In the cryptocurrency world, there is Bitcoin and there are altcoins. In this article, we’re going to take a look at what altcoins are exactly, look at a few different types of altcoins and give you a full understanding of an important aspect of the crypto industry. Let’s start at the beginning.
What Are Altcoins?
Altcoins are essentially any cryptocurrency that isn’t Bitcoin. No matter what its purpose, value or project is, if it isn’t Bitcoin it’s an altcoin.
The term originated in the early days of the cryptocurrency industry when Bitcoin, the first cryptocurrency to come into existence, was the prominent option. As new coins began entering the scene the community gave them a category, namely altcoins. This was an abbreviation of “alternative coins”, which naturally got shortened as it became more popular.
Altcoins initially were built to offer an alternative solution to Bitcoin, improving on various functionalities. Litecoin, which launched two years after Bitcoin in 2011, provides a good example of this (more on this below). Then, in the years to follow altcoins branched out and started offering solutions to other issues within the blockchain industry.
For example, Ethereum was launched in 2015 and provided the first platform on which developers could build their own networks through decentralized applications and smart contracts.
Early Examples Of Altcoins
The two earliest examples of altcoins were both launched in 2011, two years after the release of Bitcoin.
Namecoin (April 2011)
Namecoin was focused on creating more anonymity and censorship resistance when it came to making digital transactions. The network offers users the opportunity to register and mine using .bit domains they personally created, notably making user domains on the network less visible.
The network was created as a hard fork off of the Bitcoin network and kept the same proof-of-work consensus mechanism and maximum supply of 21 million coins. Namecoin is currently ranked in the top 650 biggest cryptocurrencies by market cap and has 14.7 million NMC in circulation.
Litecoin (October 2011)
While Namecoin has somewhat fallen by the wayside, Litecoin has remained a strong altcoin in the industry. Launched in October 2011 the cryptocurrency was also created as a hard fork off of the Bitcoin blockchain however it made some significant changes to other aspects of the network.
Created as a “lite” version of Bitcoin, Litecoin was designed to execute transactions faster and at a more cost-effective rate. In doing so the network opted to increase the maximum supply of LTC to 84 million coins, changed the hashing algorithm, and decreased the block creation time to 2.5 minutes (4x that of Bitcoin). Litecoin is referred to as “digital silver”, next to Bitcoin’s “digital gold”.
How Do Altcoins Work?
The majority of these coins function through the use of blockchain technology and act as a peer-to-peer network. Similar to Bitcoin, altcoins are sent from one digital wallet to another through the use of public and private keys. Once the transaction is successful, the data is stored on an immutable, transparent public ledger. Their purposes, however, range far and wide, which we’ll cover more below.
Whether the cryptocurrency was built from a hard fork of another network or its blockchain was built from scratch, these are still referred to as altcoins.
The Pros and Cons Of Altcoins
Let’s take a look at several pros and cons of investing in altcoins and altcoins in general.
- Generates and fuels innovation within the blockchain industry.
- Creates improvements to the various cryptocurrencies, i.e. Litecoin improved on Bitcoin’s shortcomings.
- Creates competition to provide better solutions and use cases for users.
- Altcoins (and Bitcoin) will always provide a cheaper and faster alternative to fiat cross-border transactions.
- Altcoins tend to have volatile markets, meaning that the price could change drastically in a short period of time.
- Some altcoins end up being scams, so it’s best to stick to reliable platforms and do your research before making an investment.
The Different Types Of Altcoins
We’ve covered that the market is broken into two categories, Bitcoin and altcoins. Now we’re going to explore the various types of altcoins one can find. With over 10,000 altcoins and counting, the market has been broken down into smaller subcategories where altcoins offer a similar use case.
- Digital currencies. These altcoins (and Bitcoin) focus on offering a medium of exchange. Examples include Litecoin and Bitcoin Cash.
- Stablecoins. These are pegged to a fiat currency (USD, EUR, GBP, etc). Examples include Tether and USD Coin.
- Privacy tokens. These altcoins provide and prioritize anonymity in their transaction history. Examples include Monero and Dash.
- CBDCs (central bank digital currencies). These altcoins are issued and maintained by banks. Examples of countries exploring these are Australia and China.
- Governance tokens. These altcoins are usually used in decentralized finance protocols, and allow users to vote on the development of the project.
- Utility tokens. These are also generally platform-specific and are used to unlock access to services like a subscription.
- Non-fungible tokens (NFTs). These altcoins hold unique characteristics that cannot be recreated and represent a one of a kind product.
Are Altcoins A Good Investment?
While we’re not here to provide financial advice, we can assure you that all services relating to altcoins that we offer on the Oobit platform have been thoroughly and intensively vetted. We can only recommend that you do your own research and make investment decisions based on that and any other professional financial advice that you may have received.