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Ask CryptoVantage: Why Do Altcoins Exist?
There are two types of cryptocurrencies that people generally talk about. The first one is probably obvious to you: Bitcoin. The second is literally every other crypto asset on the market: altcoins.
You may think the division between the two types means that Bitcoin and altcoins are completely different things, but they are not. In this week’s edition of Ask CryptoVantage we will discuss what altcoins are, why they exist, and show how they are just as relevant as Bitcoin in the crypto market.
What are Altcoins?
As mentioned in the introduction, altcoins are any digital asset that is not Bitcoin. Bitcoin was the first cryptocurrency and first blockchain project. All other crypto assets and projects that have formed since the inception of Bitcoin in 2008 have been based around the whitepaper for Bitcoin and the distributed ledger and blockchain that it outlined. Of course, while Bitcoin is an extremely strong project, it is essentially just a digital store of value, and because blockchain has many more possible use cases than just a store of value, other projects began in the form of altcoins.
Why do Altcoins Exist?
Altcoins exist in order to solve the issues which Bitcoin faces, while also addressing issues and needs that Bitcoin was never intended for, such as smart contracts on Ethereum, or oracles on Chainlink. The main issues that Bitcoin faces are related to scalability (the ability to be used by ten or tens of millions), and the costs associated with mining it with a proof of work consensus algorithm (extremely expensive electricity costs). Bitcoin in its original form can only process 7 transactions a second, not exactly feasible if it begins being used as a global payment system.
It took two years after Bitcoin was launched for the first altcoin, Namecoin, to come into circulation. It was the same thing as Bitcoin, but even more anonymous. Litecoin came out shortly thereafter and is the same thing as Bitcoin but with faster transaction speeds and four times the maximum supply.
These proof of work altcoins were then followed by:
- Altcoins with a stable value pegged to a fiat currency, referred to as stablecoins (such as Tether)
- Altcoins that use a proof of stake consensus rather than proof of work (such as Cardano)
- Altcoins with proof of space time (such as Filecoin)
- An innumerable list of other potential uses for various altcoins.
Are They Worth Buying or Should I Stick to Bitcoin?
While Bitcoin is the king of crypto, diversity is important in an investment portfolio. It is also important to understand that altcoins have the potential to do more than Bitcoin can for a lot of different industries across the globe in terms of utility, and the utility of altcoins is what gives them value. At this point Bitcoin is like the name brand cryptocurrency, but that does not mean there is no room for others on the market, just like in the traditional markets.
While we here at CryptoVantage do not provide investment advice, it seems prudent as an investor looking to get into crypto to not only look at the blue chip that is Bitcoin, but also at the potential uses and development of other blockchain projects in the space. If you find an altcoin that you like and think has potential for use, there is no reason to not be willing to invest in it just because it is not Bitcoin; altcoins are just as important.
