Altcoins are alternatives to Bitcoin. If you have heard about blockchain, then Altcoins are the kind that rely on the blockchain technology to allow secure peer-to-peer transactions. Altcoins build on the success of Bitcoin by slightly changing the rules to appeal to different users.
How Do Altcoins Work?
In brief, altcoins work much like the original Bitcoin as designed by the anonymous Satoshi Nakamoto. Using a private key, you can send a payment from your digital wallet to another user’s wallet. In any cryptocurrency, there will always be a blockchain or a recording ledger, where the transactions are permanently and publicly recorded, so exchanges can’t be altered or denied after the fact. The blockchain is secured by mathematics proofs which confirm transactions in blocks. Bitcoin usually needs 3 confirmations while some altcoin offer lightening speed transactions. E.g. Ethereum.
Altcoin vs. Bitcoin
It’s a mistake to assume that all Altcoins follow the same rules as Bitcoin. Nop. For example, while Bitcoin will only ever mine, or produce, bitcoins every 10 minutes, an altcoin called Litecoin will produce coins every 2.5 minutes. This makes Litecoin able to process payments faster. Litecoin will also produce 84 million litecoins, whereas Bitcoin will only produce 21 million bitcoins. The market cap even creates what we call a market cap.
Litecoin also uses a different set of rules for mining than what bitcoin uses. Whereas bitcoins require costly hardware to mine, litecoins can be mined with common computer hardware.
As of today, there is 7,847 Altcoins listed on the world biggest coin market cap tracker. There so many other thousands that are not listed on coinmarketcap but are being traded on places like Uniswap.
Pros and Cons of Altcoins
Pros
- Improve on Bitcoin’s flaws
- Provide competition
- Low transaction fees
Cons
- Value is very volatile
- High potential for scams and fraud
Pros explained
- Improve on Bitcoin’s flaws: Altcoins are generally designed to address a perceived shortcoming with the Bitcoin framework, whether it’s speed, mining cost, or some other factor.
- Provide competition: By tweaking the rules under which Bitcoin operates, altcoin creators make space for new competitors to the Bitcoin system.
- Low transaction fees: One of the benefits of using altcoins as a payment method, in addition to secure blockchain technology, is the relatively low transaction fees charged for each transaction.
Cons explained
- Value is very volatile: As an investment, altcoins are very new and their value can change drastically.
- High potential for scams and fraud: Altcoins, as with Bitcoin, are frequently the subject of scams and other fraudulent schemes
Types of Altcoins
Altcoins are sometimes projects from enthusiasts, and sometimes the basis for whole new businesses. They can even be more than coins, developing into entire new frameworks for everything from messaging applications to online marketplaces.
An altcoin will often change Bitcoin’s rules sufficiently to do something uniquely productive and may have a particular application.
Stablecoins
Stablecoins are altcoins that are designed to combat the volatility of cryptocurrency by tying their value to an underlying index, commodity, or security. Tether is one example of a stablecoin; Libra is a stablecoin under development by Facebook.
Digital tokens
Altcoins that function as digital tokens are supported by an underlying blockchain platform. For example, Tether can also be considered a digital token, as it is built on Ethereum and other blockchains.
Some investors seek to earn returns by exchanging altcoins with each other, too, but as an investment, it’s risky. Virtual currencies trade on unregulated exchanges, which leave you vulnerable to price manipulation, fraud, and other problems.
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