What Are Altcoins?
What is altcoins?
In today's world, there are few people who have not heard of Bitcoin. The idea behind the development of this cryptocurrency was to create an independent digital currency that would make it possible to pay for goods and services online. However, there are many alternative cryptocurrencies with huge potential. As these currencies are alternatives to the very first one, Bitcoin, they are called 'altcoins'.
So, all of the cryptocurrencies that have appeared since Bitcoin are called "altcoins", which means "alternative coins to bitcoin".
The first altcoin appeared in 2011 under the name Namecoin, with the same basic idea and functionality as Bitcoin. Soon, many enthusiasts started their own cryptocurrency projects.
Pros and cons of altcoins
Why altcoins are needed
The developers of altcoins wanted to improve and eliminate technical limitations of the first cryptocurrency, as well as create new variants of electronic payments for every sphere of people's life, that's why nowadays the list of altcoins includes more than one and a half thousand different coins.
The main disadvantages of Bitcoin are:
Another reason for the need for altcoins is technological innovation. Every new project aims to introduce a technological innovation that can solve specific problems.
In today's world, cryptocurrency trading has become an integral part of the financial world, so the more options there are for altcoins, the more opportunities to diversify your investments.
Finally, most developers need access to blockchain. First and foremost, they are interested in a reliable data transmission system and the secure storage of important business information. To gain access to this technology, you need to use altcoins.
What algorithm is used to create altcoins?
The list of altcoins is quite extensive, but there are two main algorithms for creating cryptocurrencies today.
The first is PoW, or Proof-of-Work. Bitcoin, Litecoin, Monero, Ethereum are mined using this principle.
The second algorithm is denoted by PoS, or Proof-of-Stake. These coins usually have only one issue. These include altcoins such as Ripple, Stellar, Cardano and EOS.
What is the difference between the two algorithms?
The main purpose of either of the two algorithms is to check that the transactions are correct. This is to ensure that the system has a guarantee that the coin will go from the sender to the recipient, and that no errors will accumulate in the system.
How does POW work?
The software code in this algorithmic solution is processed during the process of mining, or mining. Miners use special equipment to solve a series of complex mathematical tasks to process transactions in the blockchain. And the tasks themselves are, among other things, elements of a complex encryption process that protects the blocks of the system from hacking and hacking.
Once the tasks are solved, miners are rewarded by the system in the form of coins. The problem with this algorithm is that every year the cost of its maintenance increases (expensive equipment, huge electricity costs, etc.), as the complexity of mining is "sewn" into the bitcoin software code by its creator Satoshi Nakamoto.
The software has to be updated every few years, and simple miners without the substantial capital will hardly be able to maintain the mining of expensive coins.
How does PoS work?
This algorithm does not have the disadvantages of its predecessor. It doesn't need expensive equipment and new supercomputers to process the transaction chain around the clock. All financial processes are controlled by cryptocurrency wallet owners, who "take" the coins for safekeeping. They are interested in accumulating digital capital, which entitles them to decent bonuses from the system.
Verification of financial transactions here is handled directly by cryptocurrency owners in their cryptocurrency wallets. The more digital coins an investor has and the longer they have been in circulation, the higher the individual will be rewarded.
Proof-of-Stake uses mechanisms to randomly select coin owners who participate in processing transactions and code verification, as well as receiving passive income from these transactions.
Which altcoins to invest in
Today, there are a fair number of altcoins that are worth considering and investing in. Despite the fact that altcoins are often falling in value, many crypto-experts argue that it's a good time to invest in them. If you want to know which altcoins to buy, here is a table with the best options.
Ethereum is one of the most popular altcoins and the second most capitalised cryptocurrency that was created in the Ethereum blockchain. It is the third most valuable cryptocurrency. The cryptocurrency is designed as a platform for creating smart contracts. To date, most ICOs have taken place on this platform.
Lightcoin is one of the earliest altcoins and has the same characteristics as Bitcoin. However, its blockchain transactions are conducted at a higher speed. It has no single centre and is therefore a fully decentralised payment network.
A popular altcoin among banking and financial institutions. A payment system platform that focuses on currency exchange transactions. Suitable for long-term investments and least risky compared to other altcoins.
An altcoin that has an additional level of encryption. It is completely anonymous, which is why it is often used to make confidential payments. Since Monero is released in very small quantities, demand for it is constantly increasing, so the price of the altcoin is increasing.
It is a decentralised protocol that seeks to make up for the shortcomings of Ethereum. Cardano uses PoS (Proof-of-Stake) instead of PoW (Proof-of-Work). This means that the currency does not consume as much power as Bitcoin and Ethereum. Cardano can also earn rewards for staking, usually around 5%. The currency is often underestimated because it does not yet support smart contracts and embedded tokens. However, these features should appear soon, making Cardano a serious threat to Ethereum.
An actively growing altcoin that aims for a high level of anonymity. The cryptocurrency is so decentralised that everyone in the network has the opportunity to submit ideas for its development or vote for other initiatives. Dash is easy to use for making daily payments, as this altcoin has an instant transaction feature.
An altcoin aimed at servicing the operations of the new Internet of Things global network project. IOTA has partnership agreements with giants such as Microsoft, Samsung, Cisco, Volkswagen and Google. The prediction of most analysts is the same, more than 50% of all devices will be connected to the Internet of Things by 2022, and, accordingly, it will have its own means of payment "functioning" within it.
You can buy altcoins on a cryptocurrency exchange or exchanger, through a mobile app, in a wallet or even in a cryptocurrency terminal.
There are also fundamentally different types of altcoins, these are stablecoins, security tokens and service tokens.
Not all altcoins were created with serious intentions. There are coins dedicated to dogs (Dogecoin), potatoes (Potatocoin) or Kanye West (Coinye). But, even such "joke" cryptocurrencies can, under certain conditions, make it to the top 10 in terms of capitalisation, as Dogecoin's digital asset demonstrated this year. One Tiktok video and a couple of tweets from Elon Musk were enough for the coin's value to skyrocket. The cryptocurrency meme, which had not previously risen above £0.01, suddenly rose sharply to £0.731578 in 2021. True, the rate then fell slightly, nevertheless Dogecoin is ahead of such well-known altcoins as Ripple, Bitcoin Cash and Litecoin in terms of capitalisation. Dogecoin has had copycat projects, the most famous of which is the ERC-20 token Shiba Inu.
Where to store your altcoins?
If you've decided to invest your money in altcoins, it's worth taking care to store your investments safely in advance. Here are the main ways to store them:
Welcome to the extraordinary world of altcoins! There are huge opportunities for investors in this alternative bitcoin market, but it is not as simple as you might think.
Because in addition to altcoin prices which can go up 33 times, there are also many altcoins which we never hear about again. Projects have gone bankrupt, been hacked or have collapsed for other reasons.
The most important thing about investing in altcoins is that you know you are entering an extremely risky market and that you take this into account. It is also crucial to do your own research into the various altcoins.