Altcoin Explained in Simple Words

Following Bitcoin’s breakthrough, supporters attempted to tweak the concept in order to develop a more popular independent digital money. Altcoins today are extremely diverse. Every day, their number increases, and they’re all designed to solve distinct difficulties.

What is Altcoin?

There are almost no people left in the modern world who have not heard of Bitcoin. The purpose of establishing this cryptocurrency was to build a self-contained digital currency capable of being used to purchase goods and services over the Internet. Nonetheless, there are a plethora of promising alternative cryptocurrencies. These currencies are referred to as altcoins since they are alternatives to the original Bitcoin.

Simply said, altcoins, which already number in the hundreds, serve as superior alternatives to bitcoin. They provide customers with specific services that the original cryptocurrency did not. Altcoins account for 99.999 percent of all current cryptocurrencies.

Namecoin (NMC) was the first cryptocurrency to offer an alternative to Bitcoin. And the most heavily advertised opponent was Ethereum (ETH), a project led by Vitalii Buterin, a Russian-Canadian programmer. Among altcoins are also Dogecoin, Litecoin, Ripple, Bitcoin Cash, Cardano, and XRP.

Types of Altcoins

Altcoins, depending on their features, can be divided into three groups:

• Unique altcoins. These are altcoins that have exclusive technologies that Bitcoin does not have. For example, Ethereum with smart contracts, IOTA with directed acyclic graph (DAG) technology, or Dash with the ability to transfer funds via SMS.
• Stablecoins. They are designed to hedge financial risks. The exchange rate of stablecoins is pegged to the exchange rate (assets) for which they are issued. The most popular stablecoin is Tether, which is pegged to the US dollar at a ratio of 1:1. Thus, the user of cryptocurrencies gets the opportunity to exchange his altcoins for Tether, thereby fixing the cost of altcoins in US dollars on a certain date. In other words, these are a kind of digital havens, or assets protected from volatility.
• Anonymous altcoins. These are confidential cryptocurrencies aimed at users who want to hide their digital assets and personal data from prying eyes. They encrypt the movements of funds themselves, allowing you to keep secret information about their movement from the sender to the recipient. This type of altcoin is the most criticized by world governments and financial regulators, who call it a tool for money laundering and terrorist financing.

Where to store altcoins?

If you decide to invest in altcoins, you need to plan ahead of time to ensure that your cash are stored safely. The following are the most common storage methods:

• Keeping altcoins in an exchange wallet. Almost every exchange supports this option. We do not advocate this alternative because it may be risky, as the exchange may close unexpectedly or be hacked. It will be nearly impossible to repay the funds in this instance. The exchange is better suited to trade or short-term storage.
• Keeping altcoins in a cryptocurrency wallet. There is currently a wide range of wallets available for the most prominent cryptocurrencies. You have the option of using web wallets, mobile wallets, desktop wallets, browser extensions, or hardware (cold) wallets.

Why Do We Need Altcoins?

Altcoin creators intended to improve and eliminate the technological constraints of the initial cryptocurrency, as well as provide new electronic payment solutions for every aspect of people’s life, therefore there are now over a thousand different altcoins on the market.

The main disadvantages of Bitcoin are:

• Long transactions. To speed up the transaction time, other algorithms must be used. At the same time, Bitcoin has a large volume of blocks, which calculates the necessary operations quite slowly;
• Low level of anonymity. Cryptocurrency developers really tried and encrypted transactions well, but there is the possibility of tracking the sender and recipient. Many new altcoins use additional encryption methods;
• Complicated and expensive mining process. Bitcoin mining is constantly becoming more difficult, so each time more resources need to be used to form new blocks in the Blockchain. In turn, altcoins use other protocols that greatly simplify the mining process and do not always require the use of serious equipment;
• Insufficient functionality. The main task of Bitcoin is to act as a tool for settlement. Altcoins also have other functionalities, for example, the creation of a smart contract.

Another reason why altcoins are needed is technological innovation. Each new project sets itself the goal of introducing a technological innovation that can solve specific problems.

In the modern world, cryptocurrency trading has become an integral part of the financial world, so the more altcoin options there are, the more opportunities there are to diversify your investments.
Finally, most developers need access to the blockchain.

First of all, they are interested in a reliable data transmission system and safe storage of important business information. To gain access to this technology, you need to use altcoins.