Altcoins - what are they and how do they work?

When reading about cryptocurrencies, we very often come across the term altcoiny. What does it mean? What distinguishes altcoins, of which there are already thousands, and where did their name come from? Check out our short and specific guide.

In the beginning he was Bitcoin. And - taking into account the dynamics of the development of the world of cryptocurrencies - long, long nothing. The world's first cryptocurrency, based on blockchain technology, for two years was in fact the only cryptocurrency that has existed since 2009. The word cryptocurrency or the return of digital money assets was clearly associated with Bitcoin.

Altcoin, an alternative to BTC

However, when the price of BTC increased sharply and the Satoshi Nakamoto project started to get loud not only in the niche world of the fledgling cryptocurrencies, more cryptos began to appear. They were an alternative to BTC, hence the name - altcoins.

The first cryptocurrency after Bitcoin was Namecoin (NMC). However, it did not take the hearts of investors by storm and today it is hanging around at the end of the fifth hundred cryptocurrency capitalization ranking. It can be traded on only 10 cryptocurrency exchanges. Later, Litecoin (LTC) was created, which - advertised as an improved Bitcoin - is at the forefront of the ranking to this day and with a capitalization of USD 4,3 billion, it settled for good in the top ten cryptocurrencies. To date, more than 3 thousand. cryptocurrencies, and over 2,5 thousand. of them still exist - these are altcoins.

Bitcoin and altcoins

The altcoin market - although the vast majority of them are a product separate from BTC - is strongly related to Bitcoin. If the price of the "king of cryptocurrencies" rises, so do the prices of altcoins. When the BTC price drops, the prices of other cryptocurrencies are also almost certain to decline. It is also evident that altcoin prices react much more aggressively. Both in the case of increases and during the discount, their movements are often many times greater. In August 2020, some cryptocurrencies were able to add more than 750 percent a day in value!

The vast majority of altcoins, however, are a new solution on the market, and not just an idea to create a new cryptocurrency that offers nothing. Today, altcoins are associated with specific business models and networks, dedicated to specific groups, offering services, products and solutions to existing problems not only in the world of digital finance.

Altcoins generally do not duplicate Bitcoin's limitations. They are much better scalable (i.e. allow you to carry out a much larger number of transactions at the same time), thus cheaper to use and not burdening networks such as BTC.

Of course, there are still cryptocurrencies emerging, it is not known for what. There are even special pages with which you can create tokens with your surname or any name. The vast majority of projects, however, are multi-million dollar ideas that have gained the approval of many investors. Increasingly, public fundraising for the development of such projects takes literally a few minutes, and institutional investors are struggling to purchase as many tokens as possible and, consequently, share in the success of a project based on blockchain technology.

The most popular altcoins

The top five altcoins in terms of capitalization, behind Bitcoin, include:

• Ethereum (ETH) - network with its own blockchainemon which smart contracts and other cryptocurrencies are created,
• Ripple (XRP) -  a cryptocurrency offering real-time settlements  international transfers. It is used by, among others banks,
• Tether (USDT) - stablecoin, based on the USD exchange rate. It allows for an easy and cheap transition from the world of traditional currencies to cryptocurrency exchanges,
• ChainLink (LINK) - the first cryptocurrency platform that is fully integrated with the international interbank SWIFT system, it is supported by e.g. Intel.