What Are Altcoins?

January 24, 2024
6 min read

After the success of Bitcoin, the best-known cryptocurrency, other coins came about. Collectively called altcoins - short for “alternative coins“ - these include a wide range of digital currencies with different features, functionalities, and proposes.

As alternatives to Bitcoin, some altcoins aim to improve upon Bitcoin limitations, such as transaction speed and volumes. Others focus on smart contracts, NFTS (non-fungible tokens), or specific industries like gaming.

Types of altcoins

Some altcoins emerged because developers saw potential in blockchain projects and opportunities to offer additional features, while others were looking for ways to address specific issues that Bitcoin has.

The latter split off the Bitcoin blockchain and became forks of Bitcoin.

Forks of Bitcoin

What are Bitcoin forks? 

Bitcoin forks is a term used to describe a split in the Bitcoin blockchain. There are two types of Bitcoin forks - hard and soft forks

While soft forks make changes to the blockchain protocol but do not overrule its pre-existing rule sets and continue to accept transactions according to the old rules, hard forks introduce more radical changes, reject the old rule sets, and require network participants to upgrade to the new ones.

The result is usually a different transaction network and a new cryptocurrency.

a fork ontop of two different types of Bitcoin coins
Hard Bitcoin forks result in new cryptocurrencies.

There have been many Bitcoin fork projects over the years, each aiming to address specific issues on the blockchain or enhance its features, but not all have been successful.

For example, the very first Bitcoin forks, Bitcoin XT (2014) and Bitcoin Classic (2016), experienced initial success, but - as of today - XT is no longer available, and the majority of Classic's user base has moved to other projects.

The most successful fork of Bitcoin, Bitcoin Cash, was created in 2017 as a response to the disagreement within the Bitcoin community on whether or not the network capacity should be increased. As a result, Bitcoin Cash split from the network increasing the maximum block size to 32 MB - allowing larger transaction volumes and less time per transaction. 

In comparison, the size of a block on the Bitcoin blockchain varies, but it does not surpass the 4MB theoretical max size.

a chart displaying the average block size in the last three years
Average block size in the last three years as of January 2024.

Traditional cryptocurrencies

Other than Bitcoin, the first-ever cryptocurrency, there are thousands of other cryptocurrencies available to users. Here, we will mention the most prominent among them.

Ethereum (ETH)

Ethereum introduced the concept of smart contracts - self-executing contracts with the terms of the agreement directly written into code. It's also a platform for developers to build decentralized applications (DApps).

These applications run on the Ethereum blockchain and are used in finance, gaming, supply chain management, etc. Its native cryptocurrency, Ether (ETH), is the second best-known cryptocurrency, with a 17% market share as of December 2023 (chart below.)

XRP

Ripple (XRP) was released in 2012 as a “cryptocurrency for the financial services space.” It allows financial institutions to execute fast and low-cost cross-border payments and works as a cryptocurrency and a payment protocol.

It prides itself on being a carbon-neutral technology that can handle 3,400 transactions per second and settle each in 3–5 seconds.

Cardano (ADA)

Cardano is a proof-of-stake blockchain platform that was founded by Charles Hoskinson, one of the co-founders of the Ethereum network. It claims to be “the most environmentally sustainable blockchain protocol.”

Did you know?

The Cardano blockchain network was named after the Italian mathematician Gerolamo Cardano, while Caradno’s native cryptocurrency ADA, was named after Ada Lovelace - A gifted mathematician recognized as the first computer programmer.

Ada Lovelace

Solana (SOL)

In addition to the Proof of Stake, Solana uses a unique consensus mechanism called Proof of History (PoH). PoH is a core technical innovation that allows the system to have built-in timestamps for transactions before they are included in a block.

That improves effectiveness and scalability - two of the main concerns surrounding Bitcoin, which uses a Proof of Work consensus mechanism to verify transactions on the network.

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Stablecoins

Stablecoins are types of cryptocurrencies or altcoins that differentiate themselves from traditional cryptocurrencies like Bitcoin (BTC), Ethereum (ETH), and the others mentioned above, in one major way.

As the name suggests, they are “stable” meaning they are not as volatile as other cryptocurrencies, and their prices are not subject to abrupt or extreme changes. That is because stablecoins are backed by a reserve of traditional fiat currencies, for example, the US dollar. Some notable stablecoins include:

  •  Tether (USDT)
  •  USD Coin (USDC)
  •  TrueUSD (TUSD)

Due to their nature, stablecoins provide stability and predictability in value and act as a bridge between traditional financial systems and the world of cryptocurrencies. 

According to data from Statista on market distribution, as of December 2023, stablecoins come third with a total market cap of 130.2 billion and an 8% share in the crypto market.

two charts on crypto market distribution by total market cap, and share of cryptos in crypto market
Stablecoins are not as volatile as traditional cryptocurrencies like Bitcoin and Ethereum.

Meme Coins

As the name suggests, meme coins are altcoins that are often the result of different internet memes, and their value is influenced by social media hype and community engagement.

One of the most well-known meme coins is Dogecoin (DOGE), which started as a joke based on the popular "Doge" internet memes featuring this Shiba Inu dog. Despite its origins as a lighthearted project, Dogecoin gained a substantial following and market value.

Other popular Meme coins include: 

  • Shiba Inu (SHIB)
  • Pepe (PEPE)
  • FLOKI (FLOKI)
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Other tokens

A token is a digital or virtual asset that represents ownership or access rights. Apart from the cryptocurrency tokens mentioned above, there are other types of tokens in the crypto space that serve different purposes. Let’s mention a few:

  • Utility Tokens: These tokens are designed to provide access to a specific product or service within a blockchain network. They are often used in decentralized applications (DApps) to provide access to certain features of a platform.
  • Security Tokens:  Security tokens represent transferred ownership or rights to an underlying real-world asset. They can represent a wide range of real-world assets, from shares in a company to ownership of a house.
  • Non-Fungible Tokens (NFTs):  NFTs are unique digital tokens (identifiers) that represent ownership or proof of authenticity of a specific item, usually digital art (photos, artwork, audio, and video). They are often used for digital art (photos, artwork, audio, and video) or collectibles. Each NFT has a distinct value and cannot be exchanged on a one-to-one basis with other tokens like cryptocurrencies.

In conclusion

Altcoins play an important role in the digital economy. By offering diverse functionalities, from serving as a medium of exchange to representing ownership of unique digital assets, they contribute to the overall growth and development of the blockchain industry.

In addition, they also provide diversification opportunities for crypto enthusiasts and investors.

It is important to note that while altcoins have the potential to democratize finance, enhance privacy, and stimulate innovation, cryptocurrencies, in general, are volatile, and investing in altcoins is not without risks.

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