity. Digital currency, cryptocurrency, and other buzzwords began to circulate the Internet. Since then, the way people view assets and investments has been changing.

The phenomenal success of Bitcoin paved the way for many other types of cryptocurrencies. These came to be known as altcoins. Derived from two words, ‘Alt’ means ‘alternative’ and ‘coin’ denotes ‘cryptocurrencies’.

Here is everything you need to know about altcoins

What are alternative currencies?

In a nutshell, all cryptocurrencies other than Bitcoin are called altcoins. They were developed on a similar blockchain structure to replicate the success story and thus follow a peer-to-peer system. Altcoins also need a specific mining method to allow users to make secure web transactions.

According to the price tracking website. CoinMarketCapthere are more than 16,900 types of cryptocurrencies, as of January 19, 2022. Of these, Bitcoin and Ethereum account for 60 percent of the cryptocurrency market, while the rest is occupied by altcoins.

Difference between Bitcoin and altcoins

Although they are quite similar and work on the same mechanism, Bitcoin and altcoins differ from each other in many ways.

The implementation and use of Bitcoin is quite difficult, since the proof of work, the mechanism used to create the cryptographic blocks, is extremely exhausting, intensive and limiting in terms of energy.

However, altcoins have gone further. Instead, they use the proof-of-stake mechanism to gain a competitive advantage, making the process less energy-intensive and reducing the time to validate any transaction. Also, the smart contract capabilities of Bitcoin are very limited.

Playing along the lines of sustainability and scalability, altcoins have smoothly addressed these points of criticism against Bitcoin.

Ether (ETH) is used as gas, or payment for transaction costs, in smart contracts on the Ethereum blockchain. As they create a separate identity for themselves, the launch of the long-awaited Ethereum 2.0 is drawing attention for these reasons.

How do investors view altcoins?

Altcoins are constantly striving to become independent from the structure of Bitcoin, which will allow them to have a value that is not influenced by the fluctuating rates of Bitcoin.

Its growing popularity in the non-fungible token (NFT) market has also skyrocketed its value. In fact, Ethereum has a market cap of over $377 billion at the time of writing.

However, they are always accompanied by skepticism. Nelson Merchan, CEO of blockchain events firm Light node media, is of the opinion that one should take things slow and not see altcoins as a means of making quick money. If one has to invest in cryptocurrencies, it is always recommended to do so in the two most established currencies out there.

What are the different types of altcoins?

Image Credit: Kanchanara/ @kanchanara/ Unsplash

There are several types of altcoins out there.

stable coins They are the ones with the least volatility. This is done by pegging their values ​​to a more real world asset or fiat currencies or precious metals, helping to redeem users and holders when the currency falls.

Featured altcoins in this category include Tether (USDT), MakerDAO DAI, and USD Coin (USDC).

security tokens they are similar to a digital liquid contract, showing a portion of a larger asset or business, much like regular financial security. They become useful for recording crypto transactions and their price outlook is what attracts investors.

meme coins they are hyped cryptocurrencies that gain prominence only for a short time on the internet, which is usually the result of some celebrity or famous personality trading cryptocurrencies joking about it.

For example, Elon Musk often shares cryptic tweets on Dogecoin. Every time such a post is trending, its stocks and prices skyrocket, but mostly momentarily.

utility tokens help provide services within a network. Buying NFTs, trading, minting, redeeming prizes, paying network fees, and other services within a blockchain setup is done with utility tokens. Ethereum is perhaps the most widely used utility token, which can perform these functions.

Some Featured Altcoins

There are numerous altcoins on the market. Some of the best known, according to a Investopedia report, include Ethereum (ETH), Litecoin (LTC), Stellar (XRM), Cardano (ADA), Polkadot (DOT), Bitcoin Cash (BCH), and Dogecoin (DOGE).

(Main and Featured Image Credit: Kanchanara/ @kanchanara/ Unsplash)

This story first appeared in Asia Hong Kong lifestyle.