Crypto 101: altcoins

December 27, 2023
3 min read
Coins

There is Bitcoin. And there is everything else. Altcoins are, very simply put, all cryptocurrencies that are not Bitcoin. In this article, we take a closer look at altcoins: where did this designation come from, and what are the distinctive features of altcoins?

Bitcoin one, Litecoin two

The very first and therefore the oldest cryptocurrency ever is Bitcoin. Bitcoin introduced the idea of a global decentralized electronic money system with no central authority. Many developers shared the vision of what Bitcoin and the blockchain wanted to achieve but came up with alternatives that did take inspiration from Bitcoin.

Litecoin was the first altcoin. The developers behind Litecoin wanted to reduce transaction times, increase overall supply and deploy a different algorithm for mining new blocks. They couldn't do that on the Bitcoin blockchain itself, so they started an "alternative Bitcoin": altcoin for short.

Most altcoins in the early years of crypto have ceased to exist or were completely disbanded. Litecoin is still in the top 20 largest cryptocurrencies measured by market cap at the time of writing. The largest and best-known altcoin is Ethereum, which has firmly held the number two position for several years.

When is something considered an altcoin?

Formally, an altcoin has its own blockchain and uses a consensus mechanism. However, it has become common in the vernacular to call tokens also altcoins and assume the definition "everything minus Bitcoin."

Tokens depend on other platforms and do not have their own blockchain. For example, consider crypto tokens like Chainlink: they do not have their own blockchain at the time of writing but run on the Ethereum blockchain. But almost everyone will call Chainlink an altcoin.

Special mention: stablecoins

In addition to altcoins and tokens, there are stablecoins. Often, stablecoins are issued as tokens on other blockchains. The main feature of stablecoins is that they represent the value of an underlying asset, such as the U.S. dollar. They have a link to that, also known as a peg. Because of this, stablecoins tend to have less volatility.

Stablecoins are often designed as tokens because of their interoperability, allowing them to be easily exchanged between different blockchain protocols. Moreover, stablecoins can essentially be issued in unlimited quantities. Stablecoins that are held 1-to-1 against the currency they represent are generally considered safer than stablecoins that hold no reserves in the currency.

A proliferation of altcoins as well as applications

Tens of thousands of altcoins exist, especially when you count tokens towards the total. New cryptocurrencies are launched every day. But altcoins are dying every day, too.

Because the software of most altcoins is open-source, anyone can copy code or build on it. As a result, creating a new crypto has become very easy for tech-savvy individuals.

There are many different uses for altcoins. Some are used as currency for gaming, and others are just for fun (meme coins). Note that a good use case does not necessarily mean that a crypto is also suitable as an investment. Therefore, always do your own thorough research.

The information provided in our articles is intended solely for general informational purposes and does not constitute (financial) advice.

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