Mar 7th 2023

What are altcoins? Altcoins are generally defined as all cryptocurrencies other than Bitcoin (BTC). However, some people consider altcoins to be all cryptocurrencies except Bitcoin and Ethereum (ETH), as most cryptocurrencies branch off from one of these two. Some altcoins use different consensus mechanisms to verify transactions and create new blocks. Others try to distinguish themselves from Bitcoin and Ethereum by offering new or additional features. Developers with a different vision for their tokens or cryptocurrency usually develop and release most altcoins. They aim to provide unique functionalities or improvements over existing cryptocurrencies. Learn more about altcoins explained and the pros and cons of altcoins, and how they differ from Bitcoins.

Understanding Altcoins

“Altcoin” is a combination of the two words “alternative” and “coin. People commonly use it to refer to all cryptocurrencies and tokens that are not Bitcoin. Altcoins refer to the blockchains they were specifically designed for. Many of them are forks – separations of blockchain incompatible with the original chain – from Bitcoin and Etherium. These forks usually have more than one reason for originating. In most cases, a group of developers disagree with others and go off to create their own coin.

Many altcoins serve specific purposes within their respective blockchains. For example, ether is used in Ethereum to pay transaction fees. Some developers have created forks of Bitcoin, like Bitcoin Cash, to compete with Bitcoin as a payment method.

Others splurge and market themselves as a way to raise funds for specific projects. For example, the Bananacoin token branched off Ethereum and appeared in 2017 as a way to raise funds for a banana plantation in Laos that claimed to grow organic bananas.

Altcoins aim to improve the perceived limitations of the cryptocurrencies and blockchains they branch from or compete with. They seek to address these flaws and offer better solutions. The first altcoin was Litecoin, branched off the Bitcoin blockchain in 2011. Litecoin uses a different Proof-of-Work (PoW) consensus mechanism than Bitcoin, called Scrypt (pronounced es-crypt), which is less energy intensive and faster than Bitcoin. SHA-256 PoW consensus mechanism.

Ethereum is another altcoin. However, Ethereum is not descended from Bitcoin. Vitalik Buterin, Dr. Gavin Wood, and others developed it to support Ethereum. Ethereum is the world’s largest scalable blockchain-based virtual machine. Users pay ether (ETH) to network members for validating transactions.