A cryptocurrency is a digital asset designed to work as a medium of exchange that uses cryptography to secure financial transactions, control the creation of additional units, and verify the transfer of assets. Cryptocurrencies are decentralized networks based on blockchain technology. Bitcoin, Ethereum, and Litecoin are the most well-known cryptocurrencies.
However, many other cryptocurrencies, known as ‘altcoins’ or ‘alts,’ have emerged and gained popularity over the last few years. This guide explores what alts are and how they differ from Bitcoin and other established cryptocurrencies.
What are Alts?
Alts are cryptocurrencies that were created after Bitcoin became popular. Some alts were designed to improve upon the limitations of Bitcoin while others were created for niche use cases. Alts are often modeled on Bitcoin and share similar features like being decentralized and using blockchain technology.
How Do Alts Differ from Bitcoin?
Alts differ from Bitcoin in various ways:
1. Use case
Bitcoin is mainly used as a store of value and a medium of exchange in a few select businesses, while alts are created for specific use cases such as smart contract platforms, social media incentivization, supply chain management, and more.
2. Hash algorithm
Bitcoin and altcoins use different hash algorithms to secure their networks. While Bitcoin uses SHA-256, most alts use different algorithms like Ethereum’s Ethash, Litecoin’s Scrypt, and Monero’s CryptoNight.
3. Mining hardware
Mining is the process of creating new coins by solving complex mathematical equations. While Bitcoin can be mined with ASICs (Application Specific Integrated Circuits) hardware, most altcoins can be mined with GPUs (Graphics Processing Units) or CPUs (Central Processing Units).
4. Transaction speed
Bitcoin has a block time of 10 minutes, which means that it takes at least 10 minutes to confirm a transaction. Some alts like Litecoin have a shorter block time, which means that transactions can be confirmed faster.
5. Supply limit
Bitcoin’s total supply is limited to 21 million coins, while most alts have a much higher supply limit. Some alts like Ripple and Stellar have a fixed supply limit while others like Ethereum have no supply limit.
Types of Alts
Alts can be broadly classified into the following categories:
1. Smart contract platforms
Smart contract platforms like Ethereum, EOS, and NEO allow developers to create and deploy decentralized applications (dApps) on their blockchain. Smart contracts enable automatic execution of transactions based on pre-specified conditions.
2. Privacy coins
Privacy coins like Monero, Dash, and Zcash prioritize user privacy and anonymity. These coins use advanced cryptography techniques like ring signatures, stealth addresses, and coin mixing to obscure transaction information.
Stablecoins like Tether, USD Coin, and Paxos Standard are designed to maintain a stable value relative to an underlying asset like the USD or gold. Stablecoins are useful for traders who want to avoid volatility in the crypto markets.
4. Gaming and entertainment coins
Gaming and entertainment coins like Enjin, WAX, and Decentraland are designed for use in the gaming and entertainment industries. These coins facilitate the exchange of virtual assets and allow in-game purchases using cryptocurrencies.
5. Social media coins
Social media coins like Steem, Minds, and LBRY incentivize users to create and share content on their platform by rewarding them with cryptocurrency. These coins aim to create a decentralized alternative to centralized social media giants like Facebook and Twitter.
Investing in Alts
Investing in alts can be risky due to their relative lack of adoption and liquidity compared to established cryptocurrencies like Bitcoin and Ethereum. However, investing in alts can also be profitable if done correctly.
Some factors to consider when investing in alts include:
- Market capitalization
- Team experience and track record
- Adoption and use cases
- Community support and development activity
- Funding and financial stability
It’s essential to do proper research and due diligence before investing in any cryptocurrency, especially an altcoin.
Frequently Asked Questions
- What is an altcoin?
An altcoin is any cryptocurrency that is not Bitcoin.
- Why were alts created?
Alts were created for several reasons, including improving upon the limitations of Bitcoin, creating niche use cases, and experimenting with new blockchain technologies.
- How do alts differ from Bitcoin?
Alts differ from Bitcoin in use case, hash algorithm, mining hardware, transaction speed, and supply limit.
- What are the types of alts?
Alts can be broadly classified into smart contract platforms, privacy coins, stablecoins, gaming and entertainment coins, and social media coins.
- Is investing in alts risky?
Yes, investing in alts can be risky due to their relative lack of adoption and liquidity compared to established cryptocurrencies like Bitcoin and Ethereum.
Alts represent a growing segment of the cryptocurrency market and offer investors and developers a wide range of possibilities. However, investing in alts can be risky, and it’s essential to do proper research and due diligence before investing. When investing in alts, consider factors like market capitalization, team experience, adoption and use cases, community support, and funding.
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- Litecoin. Retrieved from https://litecoin.org/
- Murphy, H. (2021). Stablecoins: What They Are and How They Work. Investopedia. https://www.investopedia.com/terms/s/stablecoin.asp
- Nakamoto, S. (2008). Bitcoin: A Peer-to-Peer Electronic Cash System. Bitcoin White Paper.
- Zohar, A. (2015). Bitcoin: Under the Hood. Communications of the ACM, 58(9), 104-113.