What are Altcoins? What do you need to know beyond Bitcoin

  • An altcoin, a blend of “alt (for alternative)” and “coin,” refers to any other cryptocurrency asset besides Bitcoin.
  • Altcoins allow investors to diversify their cryptocurrency portfolio besides holding Bitcoin. 
  • While Bitcoin is primarily perceived as a store of value, most altcoins extend the capabilities and functionalities of Bitcoin to enable a range of use cases.

Bitcoin may be the zeitgeist of the cryptocurrency world but other penny-stock cryptocurrencies have emerged alongside it to decentralize money further. These other cryptocurrencies, known as altcoins, aim to address the shortcomings of Bitcoin and introduce new features and use cases. With thousands of altcoins in the global cryptocurrency market, it is essential to understand the

This article explores the world of altcoins and everything you need to know beyond Bitcoin, including what altcoins are, their history and evolution, and how to invest in altcoins and their potential risks.

In this article, we will explore the world of altcoins and what you need to know beyond Bitcoin. We will discuss the following points:

  • What are altcoins and how do they differ from Bitcoin?
  • The history and evolution of altcoins
  • Most popular altcoins and their uses
  • How to invest in altcoins and potential risks to be aware of
  • The future of altcoins and their potential impact on the economy

What Are Altcoins and How Do They Differ From Bitcoin?

Bitcoin was the first successful digital representation of value using blockchain technology, establishing itself as the “digital gold” or gold standard for ensuing cryptocurrencies. Since its inception, a plethora of altcoins or alternative coins have been created in an attempt to fix the perceived limitations of Bitcoin. So, what are altcoins?

An altcoin, a blend of “alt (for alternative)” and “coin,” refers to any other cryptocurrency asset besides Bitcoin. Simply put, altcoins are all alternative cryptocurrencies to Bitcoin. Despite operating on the same principles as the pioneer cryptocurrency, altcoins exist on varying platforms with different functionalities and features.

One of the obvious differences between Bitcoin and altcoins is longevity, wherein Bitcoin has been around longer than any other cryptocurrency. For instance, Bitcoin was introduced in 2009, while the first altcoin, Namecoin, was launched approximately two years later as a Bitcoin fork.

While Bitcoin is primarily perceived as a store of value, most altcoins extend the capabilities and functionalities of Bitcoin to enable a range of use cases. For instance, altcoins:

  • Facilitate fast and inexpensive transactions – Altcoins like Litecoin and Bitcoin Cash were created to address Bitcoin’s scalability issues, as well as enable faster and cheaper transactions.
  • Power decentralized applications – Altcoins such as Ethereum and EOS allow developers to deploy decentralized applications (dApps) on top of their respective blockchains.
  • Improve privacy – Some altcoins, such as Monero and Zcash, use advanced cryptographic techniques to augment Bitcoin’s concept of pseudonymity to facilitate anonymous transactions– thereby improving user privacy and untraceability.

Despite the advanced functionalities and use cases that altcoins introduce, Bitcoin still outperforms them in market value. Its popularity and market capitalization place it second to none in the cryptocurrency arena. Yet, none of them can be said to be better than the other.

The History and Evolution of Altcoins

Namecoin was the very first altcoin to be introduced into the cryptocurrency space, in April 2011, roughly two years after Bitcoin’s inception. Forked from Bitcoin, Namecoin founders defined it as “an experimental open-source technology which improves decentralisation, security, censorship resistance, privacy, and speed of certain components of the internet infrastructure such as DNS and identities.

Thousands of alternative coins have been created since Namecoin, each with unique features and use cases. While most of the early altcoins were conceptualized by tweaking Bitcoin’s source code, more altcoins have been developed from scratch using different protocols and technologies.

One of the most significant benchmarks in the evolution of altcoins was the creation of Ethereum in 2015. It was founded to transcend beyond the typical digital currency by providing a platform for developers to build and deploy decentralized applications and services on top of its framework. In other words, its creation opened up a new world of possibilities for the cryptocurrency world beyond serving as payment methods or stores of value.

Some altcoins are created with specific use cases in mind. For instance, Litecoin was specifically designed to be a faster and cheaper alternative to Bitcoin, while Ripple focuses on facilitating fast and inexpensive cross-border payments.

In summary, altcoins have facilitated innovation and experimentation that would otherwise be impossible with Bitcoin’s technical and practical challenges. However, while they arguably rip off Bitcoin’s success, some altcoins have failed and disappeared over the years while others have gained traction. 

Most Popular Altcoins

Some of the most popular altcoins include Ether, Litecoin, Ripple, Binance Coin, and Dogecoin.

Ether (ETH)

Ethereum, often dubbed the “world computer,” hosts smart contracts and runs most decentralized applications and services. Its native currency, Ether (ETH), is the second-largest cryptocurrency by market capitalization. Developers pay Ether to use the network’s computing power. Additionally, Ether is used to facilitate transactions within the Ethereum ecosystem.

Litecoin (LTC)

Litecoin is dubbed as the “silver” to Bitcoin’s “gold.” While Bitcoin has a fixed maximum supply of 21 million coins, Litecoin is hard-capped at 84 million. In addition, Litecoin uses a different mining algorithm than Bitcoin, which enables faster transaction processing times and lower fees. For example, Bitcoin’s average transaction confirmation takes roughly 10 minutes while Litecoin takes approximately 2.5 minutes.

Ripple (XRP)

‍Ripple is a digital payment protocol enabling fast and low-cost cross-border transactions. Unlike Bitcoin, which relies on a decentralized network of miners to validate transactions, Ripple uses a centralized network of trusted validators to process transactions. XRP is the native currency of the Ripple network and is used to facilitate transactions and pay fees.

Dogecoin (DOGE)

Dogecoin, though conceived as an internet meme or joke currency in 2013, quickly gained traction and became a popular altcoin. DOGE is a peer-to-peer digital currency often used for small transactions or to tip content creators on social media platforms. It is sometimes used as a store of value or traded on cryptocurrency exchanges.

Binance Coin (BNB)

Binance Coin is the native currency of the Binance exchange, one of the largest cryptocurrency exchanges in the world. BNB is used to pay trading fees and transactions on the Binance exchange. It also allows users to participate in Binance Launchpad, a platform for token sales and initial coin offerings (ICOs). In addition, BNB is used to make credit card payments, buy virtual gifts, and make investments, among other use cases.

How To Invest in Altcoins and Potential Risks To Be Aware Of?

Altcoins allow investors to diversify their cryptocurrency portfolio besides holding Bitcoin. Moreover, they enable investors to participate in the governance of the projects. 

Generally speaking, investing in cryptocurrencies – whether it is Bitcoin or alternative coins– is not a walk in the park, thanks to their volatile nature and infancy as an asset class. Thus, while altcoin investments may present lucrative opportunities, it is essential to be cautious of the potential risks. Here are some tips for investing in altcoins:

  1. Research – Before investing in any altcoin, it is important to thoroughly research the cryptocurrency token, its history, and its development team. This may involve looking into its whitepaper, which outlines its purpose and goals, tokenomics, and developmental roadmap, among other technical aspects. You can also follow news and updates about the coin from trusted sources. Researching the project will allow you to make an informed investment decision.
  2. Diversify – The golden rule of the trade is to “not put all eggs in one basket.” Investing in multiple altcoins allows you to spread the risk such that when one altcoin’s value drops, the others cancel out the losses.
  3. Select a reputable exchange – Choosing a reputable exchange, with a proven track record of security and reliability, is essential when purchasing or trading altcoins. Factors such as user reviews, a history of security breaches (if any), and community feedback often determine whether the exchange has a solid reputation. 
  4. Secure your altcoins – Securing altcoins after purchasing them is as important as doing your own research (DYOR) before investing. Options like hardware wallets are often touted as the most secure way of storing cryptocurrencies since the private keys are stored away from the internet. Unfortunately, they are not as convenient as software wallets, especially if you’re a short-term trader. Hence, the choice lies in what you prioritize: security, or convenience.

So, what are the risks involved?

  • Volatility – Altcoins are notoriously volatile and can experience rapid price fluctuations. This means altcoins can quickly lose their value, and sometimes completely disappear, compared to Bitcoin.
  • Scams – The cryptocurrency market is still largely unregulated, meaning there is a higher risk of scams and fraudulent activities. It is essential to stay vigilant of altcoins promising unrealistic returns or with little-to-zero information about the project and the founding team.
  • Low liquidity – Some altcoins may suffer from lower liquidity than others. This makes it difficult to buy or sell them at a fair price.
  • Regulations – Some governments have banned cryptocurrencies or placed heavy regulations. Thus, trading altcoins may be illegal in some countries, which could impact their value.

Therefore, as the cryptocurrency market evolves and consolidates, it is essential for investors to stay informed and adapt to the fast-changing trends.

What Is the Future of Altcoins?

The adoption of altcoin could lead to greater transparency and security in financial transactions, reducing fraudulent activities and improving overall integrity in financial systems. With the rise of decentralized applications and smart contracts, altcoins also hold the potential to disrupt traditional industries and enable new forms of collaboration and value creation.

Altcoins with real-world use cases could potentially thrive in the competitive crypto market while the others disappear. In addition, regulatory issues may stagnate their growth and widespread adoption. However, with the crypto landscape rapidly evolving, the future of altcoins and their impact on the economy remains uncertain. 

Frequently Asked Questions

What is an altcoin?

  • An altcoin or alternative coin is any cryptocurrency asset that is not Bitcoin.

What coins are altcoins?

  • Some of the most popular altcoins are Ether (ETH), Bitcoin Cash (BCH), Litecoin (LTC), Dogecoin (DOGE), and Ripple (XRP)

Which one is better, altcoin or Bitcoin?

  • Both altcoins and Bitcoin have varying strengths and weaknesses. For instance, some altcoins enable advanced functionalities and capabilities at lower costs while Bitcoin is the most valuable and less volatile cryptocurrency. None can be said to be better than the other.

Disclaimer:
It is highly recommended to conduct thorough research prior to making any financial decisions. Please note that this article's purpose is solely for educational purposes and the author and the organization, M2, do not influence the reader's investment or trading choices.

Miguel Rovira Vilches
Author

A Spanish with an affinity for travel and exploring exotic cultures. With more than 4 years of experience in the fintech and crypto space and over 10 years in the digital marketing industry, he thrives on being involved in disruptive projects that make people's lives easier. In 2019, he seized the opportunity to step into the crypto realm, particularly Bitcoin, thanks to a colleague and his spouse. Since then, he firmly believes in its potential to offer enhanced freedom and sovereignty to the everyday global citizen.

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