What are altcoins?

altcoins

Hello Reader,

We’ve now extensively covered how bitcoin works and how to get started using it. However, whilst Bitcoin was the first successful application of a crypto currency, it is by no means the last.

In reality, Bitcoin has opened the floodgates to the birth of an entire industry of different blockchain applications. In this post we are going to take a look at the most noticeable, altcoins…

What is an altcoin?

The word altcoin is a contraction of alternative coin and refers to any crypto currency other than Bitcoin. Many are straight derivatives of the bitcoin code with minor variable changes. Others offer wider ranging modifications such as changing the validation mechanism. Some go further still, being completely original code written from the ground up.

Most altcoins try to bring something new to the table, whether that’s a change to the economics of the coin, or additional features such as improved privacy.

Each altcoin typically issues its own currency independent of Bitcoin which can be traded and shared as freely as Bitcoin.

An early altcoin

One of the first altcoins to emerge was Litecoin, a derivative of Bitcoin, released by Charlie Lee in October 2011. It makes some significant changes to some of the central working principles of Bitcoin:

  1. Reduces the blocktime from 10 minutes to 2.5 minutes
  2. Increases the maximum number of coins from 21 million to 84 million
  3. Rather than using SHA-256 as it’s hashing algorithm, it uses scrypt
  4. More recently, it has been updated with the first implementation of segregated witness and the lightening network (which I’ll cover in a subsequent post)

The main ideal behind the changes above are to make Litecoin a better alternative to Bitcoin for high frequency transactions.

Exploding industry

At current count, there are approximately 800 known altcoins being actively traded and there have been thousands more which have not reached this level of activity.

You can get a feel for the different altcoins by taking a look at coinmarketcap.com which provides an easy to use ranking and price for each different coin. Clicking on each coin in turn will provide you with statistics, charts and links to the coins main website.

The market value of the entire crypto currency industry is displayed at the top of the site, this is calculated as the sum of each individual coin’s market cap.

The industry has grown from effectively nothing to approximately $100 billion at the time of writing in just over eight years.

Generally speaking, each altcoin can be traded for other crypto currencies using exchanges, just like Bitcoin.

Some exchanges allow you to deposit fiat currency and trade a selection of altcoins, such as Coinbase.com and Kraken.com.

Other exchanges have emerged which only allow trading between different crypto currencies. So to use these, you must already have a crypto currency to be able to trade as they offer no method of depositing fiat currency directly.

These crypto only exchanges tend to offer many more crypto currencies for trade than traditional exchanges.

Some of the most popular examples are Poloniex.com, Bittrex.com and Liqui.io.

The next generation of altcoins

The pace of innovation in the blockchain space is astounding, a new technological breakthrough seems to materialise every few months.

Some of the latest altcoins use completely new code independent of Bitcoin. They do still share similar concepts and methods of operation (i.e. peer to peer, distributed blockchain ledgers, consensus mechanisms etc), but they are written from scratch to deliver differing goals.

One of the most talked about altcoins of today is Ethereum, the premise of which is the easy application of another blockchain revolution, smart contracts.

My next post is going to take a look at the genius of smart contracts and following that, a detailed introduction to Ethereum.

Au revoir

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Yours, X

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5 thoughts on “What are altcoins?

  1. X – Thank you for keeping this blog updated so frequently. Even though you are way ahead of me in learning curve, I feel like this is the perfect pace for onboarding a crypto newbie.

    Could I suggest a topic in the future if not already covered? There’s some split happening on or around August 1 where there are competing schools of thought around something very technical that I don’t quite understand. I know that if I buy btc now, it may exist on 2 blockchains but eventually the “dominant” one is supposed to take over and everyone else will defer. But what is the implication during that time? Anyway thanks again!

    1. Hi Alex, thanks for the comments, really great to hear people are finding my content helpful.

      You are scratching at a massive current issue in the world of Bitcoin, the block size / scaling debate. As you rightly state, this is due to come to a head on August 1st.

      This is a supremely important topic which is impacting bitcoin first, but will ultimately emerge as an issue in most other altcoins with signifiant usage.

      I will be dedicating an article to this subject, along with segwit and the lightening network.

      It’s in my next three articles to post πŸ™‚

      Please do keep the content requests coming, it helps me check I’m staying relevant!

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