What is Altcoin?
Alternative digital assets, such as a currency or token that is not Bitcoin, are referred to as altcoins. This terminology stems from the notion that Bitcoin is the first cryptocurrency and that all others are "other" or "alternative" currencies.
The word "Altcoin" is also used to refer to digital assets that are formally referred to as "tokens" rather than coins. The ERC-20 tokens that exist on top of the Ethereum blockchain are the most well-known instances.
More than 2,000 alternative cryptocurrencies have been launched since the inception of Bitcoin in 2008. In reality, many of these altcoins were generated as modified versions of Bitcoin via the Hard Fork process. Despite certain similarities, each altcoin has its unique set of capabilities.
Altcoins cloned from Bitcoin frequently use a similar mining method that depends on the Proof of Work consensus mechanism. Several other cryptocurrencies, however, are experimenting with various means of attaining agreement inside dispersed blockchain networks. The most prevalent alternative to Proof of Work is the Proof of Stake consensus method, although other prominent examples include the Delegated Proof of Stake, Proof of Burn, Proof of Authority, and Delayed Proof of Work consensus algorithms.
While some users consider the term "Altcoin" to be pejorative or demeaning, it is widely considered to be neutral in its use. The word is not intended to communicate any favorable or negative feeling regarding the asset in question. On the other side, the phrase "shitcoin", for example, evokes a negative reaction and is commonly seen as derogatory.
Pros and Cons of Altcoins
Altcoins are viewed as enhanced versions of the cryptocurrency from which they are derived, with the goal of addressing perceived shortcomings. Altcoins with more practical applications, like Ethereum's ether, have a better chance of surviving.
Investors have a wide range of altcoins to choose from, each serving a different function in the cryptocurrency economy. Although altcoins offer a diverse investment opportunity, they have a smaller investment market compared to Bitcoin, which has maintained around 40% of the global cryptocurrency market share since May 2021.
The altcoin market is marked by fewer investors and lower activity, leading to lower liquidity. It can be difficult to differentiate between various altcoins and understand their respective use cases, adding complexity and confusion to investment decisions. Additionally, there are several altcoins that have failed, resulting in lost investments for some investors.
Do All Altcoins Share Any Common Features?
Cryptocurrencies such as Bitcoin, Ether, and others can be utilized for payments on various platforms beyond their native environment. Many altcoins bear resemblance to Bitcoin but differentiate themselves through unique features, like alternative distribution methods or mining algorithms.
Despite these differences, the majority of altcoins serve as a store of value and for facilitating decentralized peer-to-peer payments, offering faster transaction speeds or enhanced privacy compared to other coins. Some altcoins have been created for highly specific use-cases, deviating from Bitcoin's original goal as a peer-to-peer payment network.
Future of Altcoins
The debate over the future of altcoins and cryptocurrencies draws parallels to the emergence of a nationally issued dollar in the 19th century. Back then, various local currencies were in circulation in the US, each with its distinct features and backing. Local banks also issued their currency, sometimes with questionable backing.
This mirrors the current scenario in the altcoin world, where thousands of altcoins, each serving a different market and purpose, exist. Despite the diversity, it's unlikely that a single cryptocurrency will become dominant, but a few altcoins with strong utility, use cases, and a well-defined blockchain purpose are expected to emerge as leaders in the market.
According to some market participants, all cryptocurrencies owe their existence to Bitcoin, and it is predicted that up to 99% of altcoins will ultimately hold no value. For an altcoin to be successful in the long run, it should be designed to serve a specific, well-defined purpose within a viable regulatory framework and must have a path towards widespread adoption to maintain its value over time.
The digital currency known as Bitcoin is operated through a distributed computer network. However, in a larger sense, the term "Bitcoin" is frequently used to refer to a number of other concepts.
The Proof of Stake (PoS) system was created as an alternative to Proof of Work (PoW). Miners on PoW-based blockchains, such as Bitcoin, can only be rewarded if they find a valid solution to a cryptographic puzzle.
Proof of work (PoW) refers to a system that demands a considerable amount of effort to discourage malicious uses of computing power, such as sending spam emails or launching denial of service attacks.
Ethereum is a decentralized global software platform based on blockchain technology. It is internationally known for its own cryptocurrency, ether (ETH).