An Introduction to Altcoins

By now, it’s safe to say that bitcoin has had a tremendous impact on the world. As a result of bitcoin’s widespread impact, many have tried to follow in Satoshi Nakamoto’s footsteps and attempted to create their own cryptocurrency. Today, there are thousands of different cryptocurrencies—effectively making bitcoin a catalyst of the crypto world. These post-bitcoin coins are referred to as “altcoins.”

What are altcoins?

Following the massive popularity and success of bitcoin, people began to take Bitcoin’s model and create their own digital currencies.

Altcoin, the term coined for cryptocurrencies following bitcoin’s success, comes from two words: “alt” and “coin”—meaning “alternative coin.” These are generally marketed as being strong alternatives to bitcoin as they tackle what some people believe to be bitcoin’s limitations. Despite that selling point, altcoins still have to compete against bitcoin, the most popular (and highest valued) cryptocurrency in the world, and must have competitive advantage against bitcoin to succeed.

Many altcoins are built using the basic framework of bitcoin, giving most of them that much-desired aspect of being “peer-to-peer”. Also, much like bitcoin, they aim to provide a cheap and efficient means of transaction.

As of early 2020, there are over 5,000 different cryptocurrencies on the market and according to CoinMarketCap, 34% of the total cryptocurrency market is accounted for by altcoins.

The first-ever altcoin came in April 2011, just two years after bitcoin’s creation. Namecoin (NMC) was created to inject decentralization into name registration on the web (making user domains less visible—allowing for increased censorship resistance and anonymity), as well as being an alternative digital currency to bitcoin. The coin was based on the code of bitcoin and even used the same proof-of-work algorithm. Additionally, just like its predecessor, Namecoin’s supply was capped at 21 million.

Another popular altcoin that gained traction not so long after bitcoin’s creation was Litecoin. Introduced in October 2011, Litecoin was advertised as “the silver to Bitcoin’s gold.” However, unlike bitcoin, Litecoin had a supply cap of 84 million, which is four times BTC’s supply. Despite it following the path that Bitcoin paved, Litecoin was different in many ways—mainly, it approved mining and transactions much quicker and more frequently. Unlike Namecoin, which eventually fizzled out, Litecoin remains among the top 10 cryptocurrencies, in terms of total market cap. 

The different kinds of altcoins

As altcoins evolved over the years, categories within the “altcoin” umbrella have emerged. Here are a few different kinds that have been created over the years:

Mining-based altcoins

These are the altcoins that followed the mining aspect of bitcoin—the process in which new coins are created by solving challenging cryptographic equations to unlock blocks. Some of the top altcoins on the market are mining-based, including the extremely popular Ethereum. 

Security tokens

These are similar to traditional stocks, in the sense that they often promise dividends like ownership of a business or a payout. They’re often launched in an Initial Coin Offering (ICO) and are linked to businesses. 

Utility tokens

Utility tokens are sometimes sold on ICOs as well. However, unlike security tokens, they will provide a claim on services. The main difference between a security token and a utility token is that security tokens pass the Howey Test, while utility tokens do not. 

Stablecoins

The main goal of stablecoins is to cancel out the volatility that comes from cryptocurrencies. They cancel out the volatility by tying the value of the coin to real-life assets like fiat currencies (such as the US dollar or Euro), resources (like gasoline), and precious metals (like gold). Popular examples of stablecoins include Tether and Libra (which may be the most popular stablecoin even though it hasn’t even launched yet). 

Promising altcoins on the market

*All figures stated are based on the prices and market caps of May 12, 2020

Now that you know what altcoins are, let’s take a look at some of the most popular examples on the market—you may have even heard of a few of them:

Ethereum (ETH)

Ethereum has, for a long time, come in as the second most valuable cryptocurrency on the market—right behind bitcoin. It’s a smart contract platform on which developers are given the opportunity to build DApps (decentralized applications). It was conceptualized in 2013 by Vitalik Buterin, a popular figure in the cryptocurrency world.

Price: 188.66 USD

Total market cap: 20,921,235,236 USD

Ripple (XRP)

Ripple, or XRP, is advertised as the “most efficient settlement option for financial institutions and liquidity providers,” as it provides fast transactions and governance—allowing for accessibility, global reach, and fast settlements.

Transactions on the Ripple network can be completed within seconds and the goal of the team is to provide the world the ability to move value like information on the web.

Price: 0.195753 USD

Total market cap: 8,635,225,497 USD

Tether (USDT)

Tether, as mentioned earlier, is one of the most popular stablecoins (and even among cryptocurrencies in general—ranking 4th among all coins) on the market. USDT mirrors the value of the US dollar with the idea of providing a stable cryptocurrency (free from volatility)—acting as “digital dollars.” It is also issued on the Omni, TRON, and Ethereum blockchains. 

Price: 1.00 USD

Total market cap: 6,364,924,005 USD

How to buy altcoins

Altcoins are available on many exchanges and peer-to-peer marketplaces. On Paxful, you can trade your BTC for different altcoins (with USDT and Bitcoin Cash being the most popular options).

Why altcoins are important

The importance of altcoins lies in their definition: they target the limitations of bitcoin and provide alternatives with different benefits.

For people who may seek out a new flavor beyond the world of Bitcoin, altcoins may be the perfect option. They have specifically targeted issues people have with bitcoin and provided strong alternatives with equally affordable prices and fast speeds.

Another reason why altcoins are important is that they make great investment tools. With the success of bitcoin in investors’ minds, people are looking to get in on the ground floor by creating and investing in new and practical cryptocurrencies—then selling it when the value rises.

A continuing expansion

Since its creation, bitcoin has remained as the top dog of all cryptocurrencies. However, plenty of altcoins are beginning to make some noise. With over 5,000 cryptocurrencies currently on the market (and more being introduced every day), it’s only a matter of time before people find the next big thing—but until then, we have thousands at our disposal, and that’s not half bad. 

The post An Introduction to Altcoins appeared first on The Paxful Blog.

Leave a Reply

Your email address will not be published. Required fields are marked *