Altcoins are alternative cryptocurrencies to Bitcoin, a decentralized digital currency that could eventually replace fiat money, such as the dollar.
Cryptocurrencies are decentralized, meaning central banks do not issue them, and their value doesn’t hang on bank policies. Namecoin is widely considered to be the very first altcoin. Since then, the rate of altcoin launches started to grow at a phenomenal rate.
Like Bitcoin, they use blockchain as a means of securing peer-to-peer transactions. How these altcoins use blockchain can differ greatly from Bitcoins, as different consensus mechanisms are used to validate transactions or create blocks.
Why do we need altcoins? Isn’t bitcoin enough for crypto enthusiasts?
Bitcoin was one of the first cryptocurrencies to be developed, but since then, there have been layers of improvement on its structure. Certain altcoins have made transactions cheaper as well as faster. Some consume lesser energy to be mined while others bring in added layers of secrecy. While few have the same proof of concept, some altcoins operate on different proofs of concept.
The main point is these new coins have made technology stronger, better, making transactions less expensive. In addition, there was also the need for a stable cryptocurrency. Historically, bitcoin is prone to massive value fluctuations. So, there are some stable coins in the market as well, which are pegged against other fiat currencies like US Dollars
Examples of altcoins
The crypto market includes thousands of altcoins. Here’s an early example and a couple of the top altcoins:
Namecoin (NMC): Released in April 2011, Namecoin is the first notable altcoin. It’s similar to Bitcoin since it’s based on Bitcoin’s code and has the same maximum supply of 21 million coins.
Ethereum (ETH): Released in July 2015, Ethereum was the first cryptocurrency to offer a programmable blockchain for developers to use. It quickly became the second-largest cryptocurrency behind Bitcoin.
USD Coin (USDC): Released in September 2018, USD Coin is a stablecoin pegged to the U.S. dollar.
How does an Altcoin work?
Generally speaking, altcoins work much like the original Bitcoin. Using a private key, you can send a payment from your digital wallet to another user’s wallet. There is a blockchain, or recording ledger, where the transactions are permanently and publicly recorded, so exchanges can’t be altered or denied after the fact.
The blockchain is secured by mathematics proofs which confirm transactions in blocks. Some cryptocurrencies, like Bitcoin, require “proof-of-work,” which is a cumbersome and energy-inefficient way to verify transactions.
Some altcoins, such as Ethereum, require “proof-of-stake” instead. Proof-of-stake verifies transactions via other accounts within the network, making it faster, simpler, and more energy-efficient