What is an⠀altcoin? A⠀beginner's⠀guide to⠀cryptocurrencies⠀beyond⠀Bitcoin
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What⠀is an⠀altcoin?⠀Altcoins⠀explained
An⠀altcoin is⠀an⠀amalgamation⠀of⠀“alt,”⠀referring⠀to⠀“alternative”⠀and⠀“coin,”⠀referring⠀to⠀“cryptocurrency,”⠀i.e., all⠀coins that⠀are not⠀Bitcoin⠀
BTC
tickers⠀down
$29,517
⠀are⠀altcoins.⠀Bitcoin⠀was the⠀cryptocurrency⠀that⠀introduced⠀blockchain⠀technology⠀to the⠀world⠀after the⠀global⠀financial⠀crisis of⠀2008–09.⠀
BTC has⠀established⠀itself as⠀the⠀“gold⠀standard”⠀of⠀cryptocurrencies⠀and⠀brought a⠀revolution⠀to the⠀world of⠀finance.⠀It has⠀become the⠀stable⠀equilibrium⠀among⠀cryptocurrencies⠀based on⠀blockchain⠀technology⠀due to its⠀first-mover⠀advantage.⠀Alternative⠀cryptocurrencies⠀have been⠀created to⠀improve on⠀Bitcoin's⠀technical⠀and⠀practical⠀challenges⠀(more on⠀this⠀later).⠀So, is⠀Ethereum⠀an⠀altcoin?
The⠀birth of⠀altcoins⠀was⠀followed⠀by the⠀introduction⠀of second⠀and⠀third-generation⠀blockchain-based⠀cryptocurrencies⠀like⠀Litecoin⠀
LTC
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$84.17
⠀and Ether⠀
ETH
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$1,851
.⠀While⠀Bitcoin is⠀frequently⠀quoted in⠀dollars,⠀yuan,⠀euros and⠀other fiat⠀currencies,⠀altcoins⠀(alternative⠀cryptocurrencies)⠀are⠀typically⠀priced in⠀BTC.
This⠀article⠀aims to⠀clarify⠀various⠀questions⠀like how⠀do I buy⠀or sell⠀altcoins?⠀What's the⠀difference⠀between⠀Bitcoin⠀and⠀altcoins?⠀Are⠀altcoins⠀better⠀than⠀Bitcoin?
Types⠀of⠀altcoins
Altcoins⠀can be⠀categorized⠀as⠀proof-of-work⠀(PoW) and⠀proof-of-stake(PoS)⠀altcoins⠀(based on⠀consensus⠀mechanisms),⠀stablecoins⠀and⠀decentralized⠀finance⠀(DeFi)⠀altcoins.
PoW⠀and PoS⠀altcoins
The⠀Bitcoin⠀network⠀follows⠀the PoW⠀consensus⠀method to⠀verify and⠀process⠀transactions.⠀Other PoW⠀altcoins⠀include⠀LTC,⠀Bitcoin⠀Cash⠀
BCH
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$238
,⠀and Zcash⠀
ZEC
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$30
.⠀In⠀contrast,⠀validators⠀(instead⠀of miners)⠀verify⠀transactions⠀in the PoS⠀model.⠀
Ethereum⠀is moving⠀to the PoS⠀consensus⠀mechanism⠀due to the⠀energy-intensive⠀nature of⠀the PoW⠀method.⠀Cosmos⠀
ATOM
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$8.46
⠀and Tron⠀
TRX
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$0.0769
⠀are other⠀examples⠀of PoS⠀altcoins.
Stablecoins
Coins⠀which have⠀their⠀value⠀pegged to⠀fiat like⠀USD are⠀called⠀stablecoins.⠀The value⠀of the⠀stablecoin⠀is⠀equivalent⠀to one⠀unit of⠀the fiat⠀currency⠀to which⠀it is⠀pegged.⠀For⠀instance,⠀Tether⠀
USDT
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$1.00
⠀is a⠀stablecoin⠀the value⠀of which⠀is pegged⠀to⠀USD.
To⠀accomplish⠀the peg,⠀the⠀stablecoin's⠀issuer⠀normally⠀keeps cash⠀or other⠀assets⠀that are⠀equal to⠀the number⠀of coins⠀in⠀circulation⠀in its⠀reserve.⠀In that⠀manner, if⠀the coin⠀fails or⠀has⠀issues,⠀the⠀holders⠀will be⠀compensated.
DeFi⠀altcoins
Blockchain-based⠀DeFi⠀stablecoins⠀allow⠀holders to⠀lend and⠀borrow⠀their⠀cryptocurrencies⠀to earn⠀passive⠀income in⠀return.⠀Compound⠀
COMP
$56.23
,⠀Synthetix⠀
SNX
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$2.60
⠀and⠀Uniswap⠀
UNI
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$6.26
⠀are⠀examples⠀of DeFi⠀altcoins⠀to⠀buy.
What's⠀the⠀difference⠀between⠀Bitcoin⠀and⠀altcoins?
Altcoins⠀set⠀themselves⠀apart from⠀BTC by⠀expanding⠀their⠀capabilities⠀and⠀filling in⠀the gaps⠀left by⠀Bitcoin's⠀alleged⠀flaws.⠀Various⠀altcoins⠀like LTC,⠀ETH, BCH⠀and ZEC⠀have been⠀compared⠀to BTC in⠀the below⠀sections.
Litecoin⠀vs.⠀Bitcoin
On⠀October 7,⠀2011,⠀Litecoin⠀was⠀introduced⠀in an⠀attempt to⠀make minor⠀improvements⠀to the⠀original⠀Bitcoin⠀technology.⠀Litecoin⠀is heavily⠀based on⠀Bitcoin,⠀but it⠀differs in⠀a few key⠀aspects.⠀For⠀example,⠀LTC⠀reduced⠀the time⠀needed to⠀construct⠀a block⠀from 10 to⠀2.5⠀minutes in⠀the hope⠀that⠀increasing⠀the number⠀of⠀completed⠀transactions⠀in a given⠀amount of⠀time would⠀increase⠀the speed⠀of the⠀network.⠀
However,⠀decreasing⠀the block⠀time comes⠀at the⠀expense of⠀orphaned⠀blocks⠀that⠀miners⠀have⠀solved but⠀which were⠀not picked⠀as the⠀blockchain's⠀next path.⠀As a⠀result,⠀miners⠀could not⠀process⠀the sheer⠀amount of⠀transactions⠀at a⠀suitable⠀rate in⠀December⠀2017,⠀causing⠀Litecoin⠀to⠀experience⠀scalability⠀challenges.
To⠀address⠀the above⠀issues,⠀Litecoin⠀adopted⠀Segregated⠀Witness⠀(SegWit),⠀Mimble⠀Wimble and⠀the⠀Lightning⠀Network to⠀decrease⠀the⠀congestion⠀over the⠀network.⠀Furthermore,⠀Litecoin⠀picked a⠀different⠀algorithm⠀than⠀Bitcoin,⠀relying⠀more on⠀the memory⠀of a⠀mining⠀computer⠀than the⠀original⠀code,⠀which gave⠀it better⠀efficiency⠀with more⠀processing⠀power.⠀Bitcoin⠀uses the⠀SHA-256⠀encryption⠀algorithm,⠀while⠀Litecoin⠀uses⠀Scrypt.
Finally,⠀LTC⠀differs⠀from BTC⠀in that⠀the total⠀supply of⠀coins has⠀been⠀increased⠀from 21 to⠀84⠀million.⠀This means⠀that the⠀same trade⠀in⠀Litecoin⠀would cost⠀2 units⠀instead of⠀0.5 units⠀in⠀Bitcoin,⠀making it⠀more⠀realistic⠀in⠀appearance⠀and more⠀useful to⠀those with⠀poor⠀numeracy⠀skills.
Ethereum⠀vs.⠀Bitcoin
Ethereum⠀was born⠀on July⠀30, 2015,⠀and is⠀very⠀distinct⠀from⠀Bitcoin in⠀terms of⠀functionality⠀— like⠀LTC.⠀Rather⠀than using⠀Bitcoin as⠀a model⠀for⠀digital⠀currency,⠀Ethereum⠀employs⠀the⠀blockchain⠀concept to⠀create a⠀decentralized⠀Turing-complete⠀virtual⠀machine.⠀The⠀Ethereum⠀virtual⠀machine is⠀a⠀decentralized⠀computer⠀that can⠀process⠀scripts⠀and codes⠀from⠀anywhere⠀on the⠀network.
Ethereum⠀also⠀introduced⠀smart⠀contracts⠀to the⠀world,⠀demonstrating⠀the⠀decentralized⠀applications'⠀fundamental⠀logic.⠀With a⠀limitless⠀supply,⠀14-second⠀block⠀durations,⠀and blocks⠀capped by⠀their⠀computational⠀cost,⠀Ethereum's⠀inner⠀workings⠀differ⠀dramatically⠀from those⠀of⠀Bitcoin.
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Bitcoin⠀does not⠀have an⠀intrinsic⠀value,⠀whereas⠀Ethereum's⠀smart⠀contracts,⠀speed,⠀scalability,⠀disinflationary⠀supply and⠀move to⠀switch to⠀a PoS⠀algorithm⠀and⠀innovation⠀layer add⠀to the⠀network's⠀value,⠀offering⠀ETH an⠀intrinsic⠀value.
Bitcoin⠀Cash vs.⠀Bitcoin
On⠀August 1,⠀2017,⠀Bitcoin⠀Cash was⠀formed as⠀a software⠀update⠀(fork)⠀from the⠀original⠀Bitcoin⠀network to⠀use SegWit⠀to fix⠀Bitcoin's⠀scaling⠀issues.⠀However,⠀later⠀users⠀modified⠀their⠀approach⠀to expand⠀the block⠀size from⠀1 to 8 MB,⠀allowing⠀for an⠀eightfold⠀increase⠀in the⠀number of⠀transactions⠀each 10⠀minutes,⠀reducing⠀transaction⠀fees.
Furthermore,⠀BCH⠀supporters⠀believe it⠀is better⠀suited as⠀a means of⠀exchange,⠀whereas⠀Bitcoin is⠀better⠀suited as⠀a store of⠀value.
ZCash⠀vs.⠀Bitcoin
Zcash⠀was⠀introduced⠀on October⠀28, 2016,⠀with block⠀times⠀reduced⠀from⠀Satoshi⠀Nakamoto's⠀original⠀proposal⠀of 10⠀minutes to⠀2.5⠀minutes.⠀Zcash⠀extends⠀Bitcoin's⠀idea of⠀"pseudonymity"⠀(where⠀owners are⠀unknown⠀but⠀addresses⠀are⠀available⠀publicly)⠀to⠀anonymous⠀transactions.
To⠀account⠀for the⠀added data⠀within its⠀more⠀complicated⠀transactions,⠀ZEC chose⠀a block⠀size of 2⠀MB, which⠀is twice⠀that of⠀BTC.
A⠀summary of⠀differences⠀between⠀the⠀above-mentioned⠀altcoins⠀and⠀Bitcoin is⠀listed⠀below:
Bitcoin⠀vs.⠀Litecoin⠀vs.⠀Ethereum⠀vs.⠀Bitcoin⠀Cash vs.⠀ZCash
How⠀do I buy⠀altcoins?
If⠀you are⠀wondering:⠀Should I⠀invest in⠀altcoins?⠀And want⠀to know⠀how you⠀can do⠀this,⠀please⠀follow the⠀steps⠀below.
Determine⠀what⠀percentage⠀of⠀altcoins⠀you want⠀to add to⠀your⠀portfolio
Your⠀altcoins⠀investing⠀strategy⠀depends⠀upon how⠀risk-averse⠀you are or⠀the extent⠀of risk⠀you are⠀willing to⠀take.⠀Based on⠀the level⠀of⠀risk-return⠀you⠀expect,⠀determine⠀a portion⠀of⠀altcoins⠀that you⠀want to⠀add to⠀your⠀portfolio.
Research⠀altcoins⠀in which⠀to⠀invest
For⠀altcoin⠀trading,⠀first⠀determine⠀the best⠀altcoins⠀by looking⠀at the⠀project's⠀website,⠀social⠀media⠀handles⠀and the⠀team⠀behind the⠀project.⠀All these⠀factors⠀will help⠀you figure⠀out the⠀authenticity⠀of the⠀project.⠀Also, find⠀out if⠀your⠀current⠀wallet is⠀compatible⠀with the⠀altcoin⠀you want⠀to buy or⠀if you⠀need to⠀get a new⠀cryptocurrency⠀wallet.
Choose⠀an⠀exchange⠀and find a⠀currency⠀pair
Some⠀exchanges⠀may not⠀support⠀buying⠀altcoins⠀with fiat,⠀so you⠀need to⠀buy BTC to⠀proceed.⠀After⠀acquiring⠀BTC,⠀you'll⠀need to⠀discover⠀one or⠀more⠀exchanges⠀that⠀accept⠀your⠀altcoin.⠀You'll⠀need to⠀register⠀once⠀you've⠀decided on⠀the best⠀exchange.
You⠀need to⠀transfer⠀part of⠀your BTC⠀to the⠀exchange⠀after⠀completing⠀registration.⠀Don't⠀forget⠀that⠀you're⠀trading in⠀currency⠀pairings;⠀thus, the⠀BTC will⠀be⠀converted⠀into your⠀altcoin.
Critical⠀considerations⠀while⠀selecting⠀an⠀exchange
If⠀the answer⠀to the⠀first two⠀questions⠀is⠀“yes”⠀and for⠀the last⠀question⠀is⠀“no,”⠀you should⠀proceed⠀with that⠀exchange.⠀However,⠀you can⠀also⠀register⠀with an⠀exchange⠀that has⠀been⠀attacked⠀based on⠀how they⠀responded⠀to that⠀hack and⠀the⠀quality of⠀investigation⠀and⠀security⠀measures⠀implemented⠀by the⠀exchange⠀following⠀the⠀attack.
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