Dummy’s Guide to Altcoins - What is an Altcoin?
You’ve likely heard of Bitcoin but have you heard of an altcoin? Bitcoin was the original cryptocurrency and all other cryptocurrencies that followed were meant to either replace Bitcoin or at least improve upon its use. The term comes from the words “alternative” and “coin” and refers to a Bitcoin alternative, which is essentially every cryptocurrency except for Bitcoin. There are almost 2,000 altcoins that exist today.
How do altcoins differ from Bitcoin?
Bitcoin’s framework is open source, meaning it’s public and accessible to everyone for use. Many altcoins, especially the first altcoins, use the same framework as Bitcoin. This framework is peer-to-peer, uses computing power to solve algorithms to “mine” or unlock new coins, and is a cheaper and more efficient alternative to using traditional fiat currency to complete payment transactions.
Although they use the same framework, they often differ in protocol from Bitcoin. These differences can include the size of block, the speed of mining each block, different hashing algorithms (which determines what type of hardware is required to mine) and consensus mechanism (how the miners determine how the next block is solved/mined).
Today, many altcoins have completely different uses than being just a replacement for fiat currency and they solve specific problems, such as cross-border payments, privacy, and distributed computing, just to name a few.
What are the top 10 altcoins?
Now that the definition of an altcoin is clear as mud, you may be wondering what the top altcoins are and what purpose they serve.
Ethereum is an open source developer platform on the blockchain that enables developers to build apps on top of their blockchain. These apps are called decentralized apps or Dapps. Ethereum was also the first to implement the ability for developers to create smart contracts on their blockchain. Smart contracts enable actions to get fulfilled based on specific conditions set in the contract. Ethereum has the second highest market capitalization (value) after Bitcoin.
Ripple works with banks and payment providers to enable seamless cross-border payments. Though not geared towards consumers but towards large institutions, it has gained much recognition due to partnerships with many large banks around the world.
Bitcoin Cash (BCH)
Bitcoin Cash is a hard fork of Bitcoin. A hard fork means that a majority of the mining community agrees on a new protocol for that blockchain and previous transactions which were considered invalid are now allowed. The hard fork for Bitcoin Cash specifically arose because of concerns around the size of the blocks of Bitcoin, which slowed down processing times. Bitcoin Cash increased the original Bitcoin block size from 1 megabyte (1MB) to 8 megabytes (8MB).
Stellar is actually a hard fork of Ripple (XRP). Though Stellar was originally forked from Ripple, the code was completely rewritten, including creating a new protocol. Stellar and Ripple both focus on seamless cross-border payments but because Stellar is a nonprofit organization, it focuses on helping facilitate payments quickly with low-cost transactions. It enables those who are unbanked to access low-cost banking.
EOS is another open source platform for developers to build decentralized applications but one that was built to solve the scalability issues of Ethereum and also to eliminate fees for users. EOS raised the largest ICO at $4 billion dollars and which lasted a year. It is often called the “Ethereum killer” because it’s supposed to handle at least 1000 transactions per second upon launch compared to Ethereum’s 15 transactions per second. However recent reports indicate that actual transactions EOS can handle is similar to Ethereum; however, it’s still unclear exactly what the average transactions per second (TPS) for EOS is.
Litecoin is essentially a “light” version of Bitcoin. It has a block processing time of 2.5 minutes compared to Bitcoin’s 10 minutes and a different mining procedure. However the uses are the same between Bitcoin and Litecoin except that Litecoin was built to handle higher transaction volumes quickly at low transaction costs. Litecoin has grown exponentially in value since 2017 due to its ability to implement new features to improve its network before Bitcoin.
Tether is a stablecoin, which is a cryptocurrency which is pegged and backed to another real asset, such as gold or fiat currency (USD, JPY or EUR). Stablecoins exist to provide stability to the crypto market and resist the volatility other cryptocurrencies are subject to. Tether is always equivalent to $1 USD and they manage this by holding collateral (USD) in reserves to pay for redemption of the tokens. Tether is the most traded cryptocurrency after Bitcoin. It has come under attack from allegations of price manipulation on exchanges as well as a lack of transparency and accountability as to whether there are enough reserves to fully back all the tokens in circulation.
Cardano is another open source, decentralized blockchain enabling creation of decentralized apps on its network. It calls itself a generation three blockchain, meaning it has built upon the first two generations of blockchain to improve the issues inherent in the first two generations. The first generation is Bitcoin and the second is Ethereum and smart contracts. Cardano aims to solve the problems of scalability (e.g. transactions per second), interoperability (e.g. communication between different blockchains such as Bitcoin and Ethereum) and sustainability (e.g. how to pay for its own continued development and growth).
Monero is a peer to peer payment system that is secure, private and untraceable. Anyone can send transactions on the Monero network but all transactions remain completely anonymous, unlinkable and untraceable. Due to the inability to trace the tokens and transactions, Monero has been used in many hacks and illicit activities.
Tron is a decentralized content distribution platform that directly connects content creators with consumers and removes the middleman. It wants to solve the problem of distributing and tracking content and usage of that content in the creative industry. It has come under criticism about pump and dump schemes in the past but is backed by many large and well-known investors.
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