Our economy is inevitably turning into a digital economy, with everything going paperless. Due to the growth in the digital payment sector, cryptocurrencies have become a popular source of investment these days. A cryptocurrency is a digital or virtual currency used as a medium of exchange to buy and sell things to potential buyers and sellers. There are various types of cryptocurrencies emerging these days and have caught the eye of many investors. In this article, we will discuss altcoins, bitcoins and how they are different.

What are altcoins?

The need for cryptocurrencies arose with the permeate of the world’s crypto market, which led to the prominence of altcoins. The word altcoin is derived from ‘alt’ that means alternative, and ‘coins.’ Therefore, altcoins are the alternative digital cryptocurrency other than bitcoin. Altcoins build on the success of bitcoin by altering some rules to attract different investors.

Like bitcoin, they are also subject to investment risk, but Ethereum is the most stable. Ethereum, Cardano, and Binance are the most prominent altcoins in terms of market capitalization. There are about 9000 altcoins traded in the world.

Altcoins are based on blockchain technology which averts the record of transactions from being exploited or removed. To buy, sell and store altcoins, a digital wallet is required. As of October 2021, Altcoins account for 60% of the total cryptocurrency market, more than 12000 cryptocurrencies. Some main types of altcoins include stable coins, utility tokens, mining-based cryptocurrencies, and security tokens. As of October 2021, the most significant altcoins by market capitalization were Ethereum and Binance coin.

Advantages of Altcoins

  1. Altcoins are considered better versions of bitcoins as their objective is to get through cryptocurrency’s shortcomings, whether it is mining cost, speed, or any other factor. Investors have a wide variety of altcoins to choose from that fulfill the functions of the crypto economy.
  2. Altcoins provide completion in the crypto market by improving the rules under which bitcoins operate.
  3. One of the crucial benefits of using altcoins as a payment method is the low transaction fee charged for each transaction.

Disadvantages of Altcoins

  1. The value of altcoins is very volatile as they are new as an investment, and therefore, their weight may fluctuate terribly.
  2. Altcoins have a high potential for scams and other fraudulent schemes.
  3. Altcoins make investment decisions more challenging and confusing as it is not simple to differentiate between various altcoins.
  4. There are numerous “dead” altcoins in the market that result in sinking investors’ money.

How are altcoins different from bitcoins?

Although altcoins and bitcoins mostly share the same characteristics as the basic framework for them is similar, but they are also different in other ways-

  1. The first and the foremost difference between altcoins and bitcoins is the process of mining. The mining process of altcoins reduces the time to create blocks and corroborate new transactions. While in the case of bitcoins, the brainstorming required for the mining process to develop blocks consumes a considerable amount of time and effort.
  2. Altcoins make mining convenient as they can be mined from any computer, unlike bitcoins that require expensive equipment to mine coins.
  3. Altcoins have low risk as they provide low price volatility, while bitcoins provide high price volatility, which makes them riskier.
  4. Bitcoins are among the first iterations of a cryptocurrency, while altcoins are alternatives to bitcoin. But altcoins improve the shortcomings of bitcoins.
  5. Unlike bitcoins, altcoins include changes to speed up the transaction and to improve storage efficiency.
  6. The altcoin Ethereum also records agreements through “smart contracts,” i.e., the computer program automatically executes a deal if the specified conditions are met, while bitcoins record financial transactions.
  7. Altcoins have emerged as a faster, more decentralized, more scalable, and more secure combination of cryptocurrency than bitcoins.
  8. Altcoins are more beneficial and affordable as compared to bitcoins.
  9. To verify transactions, bitcoins require “proof-of-work,” which is an inconvenient and energy-inefficient way. In contrast, altcoins require “proof-of-stake,” a faster, more straightforward and energy-efficient manner.

Thus, we can see a few differences between bitcoins and altcoins as they rely on the same framework. However, altcoins take things a step further with unique features and cover the snags of bitcoins, such as slow transaction speed and the requirement of special mining hardware. Altcoins have just made the transactions simpler and improved overall functionality by processing transactions faster and scaling to fulfill the demand for the services. As the market for altcoins continues to expand, soon they will take over all the bitcoins, and the bitcoins will come to an end, or it will be able to keep up with the new cryptocurrencies.

Conclusion

As mentioned earlier, altcoins are primarily similar to bitcoins. Still, they are preferred above bitcoins because they are better versions of bitcoins, stable coins, have high valuations (Ethereum), and offer variety. Furthermore, the market for altcoins and bitcoins is becoming more assertive, maintaining its durability. Therefore, it is an excellent place to invest, keeping risks and other market factors in mind.