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What is Altcoin and How is it Different from Bitcoin?

  • Yamini
  • Feb 06, 2022
What is Altcoin and How is it Different from Bitcoin? title banner

Upon its launch and subsequent milestones, Bitcoin caused a furore while making people puzzled and curious. Ever since, terms like cryptocurrency, digital currency have dominated the internet. People are adjusting to the digital transformation while changing the way we used to look at investments and assets in the earlier decades. 

 

Bitcoin and the subsequent response to it led the way for a wide range of cryptocurrencies. These came to be known as altcoins. Etymologically, ‘Alt’ means ‘alternative’ and ‘coin’ denotes ‘cryptocurrencies’.

 

 

What are Altcoins?

 

To tell a long story short, all cryptocurrencies apart from Bitcoin are known as altcoins. They were developed in a similar blockchain structure in order to follow a peer-to-peer system. 

 

Altcoins require a specific mining method so that users can carry out safe and secure web transactions.  The price-tracking website CoinMarketCap says that the total number of cryptocurrencies amounts to over 16,900 types as of 19 January 2022. 

 

Bitcoin and Ethereum account for around 60 per cent of the crypto market, while the remaining is taken up by altcoins.

 

There is a multitude of altcoins in the market. According to Investopedia, some of the most popular altcoins include Ethereum (ETH), Litecoin (LTC), Stellar (XRM), Cardano (ADA), Polkadot (DOT), Bitcoin Cash (BCH) and Dogecoin (DOGE). (Must read: Dogecoin vs Bitcoin)

 

From the Viewpoint of Investors, Altcoins are consistently trying to make themselves independent of the Bitcoin structure. This will eventually help them to have a value that would not be influenced by the fluctuating Bitcoin rates.

 

Its value is touching the sky more due to its growing popularity in the non-fungible token (NFT) market. As a matter of fact, Ethereum has a market capitalization of over USD 345 billion on Jan 21, 2022.

 

Different Types of Altcoins

 

Several types of altcoins can be witnessed in the market nowadays. Altcoins can be classified on the basis of their functionalities and consensus mechanisms. 

 

Different categories exist such as mining-based, pre-mined, meme coins, utility tokens, security tokens and stable coins.

 

  1. Stable coins

 

Stablecoins are the altcoins that have the most reduced volatility. This is achieved by pegging their values to a more real-world asset or fiat currencies or precious metals, which helps redeem users and holders when the currency falls. 

 

Tether (USDT), MakerDAO’s DAI, and the USD Coin (USDC) feature as some of the most popular altcoins in this category. (Source)

 

  1. Security tokens

 

These are somewhat similar to a digital liquid contract, which shows a part of a larger asset or business, much like regular financial security. They are of great help in recording crypto transactions and their price prospect is what draws investors.

 

  1. Meme coins 

 

These are those cryptocurrencies that gain prominence only for a short time on the internet. This happens generally due to some celebrity or famous personality dealing in cryptocurrencies commenting about it.

 

For instance, we all have seen Elon Musk sharing cryptic tweets about Dogecoin and the subsequent momentary rise in prices. 

 

  1. Utility tokens 

 

These cryptocurrencies help by providing services within a network. Buying NFTs, trading, minting, redeeming awards, paying network fees and other services within a blockchain setup is made possible due to the utility tokens. 

 

A widely popular example can be Ethereum which can perform these functions. Solana and Binance Coin featured among the largest altcoins in terms of market capitalization as of November 2021.

 

As per a note by Arcane Research, "Bitcoin’s performance has been dwarfed by the incredible altcoin growth this year. 2021 has felt like a continuous alt season, only taking a breather during the summer months. This season has seen several short-lasting bull runs in various parts of the markets as traders have rotated through the narratives,”. 

 

As of now, this has become quite evident that altcoins have improved functionality, transaction, and scaling to meet the rapidly expanding demand.

 

The market for altcoins is expanding more than ever before, and this rapid growth makes many people wonder if the original cryptocurrency's lead will end with any of the coins that came after it.

 

Difference between Bitcoin and Altcoins

 

According to NDTV, Bitcoins and altcoins are similar to an extent as they work on the same mechanism, these both differ from each other in many significant ways.

 

The implementation and use of Bitcoin are quite difficult as proof-of-work, the mechanism that is used to create the crypto blocks consumes a lot of energy and time. Along with this, Bitcoin’s smart contract capabilities are very limiting.

 

But, altcoins have gone beyond this by using the proof-of-stake mechanism in order to gain a competitive advantage. This makes the process less energy exhaustive and reduces the time required for validating any transaction. 

 

If we look at the scenario from the perspectives of sustainability and scalability, altcoins have smoothly addressed these points of criticism against Bitcoin.

 

Ether (ETH) is used as gas, or payment for transaction costs, in smart contracts on the Ethereum blockchain. Ethereal 2.0 is already getting massive attention amid anticipation as they create a separate identity for themselves. (Reference)

 

 

Ending Note 

 

As per Investopedia, altcoins also aspire to become the next-gen Bitcoin by becoming an inexpensive method for digital transactions.

 

While ending the blog we can conclude that due to the emergence of a matured form of blockchain technology, on which cryptocurrency is based, a large variety of new crypto coins have arrived on the scene. Altcoins were built on the success of Bitcoin by slightly modifying the mechanism to appeal to specific users. 

 

For instance, Ethereum, the second-largest cryptocurrency in terms of market capitalization, introduced the idea of “smart contracts”. These are nothing but basic codes that run only when predetermined conditions are met. 

 

They help in executing agreements between two parties using blockchain technology, which leads to paving the way for new possibilities in the development of new applications for crypto. Altcoins have distinguished themselves from Bitcoin by working on additional capabilities, such as smart contracts or low price volatility.

 

(Also check: 4 Types of Blockchain Networks)

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