Altcoin is usually described as any cryptocurrency apart from Bitcoin ( BTC). Some people, however, believe that altcoin is all crytocurrencies that are not Bitcoin as well as Ethereum (ETH) since most cryptocurrency are forked from either or the other. Certain altcoins utilize different consensus methods to validate transactions and create new blocks or try to differentiate them in comparison to Bitcoin as well as Ethereum by offering different capabilities or functions.
The majority of altcoins are developed for and published by programmers with distinct visions or uses to create tokens or cryptocurrency. Find out more about altcoins, and how they differ from Bitcoin.
Understanding Altcoin
“Altcoin” is a combination of two phrases “alternative” and “coin.” It is used in general to describe all cryptocurrencies and tokens which aren’t Bitcoin. Altcoins are part of the blockchains that they were specifically created to be used for. There are many forks, which is a split of a blockchain not compatible with the original chain, such as Bitcoin as well as Ethereum. The forks usually have multiple reasons to occur. In most cases there is a group of developers who do not agree with each other and decide to create their own coin.
A variety of altcoins are employed within their respective blockchains in order to accomplish something, for instance, Ethereum, which is utilized within Ethereum to pay for transaction fees. Certain developers have developed alternative versions of Bitcoin and then re-emerged in an attempt to compete against Bitcoin as a method of payment like Bitcoin Cash.
Other forks and companies advertise themselves to raise money for specific projects. For instance, the token Bananacoin was forked from Ethereum and was created from 2017 to be a means to raise money for the banana plantation in Laos which claimed to produce organic bananas.
Altcoins attempt to overcome the perceived weaknesses of the blockchain or cryptocurrency they are being forked from or competing against. One of the first altcoin was Litecoin that was forked off of the Bitcoin blockchain in 2011. Litecoin utilizes a different proof-of work (PoW) consensus method as Bitcoin which is called Scrypt (pronounced”escrypt) which is more energetic and more efficient than Bitcoin’s SHA256 PoW consensus mechanism.
Ether is an alternative altcoin. It did not take a swathe of the Bitcoin blockchain. Bitcoin. It was developed in the hands of Vitalik Buterin, Dr. Gavin Wood, and a handful of others to work with Ethereum the world’s biggest blockchain-based, scalable virtual machine. The cryptocurrency known as Ether (ETH) is used to pay network users for the work that transaction validation their machines carry out.
Different types of Altcoins
Altcoins come in different kinds and varieties. This is a brief overview of the various kinds of altcoins and the things they’re intended to be used for.
Payment Token
Like the name suggests, payment tokens are intended to be used as currency, enabling exchange of value between two parties. Bitcoin is the best illustration of the payment token.
Stablecoins
The use and trading of cryptocurrency has been characterized by the volatility since the beginning. Stablecoins attempt to limit the volatility of the entire market by linking their price to the value of a basket of items like traditional currencies and precious metals or other cryptocurrency. The basket is designed to be used as a reserve for redemption holders of the cryptocurrency in the event it fails or is in trouble. The price fluctuations of stablecoins should not be greater than a certain interval.
Some notable stablecoins include The Tether’s USDT MakerDAO’s DAI along with DAI, and the USD Coin (USDC). The month of March, 2021 saw the payment processing company Visa Inc. ( V) announced that it would start settling certain transactions through their network using USDC via its Ethereum blockchain and is planning to add more stabilecoin settlement capability in 2021. 2
Security Tokens
Security tokens are assets that are tokenized and offered in stock markets. Tokenization refers to the process of transferring value from the asset to the form of a token that is then offered to investors. Any asset is able to be tokenized, for instance, stocks or real estate. To be able to do this it is necessary that the asset be secured and maintained. If not, then the coins will be ineffective since they do not be able to represent anything. Security tokens are controlled through the Securities and Exchange Commission because they’re designed to function as securities.
In 2021 in 2021, Exodus, the Bitcoin wallet company Exodus was able to successfully complete the Securities and Exchange Commission-certified Reg A+ token offer that allowed for 75 million of shares in common stock that could be changed into tokens that can be used on the Algorand blockchain. 3 This was a landmark event as this was the very first cryptocurrency that allowed equity for the United States of an issuer.
Utility Tokens
Utility tokens are used to offer services to networks. For instance, they could be used to pay for services, pay for network fees or to redeem rewards. Filecoin, which can be used to purchase storage space on networks and protect the data, is an illustration of a utility token. 4
The Ether (ETH) could also function as an utility token. It was designed to be utilized in Ethereum’s Ethereum blockchain and virtual machine to be used to pay for transactions. The stable currency USTerra makes use of utility tokens to in keeping its dollar-dollar peg, which the currency lost its peg on May 11, 2022. It does this by making as well as burning 2 utility tokens in order to generate upward or downward pressure on its value. 5
Utility tokens can be bought via exchanges, and then held however, they are intended to be used within the network of blockchain to ensure it is working.
Meme Coins
Like their name implies, meme coins are based on an absurd joke or variation on other popular cryptocurrencies. They usually gain popularity over very short periods of time, and are usually promoted on the internet by influential people or investors who are trying to profit from short-term gains.
Many refer to the rabid increase in this kind of altcoins in the months of April through May to be “meme coin season,” with hundreds of these cryptocurrency making huge gains in percentages that are based solely on theorizing.
Governance Tokens
Governance tokens give holders to exercise certain rights on the blockchain, for instance voting on protocol changes or being able to influence the decisions of a decentralized, autonomous organisation (DAO). Since they are typically associated with private blockchains and are used for purposes related to blockchain and are also utility tokens, they’re considered to be valid but are now considered a distinct type due to their function.
