Understanding Altcoins: How Many Are There?

Altcoins: Bitcoin’s mysterious offspring demystified.

Altcoins. While the term may not be wholly unfamiliar to you, the coin may well be. Because, in point of fact, the altcoin isn’t a coin at all, but actually a type of cryptocurrency. There are literally thousands of altcoins, all with different attributes, functions, and purposes.

Wading through the oceans of coins isn’t always easy, and figuring out which to invest in and which to ignore can seem like a monumental task. Just watching market caps won’t give you all the info you need, mostly because there are nearly 3,000 cryptocurrencies in existence. Which means figuring out which one will be the next to set sail into riches is gonna take some serious sea legs.

What are Altcoins?

Basically, any alternative cryptocurrency to bitcoin is considered an “altcoin”. Meaning that all of those fan favorites, like Libra, Litecoin, Ethereum, and Ripple are all types of altcoins. There are even subcategories of altcoins, like stablecoins or security tokens. So altcoin is really just a common catch all phrase, with some unique coins bringing unique attributes into the arena.

Altcoins can be similar to bitcoin in ways and incredibly dissimilar in others. Some use the same mining techniques, while others can’t be mined at all. Some are designed to act solely as digital currency, while others have no interest in becoming the next global currency, and set their focus on problems that are completely unrelated to finance.

Altcoins all use the principle of blockchain technology- same as bitcoin, but how they go about using, coding it, and verifying it can change from coin to coin. Things like Proof-of-work systems can be replaced by proof-of-stake systems for a more energy-efficient block creation process. Cryptocurrencies, instead of working as a currency at all, can work more similarly to stock shares, or energy tokens. Some focus on creating networks and decentralized applications that can be used by anyone who purchases the altcoin and then uses it to gain access to the platform, working as a type of security token.

How Do Altcoins Compare to Bitcoin?

Comparing Bitcoin to Altcoins isn’t apples to apples. It’s more like comparing apples to every fruit and vegetable in the produce aisle. Sure, you’ll find other apples, or altcoins that function incredibly similar to bitcoin. Some are even hard forks, or spinoffs, of bitcoin. Others are incredibly different and were never associated with Satoshi’s brainchild at all.

Understanding forks can help you understand a number of different altcoins, by only needing to really grasp a precious few. This is because many altcoins in existence are created from hard forks in a blockchain protocol.

Blockchain Protocol

A protocol is a set of rules or guidelines that an entire system uses in order to achieve certain tasks, or work the way it was intended to. Most blockchain protocols change regularly, anytime there is an upgrade to the system or newer technology is added, this is done by changing the protocol. In most decentralized networks, protocol changes must be voted on by the users of a network.

Hard Forks

Hard forks happen when the users of any particular network can’t reach a consensus on how protocols should be used or changed. This normally results in the users dividing into different factions based on how they believe the protocol should move forward if it should at all. Unable to reach consensus, the network splits in two, and the community is left with two cryptocurrencies. The originator and the new protocol. Hard forks are never backward compatible- which means that the new protocol cannot work with the old one. Possibly the greatest example of a widely accepted hard fork is when Bitcoin Cash resulted from a hard fork in the bitcoin protocol.

Soft Forks

Soft forks are very common among just about any blockchain. These happen when users reach consensus when it comes to upgrading the protocol or changing something on the network. A change is proposed and voted on, the community at large accepts this change, and a new “version” of the protocol is developed and used. Soft forks are backward compatible, meaning that newer versions of the protocol can be used alongside older versions. So users can choose which protocol they would like to use for themselves and will still be able to seamlessly integrate within the network, no matter which version of the protocol they implement.

Which Altcoins Are Worth Watching?

There are definitely some front runners when it comes to altcoins. But not all of them are in the top 5 market cap. Some altcoins drop a bit further down the list but have such a novel premise, that they are worth keeping an eye on. Here are our five favorites at the moment.

Ethereum

Definitely not considered an underdog, Ethereum (ETH) is one of the best-known altcoins around. What makes it such an exciting coin is that it was one of the first blockchain technologies to offer smart contracts, which is a type of business solution that uses blockchain technologies. Ethereum continues to innovate and add to their repertoire through the use and development of dApps.

Monero

Monero (XMR) is a cryptocurrency for crypto geeks. It’s security-focused and aims to provide true and sustainable fungibility, which is something that other coins either have no interest in promising or are unable to provide. XMR could very well gain popularity and legislative bodies begin to crack down and require more KYC regulation.

Cardano

Cardano (ADA) is a coin that aspires to back every move their coin makes with scientific research and evidence. The crypto has a habit of taking a while to roll-out updates and proposed platforms, but science waits for no man- and every man must wait for science.

Tezos

Tezos (XTZ) brings a refreshing and fully decentralized on-chain governance to their protocol. Creating a novel way to stay up-to-date with advancements in blockchain technology. They also have a keen focus on dApps and scalability, using their own unique coding language.

Ripple

Ripple is fairly centralized as far as cryptocurrencies go. They offer the much-needed bridge between blockchain technology and traditional finance structures. They provide solutions for major banking institutions and payment platforms to ease the current difficulties with cross-border money transfers.