In today’s world where financial technology is developing rapidly; The term ‘altcoin’ has become a concept that we often hear from cryptocurrency enthusiasts. So, what is altcoin? With the popularisation of Bitcoin, altcoin is a general term used for all other cryptocurrencies developed as an alternative to Bitcoin. These alternative cryptocurrencies offer different features and usage areas by using blockchain technology, which also forms the infrastructure of Bitcoin.
Altcoins offer new possibilities to investors and technology enthusiasts by pushing the boundaries of financial technology. This new asset class has emerged as an alternative to traditional financial systems and has the potential to make financial transactions more transparent, secure and accessible with the innovations brought by blockchain technology.
In this article, we will discuss in detail what altcoins are, how they are produced and used, and their place in the investment world.
History and Development of Altcoins
When we step into the world of cryptocurrencies, Bitcoin is undoubtedly the first name we come across. However, altcoins, which were launched after Bitcoin and mean ‘alternative coin’, have become an indispensable part of the cryptocurrency market. So, what exactly are these altcoins and what is their history?
Altcoins are digital currencies developed based on the blockchain technology offered by Bitcoin, but with different features and purposes. Following the creation of Bitcoin in 2009, the altcoin era, which started in 2011, began to diversify and grow rapidly. These new currencies aimed to overcome some of the technical limitations of Bitcoin or to offer different usage scenarios. For example, Litecoin offered faster transaction confirmation times. While Ethereum provided a broader platform for developing smart contracts and decentralised applications (dApps).
The development of altcoins has enriched the cryptocurrency ecosystem and provided investors with alternatives to Bitcoin, increasing diversity in the digital asset world. This diversity has also allowed the cryptocurrency market to be accepted by a wider audience and pave the way for technological innovation.
What is Altcoin and How Does It Work?
‘What is Altcoin?’ In the simplest definition, we can say that it is a general name given to all cryptocurrencies other than Bitcoin. Altcoins are based on the blockchain technology used by Bitcoin, but distinguish themselves with variables such as different usage areas, transaction speeds and security protocols. This diversity makes altcoins unique in themselves and offers investors different options.
The working mechanism of altcoins is basically based on generating new units through processes such as mining or staking, verifying transactions and ensuring network security. Like Bitcoin, altcoins operate on a decentralised network and each transaction is recorded on a ledger (blockchain) that is visible to all users on the network. This ensures the security and transparency of transactions without the need for a centralised authority.
Altcoins, like Bitcoin, are based on blockchain technology and add new different usage areas. They aim to offer more flexible, fast or user-friendly solutions. For example, Ethereum’s smart contracts create self-executing code that does not depend on a centralised approval mechanism. It offers innovative use cases in many areas such as voting, copyright management, as well as financial services.
Understanding how altcoins work is the first step to making informed investment decisions in this dynamic and ever-evolving cryptocurrency world. By evaluating the technology behind each altcoin, the advantages it offers and the potential risks, investors can choose the most suitable digital assets in line with their own goals.
How to Generate Altcoins (+staking)
But how are these digital assets produced? The production of altcoins takes place mainly through three methods: mining and pre-sale/ICO (Initial Coin Offering).
Mining
Mining is the most common production method for many cryptocurrencies, including Bitcoin. This process solves complex mathematical problems to add new blocks to the blockchain, allowing new coins to enter circulation. Mining also ensures the security of the network and verification of transactions. Producing altcoins by mining is a process that requires high processing power and high energy consumption. However, altcoins obtained by this method can be an important source of income for miners.
Altcoin Types and Popular Altcoins
Although altcoins were inspired by the success of Bitcoin, they have developed their own characteristics and purposes over time. In this section, we will discuss the types of altcoins and some popular altcoins that stand out in the market.
Types of Altcoins
Altcoins vary according to their intended use and the technological innovations they offer. Here are some common types of altcoins:
Ethereum (ETH): Enables the creation of smart contracts and decentralised applications (DApps). Ethereum has opened a new page in blockchain technology. Eth is the giant altcoin that hosts 17% of 20,000 crypto assets with a market capitalisation of $837 billion. It offers a decentralised network for DApps and smart contracts. Although fees are high, its blockchain hosts thousands of applications and has a long-term future.
Ripple (XRP): It enables fast and low-cost international transfers, especially between banks and financial institutions. Market capitalisation $19 billion
XRP is an altcoin used by Ripple Labs for fast and cheap transactions between different currencies. Criticisms include legal challenges and the risk of SEC litigation.
Litecoin (LTC)
Although it has a similar structure to Bitcoin, it offers faster transaction approval times and lower costs. Market capitalisation: $6.7 billion
Litecoin is an altcoin designed to address the shortcomings of Bitcoin. Ideal for daily transactions, Bitcoin is seen as a ‘store of value’. Litecoin is faster than Bitcoin and has 4 times more supply.
Cardano (ADA): It is a blockchain platform based on a scientific philosophy and adopts a research-oriented approach. Market capitalisation $13.7 billion
Cardano is a blockchain platform with smart contract functionality, offering fast transaction time and energy efficiency with proof of stake. In 2021, it introduced smart contracts with the Alonzo update.
Altcoins are a dynamic and constantly evolving part of the cryptocurrency market. For investors, this diversity offers new opportunities, but also risks to consider.