Let’s talk about the fundamentals of altcoins.
Satoshi Nakamoto could never have predicted the magnitude of Bitcoin's success. Bitcoin established the foundation for an entire structure comprised of digital assets. Tens of thousands of digital currencies are now available on the cryptocurrency market. These cryptocurrencies are classified as altcoins. There are various types of altcoins, ranging from use-cases in various industries to tokens designed to track an underlying asset.
• What exactly are altcoins?
• How do altcoins function?
• Altcoin types
What exactly are altcoins?
Alternative coins to Bitcoin are known as altcoins. Altcoin is a combination of the terms 'ALTernative' and 'BitCOIN.' All cryptocurrencies other than Bitcoin are referred to as altcoins.
Altcoins are the children of Bitcoin, the first and oldest cryptocurrency. Altcoins are similar to Bitcoin in some ways and different in others, just as children resemble their parents and have distinct characteristics.
A lot of altcoins are based on the Bitcoin source code. Because Bitcoin is open-source, developers can modify its source code to create new blockchain-based protocols.
How do altcoins function?
Altcoins function similarly to Bitcoin because their fundamental source code is the same. Altcoins are typically created to improve the current features of Bitcoin, such as transaction speed, while also extending its functionality to support specific use-cases. You may also come across altcoins that serve entirely different purposes than Bitcoin's original one: a peer-to-peer payment network.
To build their blockchain network, altcoins use a proof of work or proof of stake method. Bitcoin mainly works on a proof-of-work method which is an inconvenient and energy-expensive way to verify transactions. Proof-of-stake is used by altcoins such as Solana (SOL), Cardano (ADA), and Polkadot (DOT).
When compared to proof-of-work, proof-of-stake is a more energy-efficient method that allows for an easier and faster way to verify transactions.
There are many different types of altcoins that cater to various use-cases and utility functions. Let's take a look at the different altcoin categories.
The primary goal of stablecoins is to control the constant price fluctuations in cryptocurrencies. Stablecoins track the price of another stable asset, such as the US dollar (USD), Euro (EUR), and so on.
Stablecoins are primarily used for savings or transactions, rather than investments. Stablecoins include Tether (USDT) and USD Coin (USDC).
This category includes altcoins that use mining to verify transactions and generate new coins. Miners use hardware computers to solve mathematical equations in order to verify transactions and receive coins in exchange for their efforts.
Mining-based altcoins include Litecoin (LTC), Ethereum Classic (ETC), and Monero (XMR).
Consider utility tokens to be game coins. To access and play, you must have game coins. These coins, however, do not represent a stake in the game. Similarly, utility tokens serve as vouchers for a company's products or services.
Filecoin, a decentralized data storage platform, for example, provides access to its services via its native token FIL. Through its native utility token, Basic Attention Token (BAT) enables a Web 3.0 ecosystem to reward creators and value user attention on the internet.
In our previous example, security tokens are similar to owning shares in the game. They represent a stake in a company or an asset. A security token's value is derived from an underlying asset in terms of investment. A physical real-estate property, for example, can be digitally divided into equal shares represented by security tokens issued on the blockchain. In this case, the value of your security token is equal to your share of the underlying asset, which is real estate property.
Polymath, Swarm, Securitize, Bankex, and other security tokens are examples.
While altcoins provide numerous opportunities to experiment with blockchain technology, they are highly volatile by nature. One thing is certain: they have altered the crypto industry's landscape.
before you invest in crypto – invest in yourself