BY JASPREET
We all know that- Bitcoin is the first implementation of a concept called "cryptocurrency", Bitcoin is a consensus network that enables a new payment system and a completely digital currency. It is the first decentralized peer-to-peer payment network that is powered by its users with no central authority or middlemen.
But are we aware of it's alternatives? Altcoins are alternative cryptocurrencies that were launched after Bitcoin's success.
Understanding Altcoin
The term 'Altcoin' is a combination of two words: 'alt' and 'coin' where alt means 'alternative' and coin means 'cryptocurrency'. Together they imply a category of cryptocurrency, which is an alternative to the digital Bitcoin currency.
Altcoins are therefore, an alternative cryptocurrencies to Bitcoin, a decentralized digital currency that could eventually replace fiat money, such as the dollar.
Like Bitcoin, they use blockchain as a means of securing peer-to-peer transactions. How these altcoins use blockchain can differ greatly from Bitcoins, as different consensus mechanisms are used to validate transactions or create blocks.
Not only that, but altcoins also take the Bitcoin concept further with unique features, such as "smart contracts" that can automatically perform agreements between two parties using blockchain technology.
In addition, altcoins have improved on Bitcoin in many other ways. Processing transactions can be faster or can scale better. Bitcoins are mined every 10 minutes, whereas an altcoin, such as Litecoin, produces coins every 2.5 minutes, speeding up transactions on this coin over Bitcoin.
Types of Altcoins:
Depending on their functionalities and consensus mechanisms, altcoins come in various categories such as:
Mining-Based:
mining-based altcoins are mined into existence. Most mining-based altcoins use Proof-of-Work (PoW), a method in which systems generate new coins by solving difficult problems, to create blocks. Examples of mining-based altcoins are Litecoin, Monero, and Zcash.
Stablecoins:
Cryptocurrency trading and use have been marked by volatility since launch. Stablecoins aim to reduce this overall volatility by pegging their value to a basket of goods, such as fiat currencies, precious metals, or other cryptocurrencies. The basket is meant to act as a reserve to redeem holders if the cryptocurrency fails or faces problems. Price fluctuations for stablecoins are not meant to exceed a narrow range.
Social media behemoth Facebook’s Diem is the most famous example of a stablecoin. It is a dollar-backed coin. Other examples of stablecoins are USDC and MakerDAO.
Security Tokens:
Security tokens are similar to securities traded in stock markets except they have a digital provenance. Security tokens resemble traditional stocks and they often promise equity, in the form of ownership, or a dividend payout to holders. The prospect of price appreciation for such tokens is a major draw for investors to put money into them. Security tokens are generally offered to investors through initial coin offerings or ICOs.
Utility Tokens:
Utility tokens are used to provide services within a network. For example, they might be used to purchase services or redeem rewards. Unlike security tokens, utility tokens do not pay out dividends or part with an ownership stake. Filecoin, which is used to purchase storage space on a network, is an example of a utility token.
Altcoin vs. Bitcoin:
Altcoins don't all follow the same rules as Bitcoin. For example, while Bitcoin will only ever mine, or produce, bitcoins every 10 minutes, an altcoin called Litecoin will produce coins every 2.5 minutes. This makes Litecoin able to process payments faster. Litecoin will also produce 84 million litecoins, whereas Bitcoin will only produce 21 million bitcoins.4
Litecoin also uses a different set of rules for mining than bitcoin. Whereas bitcoins require costly hardware to mine, litecoins can be mined with common computer hardware.
Examples of Altcoins:
Ethereum
Ripple
Dash
Litecoin
NEM
Monero
Pros and cons of Altcoins:
Pros:
Improve on Bitcoin's flaws: Altcoins are generally designed to address a perceived shortcoming with the Bitcoin framework, whether it's speed, mining cost, or some other factor.
Provide competition: By tweaking the rules under which Bitcoin operates, altcoin creators make space for new competitors to the Bitcoin system.
Low transaction fees: One of the benefits of using Altcoin as a payment method, in addition to secure blockchain technology, is the relatively low transaction fees charged for each transaction.
Cons:
Value is very volatile: As an investment, altcoins are very new and their value can change drastically.
High potential for scams and fraud: Altcoins, as with Bitcoin, are frequently the subject of scams and other fraudulent schemes.
Conclusion: Future of Altcoins
Due to the increasing price of Bitcoin, the arena will be open for other coins. These cryptocurrencies will create many surprises for users. Altcoins are the most popular cryptocurrencies of 2021.
Altcoins will take over most cryptocurrencies in the near future. 2021 will definitely be the year of Altcoins.
ABOUT THE AUTHOR
Jaspreet is a student of b.com (hons), second year. She is always keen learner to know and explore more in the fields of finance, business and commerce. She is a firm believer of working hard and making dreams into reality through hard work and consistency.
Disclaimer: The views expressed in this article are the author’s own and do not necessarily reflect the views of the organization.
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