Understanding Altcoins: What are Alternative Cryptocurrencies?

Altcoin is a term that means “Alternative to Bitcoin” and is meant to describe any and all cryptocurrencies in the market that are not Bitcoin. When the term first started being used Bitcoin had over 95% of the global cryptocurrency market, so labeling new players as “alternative” made sense. Here we're going to discuss the major Altcoin players and why the term has become outdated.

The History of the Altcoin Market

It took two years after Bitcoin’s launch in 2009 for the first Altcoin to appear, now there are thousands on the market. Cryptocurrency is an idea that needed time to operate before it built enough trust for people to see it as a store of value.

Money only works when people believe that it is valuable. As the first real working cryptocurrency, it took Bitcoin several years before the world started to see it as reliable and stable enough to value it. Bitcoin paved the way for developers of alternatives by giving them a working model to work from, but it was far from perfect.

Many of the early iterations of Altcoins work very similarly to how Bitcoin works because Bitcoin proved that digital currencies could be viable.

Namecoin was the first altcoin to come on the scene in April 2011 but was quickly followed by Litecoin and a handful of others later that year. The actual size of a cryptocurrency’s market is determined by a metric called Market Cap.

Market Cap

Much like a company’s market capitalization on the stock exchange, a cryptocurrency’s market cap is determined by running a simple calculation:

Cryptocurrency Market Cap = (Total Current Coins) X (Current Price)

Knowing the market cap gives you an understanding of how much a particular currency is being used. When compared to the global market cap for cryptocurrency, you can see just how important said currency is. Luckily you won't have to do this calculation on your own; sites like coinmarketcap.com have all this data available in real time.

At the writing of this article, the global market cap for cryptocurrency was around $115 billion, while it’s a far cry from the historical high of $750 billion in 2017, it’s still something to take notice of. Unfortunately, the volatility that the market has experienced in recent years has led many people to lose trust in the system.  

What is an ICO (Initial Coin Offering)?      

Whenever a new coin or token comes onto the market it is called an Initial Coin Offering or (ICO) for short. An ICO is the initial sale of a new token on the open market. During the ICO sale, investors are allowed to buy the new tokens using established cryptocurrencies like Bitcoin. ICO’s are used to raise capital for new ventures much like IPOs do for companies on the stock exchange.

Many of the “ICOs” that are released today aren't “coins” at all, they’re Tokens. Coins and Tokens have some unique differences:

Coin: A classic iteration of a cryptocurrency. Coins are minted, many times through some type of mining process, and are designed to be traded for goods and services or bought as investment opportunities. Coins are also known as “payment tokens” and fall under the umbrella token term.

Token: A token can be any unit or store of value on a blockchain network. Tokens can represent stakes in companies or projects, network discounts, utility, or even other tokens. You can read more about the different types of cryptocurrencies in this article.

While it would probably be more accurate to call an ICO an ITO, the name stuck. ICO is the blanket term used in the industry, so there's really no need to make a distinction between the two.

Top Altcoins by Market Cap

Ripple

Ripple and its permissioned blockchain network RippleNet targets large banks as their primary customers. Legacy banking systems are able to be “retrofit” with the Ripple protocol and get on the network. The primary goal of Ripple was to become a global settlement network for payments, reducing transaction times and increasing liquidity. At the time of writing, Ripple was the 2nd largest blockchain from a market capitalization standpoint even overtaking Ethereum.

Ripple operates differently from Bitcoin and Ethereum because only “trusted” nodes can validate transactions on its blockchain. Another big differentiating factor of Ripple is that the network has a fixed amount of currency (100 billion XRP) and does not allow for mining. Ripple solves a big problem that exists today with global payment settle between different entities, what use to take days, Ripple can do in seconds.   

Ethereum

The Ethereum blockchain is one of the largest and most innovative networks to date. Unlike Bitcoin, Ethereum focuses on providing a platform for developers to create Decentralized Applications (Dapps) powered by Smart Contracts. Ethereum has a cryptocurrency called ether that is used to interact with Smart Contracts on its network.

Ethereum is open source and currently operates on a “proof-of-work” model for mining new coins. Anyone with the computer power to do so can mine Ether and validate transactions. The platform offers considerably more utility than Bitcoin by allowing more complex types of transactions and the storage of information on smart contracts.

Stellar

The Stellar network is a global payment system designed to aid in the speed of sending, receiving, and converting different types of crypto and fiat currencies. The Stellar.org Foundation is a not for profit that supports the development and expansion of the network. The mission focus of Stellar is to decrease poverty by making financial services more accessible and more affordable.

Stellar is most easily compared to a system like Ripple, but it takes a more egalitarian approach to network accessibility. The native payment tokens that Stellar uses are called lumens, and like Stellar, there is a fixed supply of 100 billion. Lumens are used on the network for two main reasons:

Transaction Fees: By requiring lumens for transaction fees the network can help to secure itself against a host of different cyber attacks.

Multi-Currency Transactions: Lumens can be used as an intermediary currency to help facilitate complex transactions between currencies where no market for direct exchange exists.

Bitcoin Cash

One of the biggest issues with Bitcoin is its scalability. As Bitcoin grows, it puts pressures on the blockchain network and the protocol itself. One of the problems with Bitcoin is slow transaction times, due to high volume. Currently, the block size of Bitcoin (1 MB) is not sufficient for the number of transactions that need to be processed. Bitcoin Cash is a “hard fork” of the Bitcoin network that is functionally identical to Bitcoin, but with a block size increase up to 32MB.

Bitcoin Cash came onto the market in August 2017 and has seen widespread adoption and acceptance ever since. Now standing as the fourth largest Altcoin, Bitcoin cash seems to have a bright future ahead of it.

EOS

An Altcoin that calls itself the “Ethereum Killer” EOS is a platform for creating Dapps. The issue that EOS wanted to solve is the accessibility of Dapp development. Ethereum requires that developers learn a language like Solidity in order to develop for the network, EOS is much easier to develop on which reduces barriers to entry.   

The EOS token is not a utility token and is not required for running Dapps, though it can be. The EOS network only uses 21 nodes to validate and reach consensus, which has made many skeptical about the project’s centralization.  

Tether

A payment token that falls under the class of “stable coins” which are meant to mirror the value of the US dollar. Tether is the most popular stable coin and differs from other cryptocurrencies because it is 100% backed by the US dollar.

The main value that tether brings to the cryptocurrency market is its liquidity with the US dollar. You can trade other cryptocurrencies for Tether on exchanges and then theoretically convert the currency into USD.

Litecoin

Like Bitcoin Cash, Litecoin works essentially the same way that Bitcoin does with a few major differences. The Litecoin network processes blocks in 2.5 minutes as opposed to Bitcoin’s 10 minutes, this dramatically increases transaction time. There are also 84 million Litecoins that can be mined as opposed to Bitcoin’s 21 million. These small changes have increased the use cases for Litecoin in merchant transactions which makes it easier to use as a replacement for cash.

Litecoin was the first major Altcoin to Bitcoin and has maintained a strong market showing during its life. Mining on the Litecoin network is proof-of-stake just like Bitcoin’s, so there is a considerable power consumption associated with its use.     

Bitcoin SV

Short for Bitcoin Satoshi Vision, Bitcoin SV was formed in 2018 after a hard fork from the Bitcoin Cash blockchain. As the name implies, Bitcoin SV wants to realize the true vision of Bitcoins creator Satoshi Nakamoto, a worldwide digital currency that puts the power back in the hands of the people.  

It restores the original Bitcoin protocol and allows miners greater control over the process. The idea is to allow Bitcoin to scale without losing sight of its true purpose.  

Cardano

A decentralized public blockchain with its roots in Ethereum, Cardano has proven itself as a major player in recent years. As of today, it is primarily a cryptocurrency, but it has smart contract support in the works.

Cardano separates itself by being based in Haskell code which brings a good deal of security to the platform. Privacy and security are the main focuses of the system.

Tron

A different take on a Dapp platform, Tron seeks to bring content creators and consumers closer than ever before. The idea is to use blockchain technology to cut out the middlemen that stand between people creating content and those who would like to consume it. Its native cryptocurrency (Tronix) is used to pay for content on the platform.

While there are not many supported Dapps as of yet, the platform has a large potential for growth. Development on the network is very accessible and much of the functionality can be accessed through a normal chrome browser.

Monero

A cryptocurrency completely based on the idea of maintaining anonymity and security of transactions. Monero started in 2014 and has grown substantially since. The Monero system uses ring signature technology to disguise the identity of the people sending and receiving transactions.

While the technology has many white hat applications, it’s security features have made it very useful for black hat actors. The mining process for Monero is much more egalitarian than cryptocurrencies like Bitcoin and does not require specialized hardware.   

IOTA

A unique cryptocurrency that focuses on the internet of things, IOTA takes a different approach to decentralization. Instead of a network that validates constantly on all nodes, IOTA uses a platform called Tangle to reduce the number of nodes involved. In order for a transaction to be validated at a node, said node must validate two previous transactions at another node.

The technology speeds up transaction times and reduces network loads when validating transactions. There is no mining in the Tangle system and as a result, bottlenecks associated with the practice are eliminated.    

Binance Coin

Binance is a cryptocurrency exchange hosted on the Ethereum blockchain. It facilitates the exchange of many different types of cryptocurrencies and is available for anyone to use. The Binance coin is the native currency on the exchange and is used for transaction fees on the network.

A unique feature of the token is that when it’s used on the network, Binance coins receive a discount. Binance has a buy-back program in place where it purchases back large quantities of the currency and destroys it to keep the value high.

Dash

This cryptocurrency set out to fix scalability, speed, and security issues with Bitcoin. Dash uses a concept called “masternodes” to incentivise people who run these nodes by giving them block rewards. People who want to control a masternode must put up 1000DASH as collateral to ensure that they do anything that might harm the integrity of the network.   

Dash has a feature called PrivateSend which packages multiple transactions together and sends them as one, making it much more difficult to pick out which person is which. While not as secure as a system like Monero’s ring signature system, it is still much harder to trace than Bitcoin. The network increases the speed of its transactions as well with the addition of InstantSend, transactions made through the system are near instantaneous.

The Future of Altcoins

It’s easy to see a future where Bitcoin doesn’t hold such a commanding lead over the cryptocurrency market. As more trust is built into the blockchain systems that govern cryptocurrencies and more wealth moves over to their networks, more Altcoins will be created to meet the demand.

While a full replacement of legacy bank transfer and settlement systems is still a long way off, systems like Ripple and Stellar are changing the way the world sends money. The true potential of Dapps has not yet been realized and systems like Ethereum and EOS are making smart contract technology more accessible for everyone.

There is no doubt that Altcoins, and the blockchains they run on, will become a bigger and bigger part of everyone’s lives in the future. We may even see a future when Bitcoin is the “Altcoin” to the next great cryptocurrency.