What Are Altcoins and How Do They Differ From Bitcoin?

While Bitcoin, the world’s first cryptocurrency, is considered the undisputed leader, cryptocurrencies other than Bitcoin are also making waves. These alternative cryptocurrencies were first created to fill market gaps, but have now become a volatile digital asset. 

Here’s a closer look at altcoins and how they differ from traditional Bitcoins:

Understanding Altcoins

Before you learn how altcoins operate, it is best to revise what is Bitcoin. Bitcoin is the world’s first digital currency. Unlike fiat currencies, it remains free from the intervention of governments, banking systems, and financial institutions.  

All cryptocurrencies other than Bitcoin (BTC) are called altcoins. There are thousands of altcoins. The most frequently used ones are:

• Ethereum
• Ripple (XRP)
• Litecoin (LTC)
• Solana (SOL)
• Dogecoin (DOGE)

How Altcoins Work

Most altcoins are forked from an existing code. Think of creating forks as splitting a blockchain code to create two separate chains. Forks are often created when programmers disagree and wish to go their separate ways. 

Altcoins often attempt to fill a perceived limitation or gap left by Bitcoin. For instance, in 2011, Litecoin was forked from the Bitcoin blockchain for one primary purpose: to bring a quicker proof-of-work (PoW) consensus mechanism for industry participants.

In comparison, some altcoins are created from scratch. One example of this altcoin is Ether (ETH). This altcoin was by group of cryptocurrency experts. 

Types of Altcoins

Alternative coins come in various categories and types. Here’s a brief breakdown:

Utility tokens – these provide services within a network, like a purchase service or redeeming rewards.

Payment tokens – these are designed to be used as currency. 

Security tokens – these are tokenised assets, primarily used for regulating stock markets. 

Stablecoins – these provide relative price stability. A stablecoin’s value is pegged to an external asset, like fiat currencies.

Memecoins – these are inspired by a meme or a silly internet joke. 

Core Differences Between Altcoins and Bitcoins

Here’s how alternative coins differ from Bitcoins.  

Upgraded Versions

Altcoins are considered the upgraded versions of Bitcoin. They are designed to rectify any shortcomings or inefficiencies in the framework created earlier. This gives altcoins a better chance at survival. As economies shape and digital currencies become the norm, altcoins will be able to respond more effectively. 

Market Position

There is no doubt that Bitcoin is the undisputed king of digital currencies. It dominates the market with a whopping 59.5% in shares. In comparison, altcoins can offer varying levels of stability and liquidity. Altcoins like Solana and Ethereum are gaining popularity due to their application in varying fields. 

Safety and Security

As cybersecurity threats become more sophisticated, Bitcoin is prone to scams and fraud. Altcoins feature a highly safe and secure package for transactions. 

Should You Invest in Altcoins Over Bitcoins

Whether or not you should invest in altcoins over Bitcoins largely depends on your risk tolerance and long-term goals. Traders looking for stability can benefit from Bitcoin and its established position in the market. Whereas, those who have a greater risk tolerance and are seeking larger returns might find alternative coins more beneficial.