What are Altcoins?
The best-known cryptocurrency has to be Bitcoin. But opposite the Bitcoin are the altcoins. Altcoins (alternative coins) is actually a general term by which we mean all other forms of cryptocurrency except
Bitcoin. Bitcoin had a monopoly in the cryptocurrency world for a number of years. Until the second cryptocurrency, named Namecoin, entered the market. Nevertheless, a lot of different Altcoins have been added in the meantime. Nowadays you have them in all shapes and sizes.
What are Altcoins?
As cryptocurrencies, there are different Altcoins. Think of
Chainlink,
Ripple,
Cardano,
Ethereum, and
Litecoin. We will discuss these different types of Altcoins in more detail later. Altcoins, like Bitcoin, are digital assets based on
blockchain technology. Altcoins contain other functions and validation protocols besides Bitcoin. Litecoin (a modified version of Bitcoin), for example, aims to offer lower fees and transaction times compared to that of the popular predecessors.
Other Altcoins, such as Ethereum, is now at the heart of true ecosystems, making it notably possible to place smart contracts to organize fundraising. Actually, the number of Altcoins is endless, because everyone today can decide to launch their own cryptocurrency.
Each Altcoin has its own unique value and trading volume. The price and volume of the 100 largest cryptocurrencies (Bitcoin and Altcoins) market can be viewed in real-time on Coinmarketcap's website.
Mining of Altcoins
The
mining of Altcoins is often different than with Bitcoin. Yet the idea behind the mining is the same. After all, the point is always that transactions are checked, after which they are validated. They can then be absorbed by the network of the blockchain, and then stored in the blockchain forever.
But still, things are very different with Altcoins than with Bitcoin. This is because Altcoins are different from Bitcoin. For example, they often use a different consensus algorithm. Even when the consensus algorithm is the same as that of Bitcoin (Proof of Work), the implementation and execution are often still different as with Bitcoin.
Popular consensus algorithms for Altcoins
A big difference between Altcoins and Bitcoin is often the consensus algorithm that is used. Bitcoin uses Proof of Work (PoW), while other Altcoins in most cases use algorithms such as
Proof of Stake, Proof of Capacity, or Proof of Burn.
This difference in algorithm makes the blockchains work differently. For example, the reward for one currency is higher than the other. Or is it easier as a miner to participate in blockchain A, while it costs a lot of money to participate in the network of blockchain B.
Proof of Stake
Called Proof of Stake (PoS), the algorithm is the algorithm used by many Altcoins. It is important to mention that it is not always easy to participate as a newcomer in a blockchain that uses this algorithm. The main reason is that a large investment is often required to participate.
In this algorithm, the validators (as the miners are called in this model) are selected based on the number of coins they can use as the "stake". So, they have to make a significant investment to be able to validate blocks.
But why is that then? In this way, the network wants to ensure that the validators are doing their job properly. When a validator doesn't work according to the rules or is clearly not doing his best, he can run the risk of losing his entire bet.
Delegated Proof of Stake
We could compare the classic Proof of Stake protocol to a form of direct democracy, while the Delegated Proof of Stake (DPoS) on the other hand is a form of participatory democracy.
While the Proof of Stake consensus allows any member of the network to validate blocks provided, they have deployed a minimum of crypto coins, Delegated Proof of Stake sets up a voting system in which users of the network must vote for representatives responsible for validating the blocks.
The delegates validate the transactions by signing each of the new blocks with their private key. They will also be responsible for jointly making important decisions about the rules that may affect the network.
If one of the delegates does not do their job properly, the users of the network can choose to vote the delegates out. After this, someone will replace it.
Proof of Capacity
The Proof of Work algorithm is often criticized for its energy consumption. There are a lot of people mining blocks, while there can only be one winner. It means a lot of energy is lost.
With Proof of Capacity, multiple nodes in the blockchain network can use the empty space on their hard disk. This space can then be used to validate transactions. The participants save a list of all possible solutions to the mathematical puzzle in their system. The more space they use, the larger this list of solutions can be.
Then we look at who has the right solution. The person with the correct solution will ultimately be the winner and will receive a reward. The advantage of Proof of Capacity is that it uses less energy than Proof of Work. But nodes can also simply empty their hard disk and reuse it after it has been deployed to the network.
What types of altcoins are there?
Of course, you have different Altcoins such as Ethereum, Litecoin, and Chainlink. But there are also types of Altcoins. These types of Altcoins all have their own properties. They are unique coins that are used for different purposes.
Stable Coins
A stable coin is literally a stable cryptocurrency. It, therefore, responds to one of the biggest problems in the cryptocurrency sector: high price volatility. The price of a cryptocurrency can vary from 10-20% or even 100-200% in one day. The operation and use of stable coins are incredibly easy.
If the price of Bitcoin is $6,000 and you exchange 1 Bitcoin for the dollar-backed stable coin, then you have 6,000 units of that stable coin. If the price of Bitcoin falls to $5,000, you still have $6,000 worth of stable coins. Conversely, if Bitcoin goes up to $7,000, you will still have $6,000 and stable coins.
The advantage of stable coins is that you can keep your money here without losing its value. For example, if you have just sold a particular currency, you can store the profit in a stable coin. You can then be sure that your profit will not be worthless.
Security Tokens
The security token defines security or digital asset. In accordance with the Howey test, the security token is considered a real investment or a purely financial investment with more or less long-term profit targets. In other words, the security token represents the digital equivalent of a share in a company's capital, a share in the ownership of a building, or a share in the ownership of other valuable assets.
Nowadays there are a large number of security tokens with which you can convert digital assets, real estate, works of art into digital assets. In the United States, the SEC oversees this particular token. Platforms such as Polymath or Harbor make it possible to invest in security tokens.
Utility Token
A utility token is a token whose main function is to provide future access to a service or product offered by a company. When you invest in utility tokens, the goal is to offer yourself or use a specific service. Unlike a security token, a utility token cannot really be considered an investment. However, the utility token is open to speculation. As the service it is associated with grows in popularity, the utility token's value will likely increase.
In practice, utility tokens can be used on a platform, for example, to take advantage of a special service. For ICOs, utility tokens are often a way for a company to generate interest in one of its future products.
Equity Token
Right now, equity is a word we use very rarely when it comes to crypto assets. The reason is simple: shares are ownership rights to a stock in a company. They, therefore, represent something that the security tokens do not do. These tokens do give their holders real rights and obligations.
We can actually explain it very simply. Equity tokens are only corporate shares converted on a blockchain. They are actually the next step of the current stock exchange system. When you buy shares now, you will have to do this through a broker or bank. You are very dependent on an intermediary. You also have to pay transaction costs.
Thanks to equity tokens, the tokens are directly in the hands of the buyer, or rather in their wallet. The buyer, therefore, does not need a bank or broker to buy the shares and keep them for the buyers. Ownership is entirely in the hands of the buyer. Thus, they are similar to the old paper-sized securities that the stock exchange used at the outset. However, the advantage of equity tokens over paper shares is that they can be traded much faster. It is also a lot safer. A paper stock could easily be stolen. That is not possible with equity tokens.
The difference between tokens and Altcoins
In essence, a cryptocurrency is no different from a token. Once tokens are created by a company and bought and accepted within a community, we actually call it cryptocurrency. But it is all a bit more complex and technical. A cryptocurrency is, as the name suggests, a payment method (in the economic sense of the term).
A token goes a lot further. It is not just any payment method. The functions of a token go much further. A cryptocurrency is actually a piece of P2P software that is built to be able to make payments. Think of Litecoin, Peercoin, Bitcoin, or Ethereum. It is not bound by any specific protocol. A token is bound to a specific protocol. When a token does not comply with a protocol, it cannot be used on the blockchain created for it.
Still, tokens can also be used as a means of payment. The dividing line between tokens and cryptocurrency is therefore not entirely clear and sharp. Many people often confuse these two terms, and that is completely understandable.
The main difference is that cryptocurrencies are used purely as a means of payment, while tokens have a much broader function. They contain values of assets or can be used for example for a voting system.
Altcoin ICOs
An ICO (Initial Coin Offering) is a fundraising method that works because tokens are issued by the company that wants to raise money. These tokens can then be exchanged for the cryptocurrency. This happens in the start-up phase of a new Altcoin. In this way, the company wants to raise money to be able to set up the Altcoin.
Tokens are issued by the organization behind the ICO and can be obtained by anyone during the ICO in exchange for a cryptocurrency (usually Ether or Bitcoin).
But in addition, these tokens are:
- Sellable and buyable on crypto exchanges, at a rate that depends on supply and demand. They are therefore very liquid.
- Intended to be useful in the project funded by the ICO in question. Their value would therefore depend on the service ultimately provided by the company behind the ICO.
The largest ICOs in the world
Below is a list of the 10 biggest ICOs since 2014. That means these ICOs have raised the most money.
- EOS ($4000 million)
- Telegram ($1,700 million)
- Bitfinex ($1000 million)
- TaTaTu ($575 million)
- Dragon Coin ($320 million)
- HDAC ($258 million)
- Filecoin ($257 million)
- Tezos ($233 million)
- Sirin Labs ($157 million)
- Bancor ($153 million)
Disadvantages of ICOs
The ICO does not only have advantages. After all, there is no guarantee for investors at all. It is difficult for investors to verify the relevance and quality of a project that does not yet exist. Unlike a stock exchange, nobody controls the market. Anyone can start an ICO and then start raising money. This is of course very attractive to scammers.
There are many stories where people have been defrauded through ICOs. That is precisely the reason that many people do not dare to invest in an ICO. When you are thinking about investing in an ICO, it is important to do good and solid research.
For example, find out who is behind the ICO. Are they famous people, and have they set up various projects in the past? What does the project look like and what is the technique used? It is also important that you have confidence in the ICO. A project can also simply fail. Even then you have lost your money.
The most popular Altcoins
There are so many different Altcoins. Cryptocurrencies are becoming increasingly popular. That is why more and more companies are deciding to set up their own Altcoin. For example, Facebook is working on a stable coin, called the Libra. Below we tell you more about the most popular and best-known Altcoins in the world.
Litecoin (LTC)
Like Bitcoin, Litecoin is a digital currency with one goal: to be able to make decentralized and digital payments. Created in 2011 to address perceived shortcomings in Bitcoin, it offers faster transactions, lower fees, and a wider range of tokens. Charlie Lee, founder, and former Google engineer explains Litecoin this way: “Bitcoin is digital gold. Litecoin is digital money”.
Ethereum (ETH)
Ether is a more advanced second-generation decentralized digital currency. Ether's platform is used to run smart contracts, decentralized applications (dApps) and is also the most popular digital currency to fund ICOs. Like other cryptocurrencies, ETH is also widely used as a means of payment.
EOS (EOS)
EOS is another second-generation blockchain and semi-decentralized digital currency designed to power dApps and DAOs (decentralized organizations). It competes with Ethereum for the title of the world's best smart contracts platform. Basically, EOS is faster and more scalable than Ethereum.
EOS also uses Delegated Proof of Stake (DPoS) and is much younger than Ethereum. That is something that is generally less well accepted.
Bitcoin Cash (BCH)
Like Litecoin, Bitcoin Cash is an offshoot of Bitcoin, born in the summer of 2017. Its founders call it "real Bitcoin". And finally, BCH is addressing Bitcoin's slow transactions, high power consumption, and other issues, but it hasn't received any recognition from the community so far. Like Bitcoin, it is a digital currency intended purely for payments.
Ripple (XRP)
Ripple XRP is another digital token for payments. In addition,
Ripple Labs also uses it as a source of liquidity for real-time cross-border fiat payments. For this reason, it is often referred to as a "bank token". This coin is designed to be the fastest and most scalable digital asset.
Tether (USDT)
Tether is the most popular stable coin available. It is a stable currency pegged to the US dollar with a 1: 1 ratio. A Tether is always worth $1 and can be exchanged for a wire transfer at any time. It essentially combines the benefits of blockchain technology with the stability of fiat currencies, reducing volatility in otherwise extremely volatile markets.
Traders often use it to hedge their funds in uncertain times. In addition, it can be used as a payment method as it can be sent anywhere in the world via the blockchain. However, unlike Bitcoin or Ethereum, Tether is highly centralized, and transactions can be suspended by Tether Company Limited at any time.
TRON (TRX)
TRON is a semi-centralized digital currency for entertainment systems and digital content generation. The TRON protocol provides scalability, high availability, and high-speed computing (HTC) support for building decentralized applications in the TRON ecosystem. In addition, it is compatible with Ethereum smart contracts. The main goal of the network is to decentralize webcasting. The TRX Coin is used to share content on the network and to reward content creators who contribute to the network. Hence, it can be classified as both a digital currency and a utility token.
Monero (XMR)
It is a decentralized privacy-focused cryptocurrency designed to make anonymous payments. It is one of the oldest currencies on the market since its launch in 2014. Every XMR user can manage their visibility and personal data. It is also much faster and more scalable than Bitcoin. Despite this, the privacy features of the rooms are not always used for good, as evidenced by the growing popularity of the dark web and other nefarious incidents.
IOTA (MIOTA)
IOTA is an innovative project for the future of the Internet of Things (IoT). It enables fast transactions between IoT machines. While this feature is somewhat ahead of its time, MIOTA can also be used as a regular payment cryptocurrency, making it a legitimate digital currency.
Buy altcoins
Buying Altcoins is anything but difficult. Do you want to buy Altcoins with a credit card, PayPal, or any other payment method? At Coinmerce it is possible to buy Altcoins with a credit card, PayPal, or other payment methods. Here you will find almost every Altcoins that are available. That is why there is a good chance that you will also find your Altcoin on the Coinmerce crypto exchange.