What is Altcoin?

by @bitcoins_russia
What is Altcoin?

To most newbies in the cryptospace, cryptocurrency is all about the Bitcoin and probably Ethereum and Litecoin. In reality, cryptocurrency encompasses Bitcoin and the alternatives. These alternatives are termed “Altcoins” meaning alt-ernative coins. Altcoins are also peer-to-peer digital currencies like Bitcoin. Most of them are created to address the limitations of Bitcoin such as lack of anonymity, longer transaction times, expensive mining and insufficient functionality.

Since the explosion in altcoin creation, there now seem to be a digital currency in literally every field of endeavor and in every industry. Many platforms have emerged with a decentralized approach and the implementation of utility tokens to disrupt the status quo in various industries. For instance, VeChain has used cases in the fashion, liquor; auto and supply chain industry. Another example is BuzzShow, a decentralized reward-based social media network which allows content creators and curators to earn some tokens for their efforts.

At the time of writing this piece, there are over a thousand of altcoins in existence. While many are merely forks of Bitcoin and pump and dump schemes, some offer real life use cases and value. In actual fact, some individuals believe few altcoins, especially those with privacy features and faster transaction times will grow to displace Bitcoin in the near future.

Given this background, some altcoins are more popular than others based on their market capitalizations and technical details. Here’s a list of some of them in no particular order:

Ethereum: The Ethereum is a software platform that enables smart contracts and the building of Distributed Applications (DApps) which runs without downtime and control by third party. Ethereum was launched in 2015 and was split into Ethereum (ETH) and Ethereum Classic (ETC) in 2016 after the DAO attack. Ethereum currently has a market capitalization of about $89 billion.

Litecoin: Created by Charlie Lee in 2011 as one of the earliest altcoins, Litecoin takes after Bitcoin in several ways except that it offers faster transaction confirmation. Litecoin currently has a market capitalization of about $9 billion.

Ripple: It was released in 2012 to serve the purpose of a global settlement network, which provides instant and low-cost international payments. Ripple’s market capitalization currently stands at around $46.6 billion.

Altcoins also include the likes of Dash, ZCash, Monero, DeepOnion and Cardano among others. Each one has unique technical details and purpose which aim at solving a problem of another.

How Altcoins are created

Altcoin creation is not as difficult as you might think. The advancement of technology has enabled the emergence of platforms where cryptocurrencies can be easily created. Examples of such include Cryptolife Development and Wallet Builders which offer genesis block and blockchain creation services for a fee. In addition, digital currencies like Ethereum and Counterparty allow the creation of tokens as well.

For an altcoin to be successful in the cryptomarket, several efforts need to be deployed to its maintenance. For instance, the code and blockchain will require a lot of programming efforts to function optimally. This should support the fundamentals of a good altcoin which includes branding, marketing, a good name and a transparent launch.

Altcoins also get created from hard forks.

Creation of Altcoins from Hard Forks

A hard fork results in the creation of a new coin. To put it simply, it is a term used to define the split of a digital currency in two. This is caused by a major modification to a blockchain’s protocol, leading to the validation of previously invalid transactions or blocks or vice versa.

Well, to most hard things, there are probably soft versions. Therefore, a soft fork on the other hand, means a change to a blockchain’s software protocol which renders previously valid blocks or transactions invalid. The result of a soft fork is a single blockchain or coin, but with an upgrade to the existing blockchain in most cases.

Forks can either take place as a measure to repair damage in the blockchain or just for the need to innovate. For instance, Bitcoin Cash (BCH) was born out of innovation while Ethereum (ETH) resulted after repairing damage done to the blockchain.

When forks take place generally, there are 3 main possibilities:

·              The adoption of the resulting blockchains, with nearly equal value and community adoption.

·              The domination of one with the other having lower value and community adoption

·              The adoption of the resulting blockchains with one dominating the other. The less dominant one has a significant level of community adoption and value as well.

The third possibility is most common with hard forks. An example is Bitcoin Cash, an altcoin created from a Bitcoin hard fork.

Initial Coin Offerings (ICO) and Altcoins

In today’s cryptospace, Initial Coin Offerings (ICOs) remains a vital part of an altcoin’s life cycle. Altcoins are introduced into the crypto-market by this important, although controversial process. The year 2017 brought about a surge in ICOs with token sales raising around $6billion. As of November 2017, there were around an average of 50 offerings per month.

Basically, Initial Coin Offering involves allocating a certain volume of cryptocurrency as tokens to investors in exchange for fiat money or established digital currencies like Bitcoin and Ethereum. ICOs serve as a source of capital. The generated funds are utilized in the development of the project. It helps cryptocurrency issuers to avoid incurring costs associated with regulatory compliance and intermediaries.

The process of introducing an altcoin through token sale is usually preceded by the creation of a white paper which gives full details about the project, including how much is needed to complete it and the road map. ICO investors use a crypto-project’s white paper as a decision making tool in most cases.

Generally, investors trade in favor of the hope that the acquired tokens will become functional units of digital currencies, which will translate to a higher value in the long-run, but not after a due diligence. The workings of an ICO are similar to an Initial Public Offering (IPO) where shares of a company are allocated to willing investors (shareholders) in exchange for fiat currency.

Altcoins have provided crypto-investors with an opportunity for a larger investment portfolio. While they are many valuable altcoins with great potentials, investors should be wary of pump and dump coins that are mere scams.

June 1, 2018
by @bitcoins_russia