Beginners Guide

What is Altcoin? How Is It Different From Bitcoin?

Written by: Qadir AK

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Qadir AK

Qadir Ak is the founder of Coinpedia. He has over a decade of experience writing about technology and has been covering the blockchain and cryptocurrency space since 2010. He has also interviewed a few prominent experts within the cryptocurrency space.

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Apr 1, 2021

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The world of crypto and crypto-based projects seem to be in a constant state of flux. Ideas become trends, some of which evolve into yet newer concepts. Many are still-born tech and never get the momentum needed to get off the ground. Likewise, buzzwords associated with bitcoins and altcoins are mainly becoming lost in the crypto word soup. 

Well, altcoins and tokens are cryptocurrency terms and were created after the development of bitcoin in 2009. The first-ever altcoin was Namecoin which was introduced to the world in 2011 for a very short period. Namecoin was the only alternative to bitcoin back then. 

Several coins were introduced as alternatives to bitcoin with the purpose of providing improved security and privacy.

Let’s seek in detail about altcoins and tokens.

What are Altcoins?

Altcoins are the cryptocurrencies that stand for “Alternative Coins”. Any coin other than bitcoins is referred to as altcoins. In simple words, the other digits assets providing alternate solutions to the crypto industry are known as altcoins. 

Altcoins also work on blockchain technology as bitcoin. A blockchain is a decentralized, digital, and distributed ledger that simply works as a secure database. The data once stored here makes it impossible to tamper with. 

Each altcoin is unique and better than its counterpart in transaction speed, processing fee, and mining cost. Some strong examples of altcoins can be Ethereum, Litecoin, Ripple, and many others, these coins have slightly different characteristics than bitcoin.  

Altcoins are classified into categories depending on their functions and mechanisms. Here’s a quick rundown of some of the most significant:

Types of Altcoins 

Mining-Based

 Altcoins are divided into two categories based on mining:

  1. Proof-of-work altcoins: Proof-of-Work cryptocurrencies are ones that are created by solving tough mathematical problems.
  2. Pre-mined altcoins: The Coins that aren’t created by an algorithm query are known as pre-mined coins. They are frequently included in an initial coin offering and are distributed before being listed on cryptocurrency exchanges.

Stablecoins

Stablecoins as the name implies are stable in nature. These coins are designed to reduce volatility of value by tying their value to a basket of goods like fiat currency, precious metals, or other cryptocurrencies. 

Security Tokens

Security tokens are similar to traditional equities in that they often provide holders equity in the form of ownership or a dividend distribution. This type of ownership incentivizes investors to put their money into it.

Utility Tokens

Within a network, utility tokens are utilized to deliver services. They could be used to buy services, pay network costs, or redeem prizes. 

Memecoin

Meme coins are based on a joke or a witty imitation of popular cryptocurrencies. They usually gain popularity in a short period of time, with renowned crypto influencers.   

How do Altcoins Work? 

Altcoins function in a similar way to Bitcoin. Whenever a request for a transaction on the blockchain is made, a block is created.

A technique known as mining is used to process the transaction block. Proof-of-Work (PoW) is used by the majority of mining-based cryptocurrencies to connect to the blockchain network.

For security verification, the block is sent across numerous nodes (miners). In order for the block to be validated, miners must solve complicated mathematical calculations.

Miners are compensated in cryptocurrencies such as eth, sol, and others as “evidence” of the Proof-of-Work accomplished. The transaction is performed while the authorized block is transmitted to join the chain of blocks.

The goal of mining is to slow down coin generation and ensure that each transaction request is processed safely and correctly.

Note that: A private key is used to move money from one digital wallet to another, and a blockchain serves as a permanent record of the transaction that cannot be changed. 

Difference between Altcoin and Bitcoin

Bitcoin and altcoins differ in numerous aspects, despite the fact that they are very similar and operate on the same basis. 

Bitcoin takes 10 minutes to produce a coin. Whereas altcoins like Litecoin can generate coins every 2.5 minutes.

Proof-of-work — the technique used to construct crypto blocks — is incredibly energy expensive, intensive, and limiting, implementing and using Bitcoin is quite tough.

Some of the Altcoins, on the other hand, has gone beyond this.  Instead, they employ the proof-of-stake system to acquire a competitive advantage, which saves energy and shortens the time it takes to validate a transaction. Furthermore, the smart contract possibilities of Bitcoin are severely limited.

Altcoins are improvised bitcoin versions. The coins are usually created to address issues with the bitcoin architecture, such as mining costs, speed, and other aspects. 

Altcoins were created to leverage Bitcoin’s success by tweaking the rules to appeal to various users. A famous Altcoin Ethereum, the second-largest cryptocurrency by market capitalization, for example, pioneered the concept of “smart contracts.” These smart contracts are essentially computer programs that only operate when certain criteria are met. They use blockchain technology to execute agreements between two parties, allowing for the development of new crypto applications. 

Altcoins offer unique features like governance, smart contracts, and interoperability.

Here are some of the most popular Altcoins that provide faster transactions, high liquidity, high-security levels, and cheap mining hardware. 

How and why Altcoins were created?

Bitcoin’s skyrocketing price and processing time to complete transactions made people look for an alternative. And also the fact that bitcoin has limited circulation restricted to 21 Mn can be one of the reasons. 

Soon several coins were introduced as alternatives to bitcoin with the purpose of providing improved security and privacy.

Namecoin was the first altcoin created in 2011 as an alternative to bitcoin. 

Most altcoins are built to compete with bitcoin, claiming to provide superior privacy, decentralization, or focusing on something that bitcoin cannot. There are nearly 10,000 altcoins presently. It is quite simple to create a coin due to how fair the process is and anyone can create one. 

The key attraction is that altcoins are typically far less expensive than Bitcoin and may appear more appealing because they “have more room to grow.”

Things to consider before buying Altcoin

1. Do some research.

It is the initial step for anyone interested in investing in altcoins. Take your time and learn everything you can about the altcoin you’re considering.

2. Altcoin’s History

Every currency you intend to buy should have a proven track record. For example, one of the reasons Ethereum is trusted is due to the reputation it has built through time based on its past. History has always brought with it a sense of trustworthiness.

3. Uncertainty And Altcoins

Always keep in mind that there is little or no assurance with altcoins to some extent. Many of them may show up here today and disappear tomorrow. There are currently over a thousand cryptocurrencies vying for your attention. Before purchasing any altcoin, you must be confident in your heart that you are prepared to face the challenges ahead.

4. Why Are You Putting Money Into It?

As a potential investor, you should ask yourself this question. So, what exactly do you have in mind? Are you seeking a quick way to get rich, or do you have a long-term strategy in mind?

If you fall into the first category, you should look for other ways to invest your money. It’s because most cryptocurrencies take a long time to gain traction in preparation for a pump. 

Are Altcoins Good Investments? 

Altcoins are used as a substitute for Bitcoin. As everyone cannot afford to buy BTC. Cryptocurrency trading is similar to stock trading in that a well-diversified portfolio always wins. That means that even if Bitcoin suffers a setback, the risks and rewards can be balanced by others. 

Altcoins are steadily catching up with the latest market action. Still, Altcoins provide you the chance to be a part of this movement — one that aims to improve the sport as a whole, not merely wager on the perfect horse.

Altcoins are smart investments since their potential returns are better than standard equities and bonds. However, like with any investment, you must understand all aspects of your investment before deciding if it is good for you. If you determine that investing in altcoins is correct for you, make sure you do your research on anything you’ll be investing in.

You must have heard about the alt season, if not I will bring this to you!

What is the Altcoin season?

Altcoin season is also known as Alt season is a type of cryptocurrency market cycle in which altcoin values climb rapidly. This price shift can occur with or without the effect of Bitcoin’s dollar value.

During this market time, the price success of altcoins frequently exceeds that of Bitcoin. Altcoin prices are usually either stable or very slow-moving. However, every now and then, the value of all altcoins might skyrocket in a matter of seconds.

Conclusion

However, Investing in altcoins might be beneficial even if it is riskier. However, before investing in any cryptocurrency, make sure to learn everything there is to know about it and approach it as a serious investment.

FAQ

Why are altcoins available?

Bitcoin sparked a decentralized banking ecosystem, but it quickly became evident that the economy needed characteristics that Bitcoin couldn’t deliver. Bitcoin can’t do everything, so altcoins step in. Altcoins were created to improve aspects like transaction speed, energy consumption, privacy, and price stability in comparison to fiat currency.

Why do people invest in Altcoins?

Altcoins are frequently less expensive, and if generally accepted in the market, they could have a greater upside than Bitcoin. Stablecoins, for example, are a mechanism for crypto investors to distribute or lessen their risk. 

How do altcoins add value to the crypto market?

Altcoins offer value to the cryptocurrency industry by introducing new and innovative features that provide new possibilities and solve problems.

What are the most popular Altcoins?

Ethereum, Ripple, Tether, Bitcoin Cash, Bitcoin SV, and Litecoin are some of the most well-known Altcoins.

How many Altcoins exist?

More than 15,000 of these “alternative” currencies have been produced at the time of writing .

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Qadir AK

Qadir Ak is the founder of Coinpedia. He has over a decade of experience writing about technology and has been covering the blockchain and cryptocurrency space since 2010. He has also interviewed a few prominent experts within the cryptocurrency space.

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