In 2008, the Bitcoin White Paper introduced the world to the first working example of digital cash, Bitcoin. The first bitcoin was created the following year, and the world’s first peer-to-peer (P2P) electronic cash system was born. Since then, we’ve seen the Bitcoin Value explode in early 2018 and the creation of thousands of bitcoin-alternatives, known collectively as ‘altcoins.’ In this guide, you’ll learn what altcoins are, how they have evolved and what uses and benefits they offer.
Contents
- A brief explanation of blockchain technology
- What are ‘hard forks’?
- What was the first altcoin?
- Why are altcoins created?
- What’s the difference between a coin and a token?
- Do all altcoins improve on Bitcoin?
- Are altcoins difficult to buy?
- Conclusion
- A brief explanation of blockchain technology
With the exception of the blockchain-less altcoin IOTA, all altcoins reside on their own blockchains or the blockchain of another platform. A blockchain is a digital log file that helps to facilitate payments. Blockchains are best thought of as digital ledgers that record every transaction made on the network. When a transaction takes place, every copy of the blockchain is updated. In the simplest terms, this process helps to prove that the transaction is authentic and helps prevent fraud or theft.
Most blockchains are modified versions, known as ‘forks,’ of the original Bitcoin blockchain. This means that the original Bitcoin blockchain has been modified slightly by one or a group of developers. If there isn’t universal acceptance of the modification, you get what’s called a ‘hard fork.’
- What are ‘hard forks’?
A ‘hard fork’ occurs when developers fail to reach an agreement on the direction of a cryptocurrency. If the blockchain is updated, this can lead to the creation of a new blockchain and a new cryptocurrency. For example, Bitcoin Cash (BCH) was created when the Bitcoin blockchain was modified on August 1, 2017. Anyone who owned bitcoin prior to this split received an equal number of the new altcoins, BCH, after the hard fork took place.
However, hard forks don’t always lead to the creation of a new altcoin. For example, in October 2017, an organization called Bitcoin ABC published a new version of the Bitcoin Cash software that made it easier to create, or ‘mine,’ new BCH altcoins. As all major developers swtiched over to this new version of the software, there was no split, and no new altcoin was created.
- What was the first altcoin?
Namecoin was the first altcoin, created on April 11, 2011. This was the first ‘fork,’ or software development, of the original Bitcoin blockchain. It is based on the code of Bitcoin and uses the same proof-of-work (POW) algorithm. POW is a way to prevent attacks and other service abuses such as spam. Although Namecoin is a currency, its main purpose was to decentralize domain-name registration. This makes internet censorship much more difficult.
- Why are altcoins created?
Altcoins are created for a variety of reasons. The most common reason is that an individual, group, company or organization believes that Bitcoin can be improved upon in some way. As described above, most altcoins are ‘forked’ or cloned versions of Bitcoin. They have slight tweaks such as lower mining difficulty, faster transaction speeds or other benefits. Other altcoins are built on existing networks such as the Ethereum network, EOS, or TRON.
- What’s the difference between a coin and a token?
You’ll notice that some altcoins are referred to as ‘coins,’ while others are called ‘tokens.’ In general, a ‘coin’ is any altcoin that resides on its own purpose-built blockchain, whether it’s a fork of the bitcoin blockchain or not. For example, Bitcoin Cash is a coin that operates on its own blockchain.
Meanwhile, tokens are altcoins that reside on another blockchain platform such as Ethereum, EOS, TRON or others. Some examples of tokens include Binance Coin, which is based on Ethereum, Tether which is based on Omni, and BitTorrent, based on TRON.
- Do all altcoins improve on Bitcoin?
By definition, altcoins don’t have to be an improvement on Bitcoin, just an alternative. However, most altcoins do claim to offer one or more benefits over Bitcoin. One major concern with the Bitcoin blockchain is transaction times. Litecoin (LTC) was one of the first altcoins ever created, and its purpose was to provide faster transaction times than Bitcoin. Almost every altcoin has a unique selling point that its creators use to tempt investors and traders.
- Are altcoins difficult to buy?
Most online exchanges that offer Bitcoin will also offer a selection of other major altcoins. For example, signing up for an online exchange such as Coinmama.com will automatically create both a Bitcoin and an Ethereum wallet for you. Ethereum is the largest altcoin and the second largest cryptocurrency behind Bitcoin by total market capitalization. Buying or selling Ethereum is just as easy as buying or selling Bitcoin.
- Conclusion
Hopefully, this guide has given you a broad overview of altcoins and helped explain what they are and why they exist. All altcoins aim to improve upon Bitcoin in some way, and we can expect to see the continual introduction of new altcoins moving into the future.
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