What are Altcoins? The term “altcoin” is a portmanteau of “alt,” meaning “alternative,” and “coin,” meaning “cryptocurrency.” In other words, any coin other than Bitcoin (BTC) $60,675 is considered an altcoin. Following the 2008–2009 financial crisis, Bitcoin, a cryptocurrency, introduced the world to blockchain technology.
Bitcoin (BTC) has revolutionized the financial industry and become the “gold standard” among cryptocurrencies. Because it was the first to market, it has become the de facto standard for blockchain-based cryptocurrencies. In response to Bitcoin’s shortcomings, other cryptocurrencies have emerged; we’ll get to this quickly. Is Ethereum a late, native cryptocurrency?
Second- and third-generation blockchain-based cryptocurrencies, such as Litecoin (LTC) ($70.62) and Ether (ETH) ($3,362), followed the genesis of altcoins. The price of altcoins (alternative cryptocurrencies) is usually expressed in BTC, even though Bitcoin is often quoted in fiat currencies like dollars, yuan, and euros.
Types of Altcoins
Several alternative coins exist, including those based on consensus processes (such as proof-of-work or proof-of-stake), stablecoins, and decentralized finance (DeFi) altcoins.
PoW and PoS altcoins
The Bitcoin network uses the Proof-of-Work consensus mechanism for transaction verification and processing. Ethereum (ETH), Zcash (ZEC), and Bitcoin Cash (BCH) are some other proof-of-work altcoins. In the PoS architecture, validators are responsible for verifying transactions rather than miners.
Due to the energy-intensive nature of the PoW technique, Ethereum is transitioning to the PoS consensus mechanism. Among other PoS altcoins, you may find Cosmos ATOM ($6.95) and Tron TRX ($0.1208).
Stablecoins
A stablecoin is a cryptocurrency whose value is fixed to a fiat currency, such as the US dollar. One unit of the pegged fiat currency equals one unit of the stablecoin’s value. For example, the value of the stablecoin Tether USDT $1.00 is tied to the value of the US dollar.
To maintain the peg, the stablecoin’s issuer typically has a cash reserve or other assets proportional to the circulating supply of coins. Holders will be paid if the coin fails or has difficulties.
DeFi altcoins
Holders of DeFi stablecoins, which are based on the blockchain, can engage in the lending and borrowing of cryptocurrencies to generate passive income. Altcoins from DeFi that you may purchase include Compound COMP ($49.27), Synthetix SNX ($2.01), and Uniswap UNI ($9.42).
Difference Between Bitcoin and Altcoins
In response to Bitcoin’s purported shortcomings, alternative cryptocurrencies have emerged to fill the void and differentiate themselves from BTC. In this part, we will compare Bitcoin against several alternative cryptocurrencies, including Ethereum, ZEC, LTC, and BCH.
Litecoin vs. Bitcoin
Litecoin was created on October 7, 2011, to enhance the original Bitcoin technology minorly. While Litecoin shares many similarities with Bitcoin, there are also some crucial differences. For instance, LTC hoped that if more transactions could be processed simultaneously, the network performance would increase; thus, they cut the time needed to build a block from 10 to 2.5 minutes.
The orphaned blocks, which miners have solved but were not chosen as the following path for the blockchain, are sacrificed to decrease the block time. Litecoin ran into scalability issues in December 2017 because miners could not handle the massive volume of transactions.
Litecoin implemented Lightning Network, SegWit, and Mimble Wimble to tackle these difficulties to reduce network congestion. In addition, Litecoin uses a different algorithm than Bitcoin, allowing it to use computing power more by relying more on a mining computer’s memory than the original code. Litecoin employs Scrypt, whereas Bitcoin employs the SHA-256 algorithm.
As a last point, the total quantity of LTC coins has been raised from 21 million to 84 million, which differs from BTC. If this were the case, Litecoin transactions would cost two units rather than half a unit in Bitcoin, giving the illusion of more realism and making the cryptocurrency more accessible to people with difficulties with mathematics.
Ethereum vs. Bitcoin
Ethereum, which debuted on July 30, 2015, is functionally significantly different from Bitcoin, similar to LTC. Using the blockchain idea to build a decentralized Turing-complete virtual machine, Ethereum differs from Bitcoin’s approach to digital money. A decentralized computer, the Ethereum virtual machine, can run programs and scripts from any location on the network.
Ethereum introduced smart contracts to the public, demonstrating the core logic of decentralized apps. Ethereum fundamentally differs from Bitcoin’s inner workings, with an infinite supply, 14-second block intervals, and blocks limited by their processing cost.
The smart contracts, scalability, disinflationary supply, and impending switch to a PoS algorithm and innovation layer that Ethereum offers give ETH inherent value, in contrast to Bitcoin’s non-intrinsic worth.
Bitcoin Cash vs. Bitcoin
To address Bitcoin’s scalability problems, a software update (fork) called Bitcoin Cash was created on August 1, 2017, from the original Bitcoin network. This version added support for SegWit. Nevertheless, subsequent users adjusted their strategy to increase the block size from 1 MB to 8 MB, reducing transaction fees and enabling an eightfold rise in the number of transactions per 10 minutes.
In addition, BCH proponents argue that it serves its purpose better as a medium of exchange than Bitcoin does.
ZCash vs. Bitcoin
Forked from the original Bitcoin network on August 1, 2017, Bitcoin Cash is an updated network version that uses SegWit to address Bitcoin’s scalability problems. Later, though, users adjusted their strategy to increase the block size from 1 MB to 8 MB, which halved the number of transactions per 10 minutes while simultaneously decreasing transaction fees. Also, while Bitcoin is great for storing value, BCH advocates think it works better as a medium of exchange.
How Do I Buy Altcoins?
If you’ve ever wanted to know how to invest in altcoins and have wondered, “Should I?” here are the steps to take.
Determine what percentage of altcoins you want to add to your portfolio
Your approach to investing in cryptocurrencies should reflect your level of comfort with risk or lack thereof. Depending on your expected risk-reward, pick the percentage of altcoins you wish to own.
Research altcoins in which to invest
To start trading altcoins, research each project’s website, social media accounts, and development team to find the finest ones. By considering these aspects, you can determine whether the initiative is genuine. Before you acquire altcoins, make sure your wallet can handle them. If not, you might want to use a different cryptocurrency wallet.
Choose an exchange and find a currency pair
Some exchanges may not support buying altcoins with fiat, so you need to buy BTC to proceed. After acquiring BTC, you must discover one or more exchanges that accept your altcoin. You’ll need to register once you’ve decided on the best exchange. After completing registration, you must transfer part of your BTC to the exchange. Don’t forget that you’re trading in currency pairings; thus, the BTC will be converted into your altcoin.
If the answer to the first two questions is “yes” and the last question is “no,” you should proceed with that exchange. However, you can also register with an exchange that has been attacked based on how they responded to that hack and the quality of investigation and security measures implemented by the exchange following the attack.
Trade BTC for your favorite altcoin
You can purchase altcoins once your cash or Bitcoin has arrived in your exchange’s account. When you’re ready to exchange Bitcoin for altcoins, place an order for your preferred altcoin.
Store your altcoins in a crypto wallet
Your precious cryptocurrencies must be kept on the exchange after the deal is finalized. But if you’re in it for the long haul, you should keep your crypto assets in a wallet and not on an exchange. As an altcoin wallet, you can pick from various options: hot, cold, web, mobile, or desktop.
What is Altcoin Season?
During what is known as “altcoin season” in the cryptocurrency market, several altcoins’ prices jump above Bitcoin and other fiat currencies, such as the US dollar. In 2017, at the height of Bitcoin’s journey, Ethereum’s smart contract feature sparked the creation of several other coins, triggering the first altcoin season.
The price increase of Bitcoin has been highly profitable for many crypto-investors. The cryptocurrency market, however, experiences an altcoin season when other investors try to make a fortune there.
The next bitcoin season can’t be predicted with any degree of certainty. However, the Blockchain Center provides a unique tool known as the Altcoin Season Index that analyzes market mood to determine whether Bitcoin or altcoins are the most popular cryptocurrencies. An altcoin cycle also emerged due to the popularity of nonfungible tokens and meme coins such as Shiba Inu and Dogecoin.
Future of Altcoins
One low-cost strategy to diversify holdings beyond Bitcoin is to invest in alternative cryptocurrencies. In addition, investors can have a say in the project’s governance decisions. In the cryptocurrency market, there are several altcoins to choose from.
However, those with solid use cases will be the ones who will stay in business and eventually rule the industry. Additional dangers to cryptocurrency investments come from the absence of regulation. The bitcoin market will ultimately mature, though, and regulatory concerns will be mitigated.