Altcoins or alternative coins are simply the type of cryptocurrencies that came to existence after Bitcoin. With a total approx 2 trillion market cap of the crypto ecosystem, altcoins hold the one half of the market cap along with the Bitcoin holding the other half. And each altcoin is known to operate according to its regulation or rules.
Similar to that of Bitcoin, altcoins also utilizes the fundamental principles of blockchain technology facilitating transparency, immutability in a secure peer-to-peer manner. The rise of Altcoins can be credited to the world’s first truly digital currency – Bitcoin. Once Bitcoin started getting famous, a lot of creators jumped in the world of digital currency and started their own projects with altcoins.
How Do They Work?
Altcoins are known to work much like their closest relative, bitcoin. They leverage the same blockchain technology, but with few additional improvements on the Bitcoin base layer. These coins also use a specific private key, allowing users to send payment from your) their digital wallet to another user’s wallet.
Even though all altcoins follow the similar path of the world’s first digital currency, they do tend to different with Bitcoin when it comes to consensus algorithms, tokenomics, total supply, inflation and what not.
These blockchain networks, or the shared ledger is where the transactions are recorded.
Difference Between Altcoins & Bitcoin
Some of the Most Prominent Altcoins
- Ethereum (ETH)
- Chainlink (LINK)
- Monero (XMR)
- Polkadot (DOT)
- Uniswap (UNI)
- Binance Coin (BNB)
- Dogecoin (DOGE)
- Litecoin (LTC)
- Maker (MKR)
- Dai (DAI)
Types of Altcoins
In our earlier article, we’ve already covered the concept of tokens and the difference between security and utility tokens. These tokens also fall under the altcoin category. And as the crypto ecosystem grows we’ll be coming across new projects, ideas as well as types of altcoins. Majorly, here are the types of altcoins:
- Security Tokens
- Utility Tokens
- Stable Coins
- Governance Tokens
Security tokens, on the other hand, are digital assets that derive their value from an external asset and can be traded. They are also known to be subject to federal laws which govern security. It is important for security tokens to comply with such regulations.
Failure to comply would lead to grave consequences such as penalties and potential derailment of the project’s development. They are known to depict assets such as earning streams, participation in physical endeavours, companies, interest payments, etc.
Utility tokens basically enable the holders with a right to use the service and participate in the project’s governance. These tokens are initially given out during crowd sales as a said project implements an ICO.
When a company distributes utility tokens, it simply means that it’s essentially making a form of digital coupon that can be redeemed in the future for a discounted fee or special access to a service or product.
Governance tokens are created by a project or protocol to help the community shape the future of the protocol. By holding governance tokens, community members of a given protocol can participate in its governance to propose or decide on new features and upgrades.
Governance tokens, in essence, holds the voting power on a blockchain project.
The concept of stable coins emerged from the necessity of fighting the volatility of crypto assets. Most of the cryptocurrencies including Bitcoin struggles with high volatility. Therefore, there was a need for crypto assets that can hold and preserve the value regardless of market volatility.
Thus, the stable coins were created. Stable coins are pegged to a fiat currency and retain the value through the course of time. For example, USDC, a US dollar-pegged altcoin, retains its value equal to $1 USD at all times.