Decoding Altcoins: Types and Differences

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Decoding Altcoins: Types and Differences

Altcoins

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Since its release in 2009, Bitcoin has held the crown as the first and most popular cryptocurrency in the digital assets realm.

However, the cryptocurrency space is so much more than just Bitcoin – there is a wide world of alternative digital currencies yet to be explored.

These alternative cryptocurrencies, collectively known as Altcoins, are currently gaining traction in the markets, making them a focus point for a lot of traders.

What are Altcoins?

As the name suggests, Altcoin is a term derived from the combination of the two words: Alternative and coin.

As most currencies originate from either Bitcoin (BTC) or Ethereum (ETH), altcoins refer to all cryptocurrencies other than BTC and ETH.

While Bitcoin may have popularized the core concepts of blockchain and decentralization, altcoins have furthered these principles and expanded the wider technologies of smart contracts, proof of stake and enhanced security measures.

Understanding Altcoins

Altcoins have multiple uses in the cryptocurrency ecosystem. The concept initially emerged as developers and entrepreneurs began to explore and develop new cryptocurrencies that could overcome the limitations or shortcomings of Bitcoin by introducing innovative solutions.

Altcoins are usually built on top of existing blockchain platforms, while others use their own blockchain. It’s important to note that most altcoins originate through forks i.e. a splitting of a blockchain that is not compatible with the original chain.

Forks can be generated for multiple reasons, but typically from a disagreement between developers.

In fact, most of the time, developers tend to disagree on many things – which results in them leaving to make their own coin as they prioritize increased transaction speed, lowers fees, and enhanced privacy measures.

In 2011, Google engineer Charlie Lee created Litecoin, the first altcoin and a fork of the Bitcoin blockchain, to enhance the computational and transactional speed of cryptocurrencies. This fork ignited a long list of altcoins that followed after.

Types of Altcoins

Altcoins come in various categories due to the multitude of use-cases land applications.

Some of them are as follows:

Stablecoins: These refer to cryptocurrencies that are tied to another asset that acts as collateral in order to maintain a relatively consistent value. Notable stablecoins include Tether ($USDT) and USD Coin ($USDC), which are pegged to the U.S. dollar.

Payment Tokens: As the name implies, these tokens are used for payments/exchange purposes.

Utility Tokens: These refer to cryptocurrencies used within a network to fulfill services. For example, they might be used to pay network fees like Gas on the Ethereum chain and redeem discounts like trading fee rebates through the use of $BDT on BitDelta.

Meme Coins: These refer to cryptocurrencies birthed through the popularity of internet jokes, pop culture references, jokes and media.
Some examples include Dogecoin ($DOGE), Shiba Inu ($SHIB), PEPE ($PEPE) etc.

Governance Tokens: These tokens refer to cryptocurrencies that are used as a method of voting and governing within a platform or community. Uniswap’s governance token $UNI allows its holders to vote on community and development proposals, which play a significant role in how the Uniswap platform grows.

Bitcoin & Altcoins - Understanding the Differences

Comparison Factors 

Bitcoin 

Altcoins 

Market Dominance 

Bitcoin has achieved mainstream brand recognition and holds the largest market share among all cryptocurrencies. 

Altcoins collectively make up the remaining market share and have varying degrees of brand recognition. 

Development Community 

Bitcoin has a large, well-established development community. 

Each altcoin has its own development community based on its adoption & utility. 

Consensus 

Bitcoin uses the Proof-of-Work consensus algorithm. 

Can use POW and different consensus mechanisms to reduce energy consumption. 

Privacy and Anonymity 

Bitcoin identities are pseudonymous, and transaction histories are transparent. 

Some altcoins use stealth addresses, and zero-knowledge proofs to obscure identities, transaction details, and transaction histories. 

Trading 

Bitcoins can be traded or exchanged for fiat currency. 

The availability of fiat trading pairs for altcoins varies depending on the specific altcoin and the exchange platform. 

Supply 

The Bitcoin protocol specifies a limited supply of 21 million coins. 

Altcoins can have different supply limits; some have no upper limit at all. 

Promising Future for Altcoins?

As cryptocurrency is still finding its role in the global economy, it is almost impossible to predict the future of any digital currency.

With a global crypto market cap of $1.25T and approximately 9,000 active cryptocurrencies, the altcoin segment is a highly saturated and competitive market.

Here the altcoins we see succeeding are largely dependent on many factors:

  • The community they have
  • Their utilities
  • The sentiments the project has garnered
  • Whether they are positively providing a blockchain solution

With that being said, irrespective of the high volume of altcoins in the market, we will only be seeing a few hundred tokens making a genuine impact in the market as the regulatory concerns increase and weed out weaker projects in the market.

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