What are Altcoins? An Introduction to Cryptocurrencies Beyond Bitcoin
What are Altcoins? An Introduction to Cryptocurrencies Beyond Bitcoin. The term “altcoin” is a portmanteau of “alt,” meaning “alternative,” and “coin,” meaning “cryptocurrency.” In other words, any coin other than Bitcoin BTC $63,212 is considered an altcoin. Blockchain technology was first introduced to the world by Bitcoin, a cryptocurrency that emerged after the 2008–2009 global financial crisis.
By becoming the undisputed “gold standard” of digital currencies, Bitcoin sparked a financial revolution. Because it was the first to market, it has become the de facto standard for blockchain-based cryptocurrencies. In response to Bitcoin’s shortcomings, other cryptocurrencies have emerged; we’ll get to this in a bit. In that case, is Ethereum a cryptocurrency?
Litecoin (LTC) ($82.98) and Ether (ETH) ($3,157) are examples of second and third-generation blockchain-based cryptocurrencies that emerged after altcoins. The price of altcoins (alternative cryptocurrencies) is usually expressed in BTC, even though Bitcoin is often quoted in fiat currencies like dollars, yuan, and euros. If you’re wondering, “How can I buy or sell altcoins?” Coinz4u article is here to help. What sets Bitcoin apart from other cryptocurrencies? Can altcoins beat Bitcoin?
Types of Altcoins
Altcoins can be categorized as proof-of-work (PoW) and proof-of-stake(PoS) altcoins (based on consensus mechanisms), stablecoins, and decentralized finance (DeFi) altcoins.
PoW and PoS altcoins
The Bitcoin network uses the Proof-of-Work consensus algorithm to validate and process transactions. Some other proof-of-work altcoins are LTC, Bitcoin Cash (BCH), Zcash (ZEC), and Bitcoin ($22). In contrast, under the PoS architecture, validators are responsible for verifying transactions rather than miners. Due to the energy-intensive nature of the PoW technique, Ethereum is transitioning to the PoS consensus mechanism. Additional proof-of-stake altcoins include Tron TRX $0.1204 and Cosmos ATOM $8.11.
Stablecoins
A stablecoin is a cryptocurrency whose value is fixed to a fiat currency, such as the US dollar. One stablecoin is worth the same as one unit of the pegged fiat currency. One example of a stablecoin whose value is fixed to the US dollar is Tether USDT $1.00. To ensure that the stablecoin’s value remains constant, its issuer will often hold a reserve of cash or other assets proportional to the total supply of coins. That way, holders will get their money back if the currency fails or has problems.
DeFi altcoins
DeFi stablecoins, built on the blockchain, enable users to borrow and lend their cryptocurrency holdings, allowing them to earn passive income. Some examples of DeFi altcoins to consider buying are Compound COMP ($55.56), Synthetix SNX ($2.82), and Uniswap UNI ($7.62).
Difference Between Bitcoin and Altcoins
Differentiating themselves from Bitcoin, altcoins address Bitcoin’s purported shortcomings by enhancing Bitcoin’s functionality. The sections below compare Bitcoin to several altcoins, including LTC, ETH, BCH, and ZEC.
Litecoin vs. Bitcoin
On October 7, 2011, Litecoin was founded to improve Bitcoin. Bitcoin and Litecoin have numerous commonalities but also crucial distinctions. LTC thought that more transactions could be completed in the same time, improving network speed, therefore they lowered block building time from 10 to 2.5 minutes. Orphaned blocks, which miners solved but did not choose for the blockchain, are sacrificed to reduce block time. Because miners couldn’t handle the enormous transaction volume, Litecoin came into scalability concerns in December 2017.
Litecoin used SegWit, Nimble Wimble, and the Lightning Network to lessen congestion. Since Litecoin employed a different method than Bitcoin, it could use more computational power by using a mining computer’s memory instead of the original code. Bitcoin uses SHA-256, while Litecoin uses Scrypt. Lastly, LTC has 84 million coins versus 21 million for BTC. Since the equivalent exchange in Litecoin costs two units instead of 0.5 units in Bitcoin, it seems more practical and accessible to low-numeracy people.
Ethereum vs. Bitcoin
In terms of functionality, Ethereum (also known as LTC) is considerably different from Bitcoin (which was born on July 30, 2015). Ethereum is a decentralized Turing-complete virtual machine that uses the blockchain concept instead of Bitcoin as its paradigm. A decentralized computer, the Ethereum virtual machine, can run programs and scripts from any location on the network.
Smart contracts, introduced to the public by Ethereum, demonstrated the core logic of decentralized apps. The inner workings of Ethereum are vastly different from those of Bitcoin. Ethereum has an infinite supply; blocks take 14 seconds and are limited by their computing cost. In contrast to Bitcoin, Ethereum has inherent value because of its smart contracts, scalability, disinflationary supply, impending PoS algorithm transition, innovation layer, and overall network value.
Bitcoin Cash vs. Bitcoin
Forked from the original Bitcoin network on August 1, 2017, Bitcoin Cash is an updated network version that uses SegWit to address Bitcoin’s scalability problems. Later on, though, users adjusted their strategy to increase the block size from 1 MB to 8 MB, which halved the number of transactions per 10 minutes while simultaneously decreasing transaction fees. In addition, proponents of BCH argue that it serves its purpose better as a medium of exchange than Bitcoin does.
ZCash vs. Bitcoin
With the introduction of Zcash on October 28, 2016, Satoshi Nakamoto proposed a reduction in block time from 10 minutes to 2.5 minutes. Zcash builds on Bitcoin’s “pseudonymity” feature for anonymous transactions, where the owner’s identity is unknown, but the address is publicly viewable. A block size of 2 MB, double that of BTC, was chosen by ZEC to accommodate the additional data included in its more complex transactions.
How Do I Buy Altcoins?
If you are wondering: Should I invest in altcoins? If you want to know how to do this, please follow the steps below.
Choose your altcoin portfolio percentage
How you approach investing in altcoins should reflect your risk tolerance or lack thereof. Depending on your expected risk-reward, pick the percentage of altcoins you wish to own.
Research altcoins in which to invest
To start trading altcoins, research each project’s website, social media accounts, and development team to find the finest altcoins. Considering these points will allow you to determine the project’s legitimacy. Before you acquire altcoins, make sure your wallet can handle them. If not, you might want to use a different cryptocurrency wallet.
Choose an exchange and find a currency pair
You might have to buy Bitcoin to go ahead on some exchanges that don’t let you buy altcoins using fiat. The next step after getting BTC is finding an exchange that will trade your cryptocurrency for Bitcoin. After deciding on the most suitable exchange, you must register. Following registration, you must send a portion of your Bitcoin to the exchange. Remember that you are dealing with currency pairings; with Bitcoin, you will receive your altcoin.
You should move on with that trade if you answered “yes” to the first two questions and “no” to the third. On the other hand, you can sign up with a compromised exchange depending on their response to the incident, the thoroughness of their investigation, and the security measures they put in place.
Trade BTC for your favorite altcoin
You can buy altcoins once your cash or BTC arrives in your exchange account. Order your favorite altcoin when you are prepared to trade BTC for altcoins.
Store your altcoins in a crypto wallet
Keep your precious altcoins on the exchange after the transaction is finalized. If you intend to hold onto your cryptocurrency assets for the long haul, you should do so in a wallet rather than on an exchange. You have many options for cryptocurrency wallets, including hot, cold, web, mobile, and desktop options.
What is Altcoin Season?
When the price of several altcoins climbs above that of Bitcoin and fiat currencies like the US dollar, this is called “altcoin season” in the cryptocurrency market. In 2017, at the height of Bitcoin’s voyage, several new coins were created due to Ethereum’s innovative contract feature, marking the first occasion of an altcoin season. Thanks to Bitcoin’s price increase, many crypto-investors have made a killing. In contrast, altcoin season occurs when some investors try to get rich quickly by buying into the cryptocurrency market.
The approaching cryptocurrency season cannot be predicted with any degree of certainty. However, by analyzing market mood, the Blockchain Center provides a unique tool known as the Altcoin Season Index that determines if Bitcoin or altcoins are the most popular cryptocurrencies. An altcoin cycle also emerged due to the popularity of nonfungible tokens and meme coins such as Shiba Inu and Dogecoin.
Future of Altcoins
One low-cost strategy to diversify holdings beyond Bitcoin is to invest in alternative cryptocurrencies. In addition, investors can have a say in the project’s governance decisions. The cryptocurrency market offers a wide variety of altcoins. Nevertheless, only those with solid use cases can weather the storm and ultimately become industry leaders. Another issue with cryptocurrency investing is the absence of regulation. However, as the Bitcoin industry develops, regulatory concerns will be mitigated.
