What is an alternative currency? A beginner's guide to cryptocurrencies other than Bitcoin


Alternate coins to Bitcoin are referred to as altcoins. Read this guide to learn the distinction between Bitcoin and altcoins.

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What is an altcoin? Altcoins explained


An altcoin is a combination of "alt," which stands for "alternative," and "coin," which stands for "cryptocurrency," implying that all coins other than Bitcoin (BTC) are altcoins. Following the global financial crisis of 2008–09, Bitcoin was the cryptocurrency that introduced blockchain technology to the world.


BTC has established itself as the "gold standard" of cryptocurrencies, ushering in a financial revolution. Because of its first-mover advantage, it has become the stable equilibrium among cryptocurrencies based on blockchain technology. Alternative cryptocurrencies have been developed to address Bitcoin's technical and practical shortcomings (more on this later). So, is Ethereum a cryptocurrency?


The introduction of second and third-generation blockchain-based cryptocurrencies such as Litecoin (LTC) and Ether (ETH) followed the birth of altcoins (ETH). While Bitcoin is commonly quoted in dollars, yuan, euros, and other fiat currencies, altcoins (alternative cryptocurrencies) are usually priced in BTC.


This article aims to answer questions such as, "How do I buy or sell altcoins?" What is the distinction between Bitcoin and altcoins? Are altcoins superior to Bitcoin?


Types of altcoins


Proof-of-work (PoW) and proof-of-stake (PoS) altcoins (based on consensus mechanisms), stablecoins, and decentralized finance (DeFi) altcoins are the four types of altcoins.


PoW and PoS altcoins


To verify and process transactions, the Bitcoin network employs the PoW consensus method. LTC, Bitcoin Cash (BCH), and Zcash are some other PoW altcoins (ZEC). In the PoS model, validators (rather than miners) verify transactions.


Due to the energy-intensive nature of the PoW method, Ethereum is migrating to the PoS consensus mechanism. Other PoS altcoins include Cosmos (ATOM) and Tron (TRX).


Stablecoins


Stablecoins are coins whose value is tied to a fiat currency, such as the US dollar. The stablecoin's value is equal to one unit of the fiat currency to which it is linked. Tether (USDT), for example, is a stablecoin whose value is tied to the US dollar.


To achieve the peg, the stablecoin's issuer typically keeps cash or other assets in reserve equal to the number of coins in circulation. As a result, if the coin fails or has problems, the holders will be compensated.


DeFi altcoins


DeFi stablecoins are blockchain-based stablecoins that allow holders to lend and borrow their cryptocurrencies in exchange for passive income. DeFi altcoins to buy include Compound (COMP), Synthetix (SNX), and Uniswap (UNI).


What's the difference between Bitcoin and altcoins?


Altcoins differentiate themselves from BTC by expanding their capabilities and filling the gaps left by Bitcoin's alleged flaws. In the sections below, various altcoins such as LTC, ETH, BCH, and ZEC are compared to BTC.


Litecoin vs. Bitcoin


Litecoin was introduced on October 7, 2011, in an attempt to make minor improvements to the original Bitcoin technology. Litecoin is heavily based on Bitcoin, but there are a few key differences. For example, LTC reduced the time required to build a block from 10 to 2.5 minutes in the hope that increasing the number of completed transactions in a given amount of time would increase network speed.


Reduced block time, however, comes at the expense of orphaned blocks that miners solved but were not chosen as the blockchain's next path. As a result, miners were unable to process the massive amount of transactions at a suitable rate in December 2017, causing Litecoin to face scalability issues.


To address the aforementioned issues, Litecoin implemented Segregated Witness (SegWit), Mimble Wimble, and the Lightning Network to reduce network congestion. Furthermore, Litecoin chose a different algorithm than Bitcoin, relying more on a mining computer's memory rather than the original code, which gave it better efficiency with more processing power. SHA-256 is the encryption algorithm used by Bitcoin, while Scrypt is used by Litecoin.


Finally, unlike BTC, the total supply of coins has been increased from 21 to 84 million. This means that the same transaction in Litecoin would cost 2 units rather than 0.5 units in Bitcoin, giving it a more realistic appearance and making it more useful to those with limited numeracy skills.


Ethereum vs. Bitcoin


Ethereum, like LTC, was born on July 30, 2015, and is very different from Bitcoin in terms of functionality. Instead of using Bitcoin as a model for digital currency, Ethereum uses the blockchain concept to build a decentralized Turing-complete virtual machine. The Ethereum virtual machine is a decentralized computer capable of processing scripts and codes from anywhere on the network.


Ethereum also introduced smart contracts to the world, demonstrating the fundamental logic of decentralized applications. Ethereum's inner workings differ dramatically from those of Bitcoin, with a limitless supply, 14-second block durations, and blocks capped by their computational cost.


Bitcoin lacks intrinsic value, whereas Ethereum's smart contracts, speed, scalability, disinflationary supply, move to a PoS algorithm, and innovation layer add to the network's value, providing ETH with intrinsic value.


Bitcoin Cash vs. Bitcoin


On August 1, 2017, Bitcoin Cash was created as a software update (fork) from the original Bitcoin network in order to use SegWit to address Bitcoin's scaling issues. Later users, however, changed their strategy to increase the block size from 1 to 8 MB, allowing for an eightfold increase in the number of transactions every 10 minutes and lowering transaction fees.


Furthermore, BCH supporters believe it is better suited as a medium of exchange than Bitcoin is as a store of value.


ZCash vs. Bitcoin


On October 28, 2016, Zcash was introduced, with block times reduced from Satoshi Nakamoto's original proposal of 10 minutes to 2.5 minutes. Zcash applies the concept of "pseudonymity" (where owners are unknown but addresses are publicly available) from Bitcoin to anonymous transactions.


ZEC chose a block size of 2 MB, which is twice that of BTC, to account for the additional data within its more complicated transactions.


How do I buy altcoins?


If you're wondering, "Should I invest in cryptocurrencies?" And if you want to know how, please follow the steps below.


Determine what percentage of altcoins you want to add to your portfolio


Your altcoin investing strategy is determined by how risk-averse you are or how much risk you are willing to take. Determine the percentage of altcoins you want to add to your portfolio based on the risk-return profile you expect.


Research altcoins in which to invest


To begin trading altcoins, first determine the best altcoins by reviewing the project's website, social media handles, and team. All of these factors will assist you in determining the project's authenticity. Also, determine whether your current wallet is compatible with the altcoin you want to purchase, or whether you will need to purchase a new cryptocurrency wallet.


Choose an exchange and find a currency pair


Some exchanges may not allow you to buy altcoins with fiat, so you'll need to buy BTC to continue. After you've obtained BTC, you'll need to find one or more exchanges that accept your altcoin. Once you've decided on the best exchange, you'll need to register.


After completing the registration process, you must transfer a portion of your BTC to the exchange. Remember, you're trading in currency pairs, so the BTC will be converted into your altcoin.


Critical considerations while selecting an exchange

  • Is it a reputable exchange?
  • Does it offer crypto trading at a reasonable rate?
  • Has it been hacked or scammed before? 


If you answered "yes" to the first two questions and "no" to the last, you should continue with that exchange. You can, however, register with an exchange that has been hacked based on how they responded to the hack and the quality of the investigation and security measures implemented by the exchange following the attack.


Trade BTC for your favorite altcoin


Once your cash or BTC has arrived in your exchange's account, you're ready to begin purchasing altcoins. When you are ready to trade BTC for altcoins, place an order for your preferred altcoin.


Store your altcoins into a crypto wallet


Following the completion of the transaction, your valuable altcoins must be stored on the exchange. However, if you're buying for the long term, you should keep your crypto assets off-exchange and in a wallet. As your altcoin wallet, you can use any of the hot, cold, web, mobile, or desktop wallets.


How to sell altcoins?


Because cryptocurrencies are highly volatile, some investors do not hold them for the long term. If you are one of these investors and would like to learn how to sell altcoins, please follow the steps below:

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What is altcoin season?


The term "altcoin season" refers to a period in the cryptocurrency market when the prices of several altcoins outperform those of BTC and fiat currencies such as the US dollar. The first altcoin season occurred in 2017, at the apex of Bitcoin's journey, when Ethereum's smart contract functionality prompted the creation of a slew of new coins.


Many crypto-investors have reaped massive profits as a result of Bitcoin's price increase. Other investors, on the other hand, attempt to make a fortune by investing in the altcoin market, resulting in an altcoin season.


There is no foolproof method for forecasting the upcoming cryptocurrency season. Nonetheless, the Blockchain Center provides a one-of-a-kind tool called the Altcoin Season Index, which evaluates market sentiment and determines whether BTC or altcoins dominate the cryptocurrency market. The popularity of nonfungible tokens and meme coins such as Dogecoin and Shiba Inu has also resulted in the development of an altcoin cycle.


The future of altcoins


Investing in altcoins is a low-cost way to diversify one's investment portfolio beyond Bitcoin.


Furthermore, investors can participate in project governance decisions. The crypto market has a plethora of altcoins.


Those with a strong use-case, on the other hand, will outlast the competition and dominate the market. Furthermore, the lack of regulation poses a number of risks to altcoin investing. Nonetheless, as the cryptocurrency market matures, regulatory risks will be addressed.

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