Essentially, the rest. Any cryptocurrency that isn’t Bitcoin is known as an altcoin, short for alternative coins, all released after Bitcoin. The first altcoin was Namecoin back in 2011 (which is now ranked #604 by market cap). Although Bitcoin remains the top dog, the total number of cryptocurrencies is ever-increasing, with over 8800 altcoins in existence as of October 2023.
It’s important to note that not all altcoins exist to compete with Bitcoin. In fact, very few do. Cryptocurrencies come in different forms, depending on their function. Bitcoin is an example of a payment cryptocurrency. An example use case would be using Bitcoin to pay for an everyday essential, like Bitcoin pizza day socks. Other altcoins, such as Litecoin, also fall into the payment category, whereas others fall into different categories, such as privacy coins (e.g. Monero), stablecoins (e.g. Tether), and utility coins (e.g. Ethereum).
The most famous altcoin is Ether, a utility token used to facilitate transactions on Ethereum, a decentralised software platform home to a quickly growing community of decentralised finance, or ‘DeFi’. Ethereum enables the distribution of ‘smart contracts’ and other decentralised applications (DApps), all free from interference, fraud, or regulation from a third party. In short, Ethereum is both a cryptocurrency and a software development sandbox.
A smart contract refers to computer code programmed onto a blockchain that automatically carries out all or part of an agreement, following a specific trigger or input. Being part of a blockchain, it come with the features of being secure, permanent and immutable.
Whilst most altcoins aim to be of serious use, beware of meme coins and pump-and-dump schemes. The most famous meme coin is Dogecoin, named after a Shiba Inu dog, which Elon Musk has famously endorsed.
Pump-and-dump schemes involve fraudsters who own significant amounts of a security, spreading fake news about the security in the hope that others will jump on the investment and ‘pump’ its price up. Once the securities price has hit an inflated level that the fraudster is happy with, they will ‘dump’ the security by selling it, meaning that other investors who got involved at a higher price get left with a potentially massive loss.
In general, altcoins tend to have greater levels of volatility than Bitcoin. Cryptocurrency is not for the faint-hearted and is notorious for its volatility. Its price can crash as quickly as it can shoot up. In March 2020, Ethereum lost almost half its value in just two days as the global pandemic caused a sell-off in the crypto market. By investing in cryptocurrency, you risk losing all your investment. It’s sensible to start small with your cryptocurrency investments.
Some altcoins use the same consensus mechanism model as Bitcoin (proof-of-work) to generate new coins.
On the other hand, many others use a ‘proof-of-stake' (PoS) method.
Unlike proof-of-work (PoW), PoS does not rely on miners’ ability to solve ‘hash’ puzzles to produce new blocks for the chain. It involves users staking, which means locking-in units of a cryptocurrency. The mechanism aims to create a competitive advantage over Bitcoin by improving its energy-intensive, often lottery-like, PoW mechanism.
PoS is a consensus algorithm for blockchain networks whereby randomly chosen validators, who ‘stake’ the native network’s token by locking them into the blockchain, create and authorise blocks. Under PoS, the system rewards users based on the amount staked.
INTRODUCTION TO ALTCOINS. COMPLETED. ✅
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