Any currency other than Bitcoin belongs under the umbrella of altcoins. After Bitcoin was launched, many other cryptocurrencies flooded the market. New altcoins were designed to find their own crypto-niche.
Bitcoin is a cryptocurrency designed to function the same way that cash does. However Bitcoin does not need a physical currency or a security backing since is autonomously programmed to increase scarcity and decrease supply over time. Some altcoins have tried to improve upon Bitcoin’s model, while others have tried to find a new application for altcoins or tokens.
While writing this article, CoinLore had over 2000 altcoins listed in its database, and the number of digital currencies is subject to constant fluctuation. While Bitcoin is generally more stable than other coins, cryptocurrencies behave a lot like traditional currencies, without the centralized control of course. (Still, JP Morgan surprised us all by introducing their own security backed token early on in 2019.)
Some cryptocurrencies are easier to mine than Bitcoin is. This is because they do not all have the same level of security in relation to Bitcoin’s Proof of Work (PoW) consensus mechanism. There are many factors that go into a good altcoin, and frankly a lot of research as well. So what’s the difference between all of the over 2000 altcoins? That is for another day.
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Different altcoins might use a different tokenomics model or a different coin-distribution method then Bitcoin’s. For instance, some require proof-of-work, while others do not. Several altcoins use a more versatile programming language for greater ease in building specified applications. And some altcoins serve very specifically, non-monetary uses, such as domain name registry or data storage pointers.
Altcoins behave a lot like global currencies really. Some currencies have more security because the currency is backed by a stronger system of governance. For example, there aren’t that many countries that won’t accept American dollars -but do not try to pass off a Canadian quarter as an American. Why is that? Because American currency is stronger and more consistent. This is in large part because there is a huge population using and trading American currency. And this is similar to the strength of a popular currency like Bitcoin.
However, just like traditional currencies having more of one does not necessarily indicate wealth. For example, $100 USD is worth the same as £75, so £100 is actually more than $100 USD. Altcoins are designed to fill a need, rather than have different currencies that are dictated by borders. These are things like, easier programming languages, or mining blocks faster
Bitcoin is still in the lead in terms of longevity of value, acceptance, hash power, and security. For example, if an altcoin has a greater total amount of coins, it likely means each individual coin is worthless. Or, if an altcoin mines blocks faster, it likely means that a transaction requires more confirmations to ensure a similar level of security to that of Bitcoin’s. When there is less hash power securing an altcoin, that means that fewer developers are involved. Fewer developers mean that the altcoin often has a smaller network, which diminishes a coin’s breadth or application.
Even with the introduction of new useful and competitive altcoins, Bitcoin remains the outlier in its long term success. Also, there are many altcoins that are outright scams, created only to enrich its inventors and early adopters.
However, there are other very strong altcoins like Ether, XPR, and Litecoin, that deserve a bit of a closer look. Not only do these altcoins remain steady in the crypto-market, but each of these altcoins has carved out a niche that makes them valuable altcoins in their own right.
Here is a brief summary of what Ether, XPR, and Litecoin bring to the crypto-table.
A popular altcoin is Ether. Ether is specific to Ethereum’s decentralized software platform that enables smart contracts. Ethereum is probably most popular for its smart contracts and its user-friendly platform. In order to use the Ethereum platform, you need their own cryptographic token Ether. Ether is the “gas.” This is because it is what powers the applications that developers run on Ethereum’s platform. Ether is also traded as a currency on crypto-exchanges.
Ethereum ushered in the age of ICO, or “initial coin offering.” In 2014 Ethereum launched the most successful pre-sale for any ICO, which was Ether. Ethereum focuses on a platform that offers a secure, decentralized trade and smart contracts.
Ripple is another altcoin that has been successful at encouraging the use of digital currencies among traditional financial institutions. XPR tokens were launched in 2012 as a means to revolutionize cross-border payments. Ripple’s platform offers real-time global settlements, with instant, secure and low-cost international payments.
As part of an effort to reduces the usage of computing power, Ripple’s structure does not require mining and so it minimizes network delays. The fact that XPR does not need to be mined is one of its defining features, and distinguishes it from altcoins like Bitcoin and Ether.
Charlie Lee, an MIT graduate launched Litecoin in 2011. It was among the initial cryptocurrencies following Bitcoin and is often referred to as “silver to Bitcoin’s gold.” This altcoin uses scrypt as a proof of work and can be decoded with the help of CPUs of consumer-grade. This is unlike Bitcoin, which requires much more power presently. Litecoin also has a faster block generation rate than Bitcoin, which makes faster transaction confirmation possible.
Updated June 17, 2021 – Different, emerging altcoins
Since the writing of this article, new waves of altcoins have hit the crypto airwaves or gained serious momentom from modest starts. Some of these include:
- Tether ($USDT) is a stablecoin that is ‘tethered’ to a reserve consisting of a basket of fiat and/or crypto assets. Stablecoins offer a less volatile way into crypto markets as their price generally remains around $1.00. They are also useful when cashing out cryptocurrencies. Bitcoin, Ether and other cryptos may be traded on most exchanges for stablecoins like USDT, USDC and DAI. Then some exchanges allow you to cash out to your bank directly from stablecoin to fiat. Stablecoins have been around for a while, but as of 2021, represent the major on- and off-ramps for crypto investors.
- Uniswap launched a new breed of cryptocurrency – the DeFi (decentralized finance) token. This type of cryptocurrency lives on a decentralized exchange and a perfect example would be Uniswap’s native token, $UNI. DeFi tokens enables peer to peer lending, liquidity pooling, yield farming and many other financial features that required zero trust in 3rd parties.
- Wrapped coins like wrapped Bitcoin ($WBTC) and wrapped Ether ($WETH) are tokens that are tokenized using another cryptocurrency. Wrapped coins are useful when you want to uses Bitcoin on (incompatible) Ethereum Network and vice versa. Roll up technologies and blockchain bridges are being built to make different blockchain interoperable – until then, people used wrapped coins to get the job done.
Wrap-Up on Altcoins
Even considering the present trajectory of the growing demand for altcoins and the increasing application of blockchain, it is unlikely that all 2000 tokens on the market today will be there in the long run. But it is far more likely that competitors to Bitcoin like XPR, Ether, and Litecoin will be able to maintain their value in the longer-term. This is due to the fact they have something unique to offer the market.
The market demand for altcoins with specific features will increase the more that blockchain applications and altcoins are used by traditional financial institutions, governments as well as the radicals of the crypto-world,
Still, if you’re planning to invest in altcoins it is important to improve your savvy by doing the research and understanding the market, which is where platforms like HedgeTrade can really come in handy.