What Are Altcoins?

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

Pros

Cons

  • Improve on aspects of Bitcoin
  • Offer high potential rewards
  • Large selection of altcoins, all with their own unique purposes and competitive advantages
  • Don't have Bitcoin's first mover advantage or market share
  • Significant risk, as many altcoins are scams or end up failing
  • Many altcoins are hard to buy because they're only available on certain altcoin exchanges

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:

  • Lengthy transactions. To speed up transaction times, other algorithms must be used. At the same time, Bitcoin has a large block volume, which is quite slow to calculate the necessary transactions;
  • A low level of anonymity. Cryptocurrency developers have really tried and encrypted the transactions well, but there is a possibility to track the sender and the recipient. Many newer altcoins use additional encryption methods;
  • Complicated and expensive mining process. Bitcoin mining is becoming increasingly complex, so more resources are needed each time to form new blocks in Blockchain. Altcoins, on the other hand, use other protocols that make mining much easier and do not always require heavy equipment;
  • Lack of functionality. Bitcoin's main purpose is to act as a settlement tool. Altcoins have other functionalities, such as the creation of a smart contract.

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

Ethereum

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

Lightcoin

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.

Ripple

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.

Monero

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.

Cardano

Cardano

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.

Dash

Dash

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.

IOTA

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.

Stablecoins

 There are also fundamentally different types of altcoins, these are stablecoins, security tokens and service tokens.

  • Stablecoins are coins pegged to an existing asset, such as the US dollar or the euro. The point of tying a virtual coin to a traditional financial asset is to actually reduce exchange rate volatility.
  • Security tokens are a form of investment contract that entitle the consumer to participate in the management of the company and the distribution of profits. They are typically associated with a business, so there are stricter rules for the purchase and transfer of security tokens.
  • Service tokens provide the user with access to a particular web service. For example, owners of a Filecoin token can spend the cryptocurrency to gain access to Filecoin's decentralised peer-to-peer network, which stores files on the internet.
Dogecoin

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:

  • Storing altcoins in an exchange wallet. This option is available on almost all exchanges. We do not recommend this option, because it can be unsafe, because the exchange can suddenly close or be attacked by hackers. In this case it will be virtually impossible to recover the funds. The exchange is more suitable for short-term storage or trading.
  • Storing altcoins in a cryptocurrency wallet. At the moment, there is a wide choice of wallets for the most popular cryptocurrencies. For your convenience, you can choose from web wallets, mobile wallets, desktop wallets, browser extensions and hardware (cold) wallets.

Conclusion

It is no secret that with the introduction of blockchain technology and the advent of bitcoin, we have stumbled into a virtual portal leading to a whole new world of opportunity, not just in the financial sector, but in virtually every sphere of life.

Altcoin is not just an alternative to Bitcoin, but the next stage in the evolution of cryptocurrencies. BTC's dominance is decreasing every year, and projects with improved technological solutions, bold application concepts and a sound economic model are entering the market.

Alternative coins have helped expand the cryptocurrency space. The rise of altcoins in the market over the past few years has greatly improved the perception of digital assets. Humanity is constantly working to create a new and better system. With new ideas and problems arising every day, it's hard to get something idal at once. Technology is constantly improving and altcoins are helping to find innovative and justifiable solutions.

Jack Evans


I became a crypto asset owner in 2014, when the industry was in its infancy. Before that, I was working in the classic US and European stock markets. Since then, I have gained extensive experience in both cryptocurrency investing and day trading. I am happy to share with readers my experience with crypto exchanges, DeFi and NFT instruments.
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