When the next bull run carried the crypto-market to the stratosphere in the last half of 2017, a few other names received attention. Some of the mainstream news outlets mentioned Ethereum, Litecoin, and Ripple, and the public had to wrap its collective head around the concept of cryptocurrencies – Bitcoin and its alternatives.
In this article, we’ll define the term alternative coin and review some of the most well-known examples of these, as well as consider the significance of this often ignored cryptocurrency category.
Definition
Blockchain-powered cryptocurrencies come in many forms, and there are several ways to categorise them. You can divide them according to which protocol they use to reward miners, which industry they’re attempting to disrupt, how its supply is replenished, and so on.
Luckily, we’re focused on a much simpler distinction, and the clue is in the name. Also known as altcoins, alternative coins are all the cryptocurrencies that aren’t Bitcoin. After the initial success of Bitcoin, other peer-to-peer currencies attempted to replicate the winning formula, each tweaking it ever so slightly to address specific issues.
Initially, altcoins had blockchains that were very similar to Bitcoin’s. They also used a proof of work consensus protocol where miners are rewarded for solving highly complex mathematical problems and had many overlapping features. It was only when the landscape had matured that more creative alternatives appeared. We have surpassed 1,000 cryptocurrencies, but it seems this is just the beginning.
Namecoin appeared in 2011, and it was the first altcoin. It was built with the same code as Bitcoin, it also used a proof of work mining protocol and had the same number of coins (21 million). The main difference was the problem it was addressing. While Bitcoin wanted to initiate a new era in the payments industry, Namecoin focused more on fighting censorship and protecting anonymity.
Litecoin positioned itself as the silver to Bitcoin’s gold. Built around Bitcoin’s code, it focused on delivering faster transactions of 2.5 minutes instead of 10, using a different hashing algorithm and had a coin supply four times higher than Bitcoin’s.
Frustrated by the homogeneity of the cryptocurrency landscape of the time and its inherent limitations, a Bitcoin developer by the name of Vitalik Buterin figured it was time to shake things up. He set out to build a custom blockchain that could support a global infrastructure for the transfer of value and ownership in the form of smart contracts. Given how often it’s mentioned as the best alternative to Bitcoin, it’s fair to say Buterin has succeeded.
There are many more altcoins we could mention such as Ripple (XRP), Stellar (XLM), IOTA, etc. Every altcoin out there is attempting to tackle real problems with technology. The successful ones will be written about for years to come while the rest will join the hundreds of cryptos which have already been consigned to history.
What distinguishes altcoins?
It’s essential to have a set of characteristics to guide us in the altcoin universe. These are some of the dimensions across which altcoins differ from one another:
- Partnerships: altcoins that partner with well-established companies have a higher likelihood of success
- Consensus protocols: proof of work and proof of stake
- Platform: based on Bitcoin’s (or Ethereum’s) blockchain and custom-built solutions
- Mining process: how are miners rewarded and how difficult is their activity
- Developer team: what expertise is behind the project
- Community: how active and engaged they are
Why do altcoins exist?
Some hardcore Bitcoin purists defend that no cryptocurrency can ever hope to replace the original coin as the top crypto. In their view, altcoins are a waste of time, money and effort. The market, as you may have guessed, seems not to share their opinion.
Altcoins exist in many shapes and sizes, and each in their own way is trying to go a step further than Bitcoin. They might use different algorithms and protocols, but each is trying to find a better way of doing things. No two altcoins are precisely alike.
In a highly competitive market, the customer is always better off. Our society stands to gain a great deal from the competition between all cryptocurrencies since it’s not just Bitcoin against the rest. Each team of developers is trying to fix a problem or provide a better solution than the ones that currently exist.
The constant innovation in this industry keeps everyone on their toes, and any mistakes are soon noticed by a vigilant, hyper-active community of blockchain enthusiasts.
Disclaimer: The views and opinions expressed by the author should not be considered as financial advice. We do not give advice on financial products.