When thinking of cryptocurrencies, the first thing that usually jumps to mind is Bitcoin. Bitcoin, however, is not the only cryptocurrency on the market. It is surrounded by other similar, but smaller cryptocurrencies.
Using an analogy, we can think of Bitcoin as a cruise ship. As the cruise ship sails along its own course, we can imagine the little dolphins jumping in front of the ship as altcoins.
Bitcoin has and still does dominate the crypto market, but slowly things are beginning to change, altcoins are beginning to gather momentum.
This is because altcoins are building off of the original Bitcoin idea with multiple improvements along the way.
What is an Altcoin?
Altcoins are alternatives to Bitcoin. They are cryptocurrencies that provide a similar service to Bitcoin but are slightly altered to appeal to specific uses or client base.
Altcoins still use blockchain technology but many of them use alternative methods of proving work done and verifying transactions.
Altcoins have drastically lowered the cost of transferring money and verifying transactions using methods that were altered, and improved upon off of the original Bitcoin model.
How do Altcoins Differ from Bitcoin?
Altcoins have the luxury to build off of an already great idea and improve on it further. They are not tied down to the same restrictions as Bitcoins are.
For example, there can only ever exist 21 million Bitcoins due to the math behind it. Altcoins however are not limited by this and some have billions of coins already “minted”.
Another example would be how a Bitcoin block is mined every 10 minutes, whereas an altcoin such as Litecoin can be mined every 2.5 minutes.
This drastically improves payment processing times and allows for more transactions per minute.
Types of Altcoins
There are thousands of altcoins available to trade. There are altcoins such as Ethereum, who are beginning to compete with Bitcoins’ massive market cap dominance.
Altcoins such as Ethereum are in direct competition to Bitcoin whereas there are other smaller, less known coins that are looking to serve a specific niche of the market.
These types of altcoins are not looking to do Bitcoin’s job in a better way but are instead trying to pick a specific industry to target and tailoring their altcoin to best benefit people in that market.
An example of this would be a smaller cap coin such as Siacoin. Siacoin is sometimes referred to as “AirBnB for hard drives”, offering a cloud storage solution similar to that of tech giants such as Amazon and Google.
The only difference being that rather than trusting the company to manage your data responsibly and securely, you are trusting software to scatter and encrypt data on a globally distributed network.
The latter choice makes it very difficult to piece together and hack information. This is because the Sia network takes the data you store on your the Sia network and they slice it up into tiny pieces so only a fraction of the information is ever found on a single hard drive.
The files are then further encrypted making it even more difficult to acquire the information. The service can be paid for by using Sia’s native cryptocurrency Siacoin, to pay for the product.
Here are some more altcoins with more significant market caps;
Ethereum is a decentralized open-source blockchain system, and their token ETH is a platform for many other cryptocurrencies as well as the execution of smart contracts.
XRP, the currency that runs on a digital payment platform called RippleNet, was designed as a less costly, speedier and most importantly, more scalable way to replace payment platforms like SWIFT.
ADA, is a developing platform that boasts a broad range of use cases from Education to Agriculture. Cardano aims to “redistribute power from unaccountable structures to the margins to individuals.”
Hoping to create a more secure, transparent, and safe society.
DOT, is a platform that hopes to facilitate the cross-chain transfer of any data or asset types, not just tokens.
This way makes many blockchains interoperable.
This interoperability seeks to establish a fully decentralized and private web, controlled by its users and simplify the creation of new applications, institutions, and services.
LTC, is a cryptocurrency that was designed to provide fast, secure, and low-cost payments.
This token is an early competitor to Bitcoin and uses a similar protocol but differs in terms of the hashing algorithms.
The general purpose of altcoins in crypto is to act as a more specific type of currency. The idea is to store most of your value in Bitcoin, “the new gold” and when needed, swapping some of that value into certain altcoins for your intended purpose.
I like to think of a folder system for money. In this sense, a company splits its budget up at the start of the year by buying all the specific niche currencies they will be using. This way there is always a clear trail of spending and it would be impossible to conceal movements of money.
In order to exchange these altcoins for FIAT currency or Bitcoins, you need to find yourself an exchange platform. Many platforms exist but it is best to stick to the larger more well-known ones.
We’ve written a review on the differences between 2 of my favorite exchanges, Kraken and Coinbase, but other popular exchanges to mention would be Binance, Huboi Global, and Bitfinex.
All of these trading platforms will allow you to connect your bank account to the platform, transfer funds, and start trading cryptocurrency.
Certain exchanges will allow you to trade with more and harder to find altcoins, whereas other exchanges focus more on the big players.
Altcoins hope to solve issues in particular niche areas by being able to create currency and conditions ideal for that specific task.
You never know what new coin will become the next big thing, keep an eye out and your mind open.