Today thousands of cryptocurrencies are emerging in the market. Though Bitcoin remains to be the king of the crypto industry, this altcoin has seen a great impact in recent years. In the past years, one could easily count the number of cryptocurrencies. But today, the market has seen a great uprise resulting in the emergence of new Altcoin.
In
general, there are three types of Cryptocurrencies:
- Bitcoin
- Altcoin
- Token
A Bitcoin is a type of
Cryptocurrency which is in existence right from 2008. This is considered the
first cryptocurrency which has seen massive growth in recent years. By owning a
Bitcoin, you can send someone as a gift, or buy a service or product easily.
One can also purchase an Altcoin/ Token easily with a Bitcoin.
Altcoins are cryptocurrencies other
than Bitcoin. They share characteristics with Bitcoin but are also different
from them in other ways. For example, some altcoins use a different consensus
mechanism to produce blocks or validate transactions. Or, they distinguish
themselves from Bitcoin by providing new or additional capabilities, such as
smart contracts or low-price volatility.
Tokens are the crypto assets that are used on Decentralized Applications. These are built on Blockchain like Ethereum, NEO, etc. These tokens too have a certain price range which traders usually buy and sell at a higher price.
How Do Altcoins Work?
Altcoins don’t rely on banks, financial institutions or any sort of middleman to be transferred from person to person. Instead, they rely on blockchain technology, which is a digital ledger of cryptocurrency transactions, Smith said. Details about transactions are stored in “blocks” that must be verified to ensure that the transactions are legitimate. “Once the block is accepted by the consensus algorithm, it becomes a permanent part of the distributed ledger,” Smith said.
Because the blockchain is stored in computers and servers around the world, it would be next to impossible to hack into such a large network, according to CoinMarketCap. That’s why blockchain technology is considered secure. But that doesn’t necessarily mean that investing in altcoins is safe.
Altcoin vs. Bitcoin
Altcoins
don't all follow the same rules as Bitcoin. For example, while Bitcoin will
only ever mine, or produce, Bitcoins every 10 minutes, an altcoin called
Litecoin will produce coins every 2.5 minutes. This makes Litecoin able to
process payments faster. Litecoin will also produce 84 million Litecoin,
whereas Bitcoin will only produce 21 million Bitcoins. Litecoin also uses a
different set of rules for mining than Bitcoin. Whereas Bitcoins require costly
hardware to mine, Litecoin can be mined with common computer hardware.
Litecoin
is just one of the thousands of altcoins on the market. Some altcoins stand out
as popular alternatives to Bitcoin, although they don't reach Bitcoin's $100
billion market cap. A few other examples of altcoins include:
- Ethereum
- Ripple
- Dash
- NEM
- Monero8
The Advantages and Disadvantages of Altcoins
One of
the main advantages of altcoin is it's an alternative to Bitcoin. Should
Bitcoin's value plummet, altcoins are generally good as a fallback option,
although you might find that larger shifts that affect Bitcoin also hit
everything else on the market. In a sense, they provide competition to Bitcoin.
Altcoins generally offer improvements to Bitcoin's problems, such as the speed and cost of mining. There are also lower transaction costs with altcoins.
However,
one major disadvantage of each altcoin is its lack of public acceptance and
exposure relative to Bitcoin. As altcoins are newer than Bitcoin, their value
can change dramatically, so they're not for the faint-hearted or the risk-averse
investor.
Another
major issue with altcoins is that they're often used in scams to fleece
unsuspecting victims, such as pump and dump schemes.
Lastly, many altcoin trading sites don't provide customers with the means to convert to Bitcoin before converting it yet again to USD.
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