What Are Altcoins?
Altcoins are cryptocurrencies other than the most popular Bitcoin. They are derived from Bitcoin, so they have things in common even though they have their differences.
The word ”Altcoin ” is formed by combining two words i.e ”alternative” and ”coin” which, therefore, includes all alternatives to Bitcoin. Today, there are over 12,000 cryptocurrencies other than Bitcoin which are all referred to as Altcoin.
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What Does Altcoin Have In Common With Bitcoin?
Bitcoin and Altcoins share characteristics as they have the same framework. They share code and function as peer-to-peer systems or as giant computers capable of processing large amounts of data & transactions at the same time. They also share similarities as Altcoins aspire to become the next Bitcoin by becoming an inexpensive method for digital transactions.
Altcoins As An Improvement On Bitcoin
Bitcoin set the pace for the development of other cryptocurrencies but its implementation has several shortcomings. This includes the consensus mechanism (Proof of Work) used to create blocks which is energy-intensive and time-consuming.
Another limitation is the limited smart contract capabilities of Bitcoin. Altcoins improve upon Bitcoin’s perceived limitations to establish a competitive advantage. With the use of the Proof of Stake consensus method, the energy consumption is minimized as well as the time required to create blocks and validate new transactions.
They also address critiques against Bitcoin e.g stable coins, a type of Altcoin that does not exhibit Bitcoin’s price volatility, making them better for daily transactions. All these improvements upon Bitcoin have created the market for Altcoin, thereby attracting investors who see potential in them as an alternative to Bitcoin.
Bitcoin and Altcoins share characteristics as they have the same framework. They share code and function as peer-to-peer systems or as giant computers capable of processing large amounts of data & transactions at the same time. They also share similarities as Altcoins aspire to become the next Bitcoin by becoming an inexpensive method for digital transactions.
Types Of Altcoin
Altcoins can be divided into various categories based on their functionalities and consensus mechanism. They are listed below in no particular order;
- Mining-based: These are Altcoins mined into existence. Examples are Litecoin, Monero and Zcash.
- Stablecoins: This category of Altcoin is stable as the name implies. Its aim is to reduce the overall volatility that has marked cryptocurrency trading. Examples are Diem (most famous stable coin), USDC and MarkerDaO.
- Security Tokens: They are similar to securities traded in stock markets except that they have a digital provenance. They are generally offered to investors through initial coin offerings (ICOs).
- Meme coins: They are inspired by a joke or a silly take on other well-known cryptocurrencies. Some of the leading meme coins are Dogecoins and Shiba.
- Utility Tokens: They are used to provide services within a network. An example is Filecoin, which is used to purchase storage space on a network.
Benefits Of Altcoins in Cryptocurrency Trading
- They are better versions of Bitcoin because they aim to plug the cryptocurrency’s shortcomings.
- Stablecoin, a type of Altcoin can potentially fulfil Bitcoin’s original promise of a medium for daily transactions.
- Investors can choose from a wide variety of Altcoins that perform different functions in the crypto economy.
Do You Know That?
The earliest notable altcoin, Namecoin was based on the Bitcoin code and used the same Proof of Work algorithm. Just like Bitcoin, it is limited to 21 million coins.