Following in the footsteps of bitcoin, altcoins are powerful alternatives to the cryptocurrency giant, revolutionising the way we use and think about digital currencies.
The name “altcoin” is used to describe any peer-to-peer cryptocurrency that is not bitcoin. After bitcoin became the first, successful digital currency, many other alternatives followed in its wake, hoping to capitalise on its success. As a result, these currencies gained the moniker “altcoin”, an abbreviation of “alternative coin”.
Much more than bitcoin replicas
Altcoins began life as little more than bitcoin copies attempting to mimic bitcoin’s successful run, but they quickly became much more than their name suggests. At the time of writing (September 2017), there are more than 800 altcoins available for use. While many are still struggling to break the mould set by bitcoin, some are doing truly amazing things with the technology.
From rethinking the entire concept of what the blockchain could and should be used for (Ethereum) to building a purely anonymous and secure network for peer-to-peer transactions (Monero), more and more altcoins are addressing the shortcomings of bitcoin every day, innovating on its basic driving technology to become market leaders themselves.
The blockchainThe blockchain is the underlying technology that drives all altcoins and the best way to visualise the blockchain is to think of it as a digital ledger. Let’s imagine a paper ledger into which cash transactions are entered. Mary would like to pay Jason $100. She meets Jason at a cafe along with Terry, the person in charge of maintaining the ledger. Mary gives the $100 bill to Jason, Jason puts it in his pocket, and Terry notes down the transaction: Mary to Jason $100.
The blockchain is like a collection of pages on that ledger. Each “page” is called a block and contains multiple transactions. Whenever a block is filled up and a new transaction comes in, that transaction creates a new block with a link to the previous block. This new block is then appended to the blockchain. Once a transaction is written into the block, it becomes immutable: it cannot be edited or deleted.
The best part of the blockchain is that all the users on the blockchain receive a copy of this ledger. They can update their own ledger, and then pass it on. This way, all users can confirm that Mary gave $100 to Jason, and Jason can’t say he didn’t receive the money.
Initial Coin Offering (ICO)
Similar, even in name, to an Initial Public Offering (IPO) in which a private company’s stock first becomes public, an ICO happens when a cryptocurrency startup wants to raise funding in order to further the development of their coin. The startup releases some of their coins (often referred to as “tokens”) to investors, who purchase these tokens in the hope that the project succeeds and those coins gain value. If the predefined minimum funding is not reached, the money invested is returned to the investors.
ICOs, unlike IPOs, are unregulated and so great care should be taken before participating in one to make sure that it is not, in fact, a scam.
The future of altcoins
Altcoins are the new kid on the block and they are as unpredictable as they are exciting. With the biggest altcoins vying to take the top spot from bitcoin, they are all attempting to carve their own niches, with goals nothing short of reimagining the way we do business, how we send and receive money, and how we transfer assets like properties and cars.
Read more about some of the most popular altcoins in one of our comprehensive guides below.