What are cryptocurrency Altcoins?
Bitcoin was revolutionary in becoming the world’s first truly digital currency that was free from the restrictions of a central authority - it was and is decentralized. The technology used to power Bitcoin is called Blockchain. Since Bitcoin hundreds of blockchain based cryptocurrencies have been launched. Most are based on Bitcoin with slight alterations to the rules and protocols of their own unique network. These alternative cryptocurrencies are called Altcoins. In this article, we will cover:
- What are Altcoins?
- What are the different types of Altcoin?
- What are some popular Altcoins?
What are Altcoins?
Simply put, Altcoins are all cryptocurrencies that are not Bitcoin. Bitcoin was the first cryptocurrency and remains significantly larger by market capitalization than all the rest. Altcoins use Blockchain technology to allow secure peer-to-peer transactions that are without a centralized authority. Though they use the same fundamental technology as Bitcoin, Altcoins have slightly different rules and protocols on their networks.
What are the different types of Altcoin?
A major issue with Bitcoin is it’s high level of volatility. Since cryptocurrencies are generally decentralized and free from regulation, they can undergo massive price swings. Stablecoins were created to be a less volatile cryptocurrency. To do this, they are pegged to the price of a traditional currency (US dollar for example). What this means is that the value of the cryptocurrency is essentially tied to that of a traditional currency.
Similar to Bitcoin, a number of Altcoins enable people on the network to mine for coins. Mining is done to verify transactions and add blocks to the blockchain (A block contains validated transactions). The lucky miner that successfully adds that block to the blockchain is rewarded with a specified amount of cryptocurrency tokens (this varies by Altcoin).
This form of Altcoin provides a user with access to a service. They are a digital asset that are used to finance the creation of a new network with a promise to be able to consume some of the network's products in the future. For example, owners of a Filecoin token can spend the cryptocurrency to gain access to the Filecoin network, a decentralised, peer-to-peer network that stores files online.
Security tokens are essentially a digital contract for part of an asset that already exists and has value. For example, this could be a car, house, or any tangible asset. Using the security token means that the investors stake in the asset is protected on the blockchain ledger. Many have suggested that they are a bridge between traditional finance and the modern cryptocurrency finance that is developing.
What are some popular Altcoins?
Ethereum is a decentralized platform that enables developers to create decentralized applications (DApps). Ether is the currency used to fuel this network and provided to miners on the network as a reward for their work. Therefore, Ethereum is a mining-based coin. Ethereum was created to be the platform that begins to decentralize all types of institutions and systems used in society.
See our full article that explains Ethereum in depth.
Litecoin is a cryptocurrency that is very similar to the largest cryptocurrency Bitcoin. Like Bitcoin, it uses the “Proof of Work” consensus mechanism but uses a different algorithm to do so. Whilst Bitcoin uses the SHA-256 hashing algorithm which miners have created powerful ASIC systems to efficiently mine the coin using parallel processing. This has essentially made it impossible for laypeople to mine Bitcoin. Litecoin uses the Scrypt algorithm to achieve the same goals. This was designed to prevent parallel processing, however, people have since been able to create ASIC systems for Litecoin. As a result of using Scrypt, Litecoin transactions are 4x faster than Bitcoins. Finally, there are a total of 84 million Litecoins that can ever be produced compared with the 21 million Bitcoins that will ever circulate.
Disclaimer: Ripple is currently being investigated by the SEC. This article provides information about what Ripple and XRP are based on knowledge attained across the internet. We do not have any information about the SEC investigation.
It is important to understand that Ripple is the company that partly manages the cryptocurrency it created called XRP (Confusingly referred to as Ripple). XRP is mainly known for its payment network and protocol. The company is known for creating an efficient system of international money and security transfer. XRP uses a unique consensus algorithm that uses a negligible amount of energy when compared with Bitcoin because it does not require mining.
Cardano is an open source cryptocurrency network that aims to enable decentralized app creation similar to Ethereum. In fact, founder Charlie Hoskinson was a co-founder of Ethereum that supposedly left over disagreements about keeping Ethereum nonprofit. Cardano claims that their network is less energy intensive and more useful than Bitcoin whilst being more secure and scalable than Ethereum. The currency that fuels the network is called ADA.
Much like Ripple, Stellar is payment technology that seeks to reduce the time and cost of international transactions. They do so by connecting financial institutions on their payment network using their own Stellar Consensus Protocol (SCP). Unlike Ripple’s closed system, Stellar is completely open source. It runs its distributed ledger across a decentralized server network and uses the Federated Byzantine Agreement algorithm for achieving consensus (FBA - not fulfilled by Amazon). The FBA algorithm enables transactions times of between 2 - 5 seconds! The token on the Stellar blockchain is called Lumen and goes by the symbol XLM.
Tether is the world's most popular stablecoin. It was designed to be a stable bridge between fiat currency (traditional money) and cryptocurrency. It’s value is pegged against the US Dollar using a 1:1 ratio, though Tether Ltd. do not provide a guarantee that it’s token can be exchanged for US Dollars. The goals of Tether are to provide people trading cryptocurrency a stable and transparent cryptocurrency with minimal transaction fees for users.
Altcoins are all the alternative cryptocurrencies to Bitcoin. They are largely based off Bitcoin making use of slightly different rules and protocols. There are four main types of Altcoin. Stablecoins are cryptocurrencies that are pegged to a fiat currency for stabilization. Mining-based coins are the most popular form of Altcoin and make use of mining based consensus methods to verify transactions. Utility tokens guarantee owners with access to a service typically hosted on a decentralized network. The last major Altcoin type are Security Tokens that provide owners with a fractional ownership of a tangible asset. Ethereum is the largest Altcoin by market capitalization but there are new Altcoins appearing every day.