Altcoins are the cryptocurrencies that launched after the success of Bitcoin. As of early 2020, there were more than 5,000 cryptocurrencies by some estimates. Altcoins exist in different types. Altcoins accounted for over 34% of the total cryptocurrency market in first months of 2020.
“Altcoin” is a combination of “alt” and “coin” and includes all alternatives to Bitcoin. The success of Bitcoin as the first peer-to-peer digital currency launched the process. Many altcoins are trying to target the perceived limitations of Bitcoin. An altcoin must have a competitive advantage to beat Bitcoin.
Many of the them are built upon the framework provided by Bitcoin. Thus, most of them are peer-to-peer. They try to offer efficient and inexpensive ways to carry out transactions on the Internet. Even with many overlapping features, they vary in types.
As they evolved, distinct categories emerged. Some of the main types of altcoins include mining-based cryptocurrencies, stablecoins, security tokens, and utility tokens. There is also some movement toward separating most of these types from altcoins. Maybe in the future altcoins refer only to mining-based cryptocurrencies other than Bitcoin.
These altcoins have a mining process by which new coins are generated by solving challenging problems to unlock blocks. They are more similar to Bitcoin. Most of the top altcoins in early 2020 fell into this category. Ethereum is the most famous mining-based altcoin as of February 2020.
Stablecoins seek to improve on Bitcoin by reducing volatility. In actual practice, this is achieved by tying the value of the coins to existing currencies such as U.S. dollar, the euro, and gold. Facebook’s Libra is by far the most famous stablecoin.
These altcoins are linked to a business, and they often launch in an initial coin offering (ICO). Security tokens resemble traditional stocks, and they often promise some type of dividend like payout or ownership in a business.