Altcoins: Bitcoin Alternatives

Alternative Coins (source:fibogroup.com)

With extensive experience as an electrical/software/coding engineer along with having a diverse financial background, Thomas Wettermann’s areas of interest include Machine Learning (ML), artificial intelligence (AI), and Financial Technology (FinTech). For the past few years, Thomas Wettermann has focused on the underlying technologies that support and promote all phases of cryptocurrency ecosystems. 

What are Altcoins?

Bitcoin is the granddaddy of all cryptocurrencies. It was the first cryptocurrency and is by far the most popular. But it has many followers and copycats, generally referred to as altcoins. An altcoin is an alternative coin to Bitcoin. As of today, it is estimated that there are more than 10,000 different altcoins in the cryptocurrency marketplace.\

As an investor, perhaps you are curious as to how altcoins differ from Bitcoin, or perhaps you are seeking a better understanding of the various types of coins that exist in the crypto marketplace. Either way, this general guideline will help you in gaining an understanding of these alternative coins.

How Are Altcoins Different from Bitcoin?

To explain how altcoins differ from Bitcoin, it is important to first provide a general overview of some Bitcoin fundamentals.

Bitcoin is a virtual coin or digital currency that exists in the form of computer code. Bitcoin has a limited or “capped” supply of coins: 21 million. Because of this capped coin supply, people have associated a certain value with these virtual coins. This is similar to how people have associated a value with gold or silver.

All Bitcoin transactions are recorded in a block of data and all these blocks are chained or linked together in a blockchain. You can think of this blockchain as being created by a large interconnected number of decentralized computers.

These interconnected computers maintain a common record of each Bitcoin transaction. Transactions will be recorded by every single interconnected computer that is working to place the next block into the blockchain. Transactions are not controlled or influenced by any central bank, government, or organization.

Blocks must first be verified and then they are entered into the blockchain. This blockchain functions like an electronic ledger where entries cannot be changed or modified, similar to a ledger that a bank uses to log the flow of money into and out of the bank.

Bitcoin uses a consensus known as Proof-of-Work (PoW). With PoW, block verification occurs by way of “miners” who compete with one another to add the next verified block onto the blockchain.

To become a successful miner, the miner must initially verify a transaction block. The miner must then solve complex mathematical puzzles. There can only be one successful miner for each verified block. The successful miner will then write the verified block to the blockchain, thereby earning financial rewards.

New transactions will form a new block and the block verification process will begin again.

Altcoin

Altcoins operate similarly to Bitcoin. They use a blockchain as an incorruptible, distributed public ledger for on-chain transactions. Transactions are recorded only if there is a consensus in the platform that the transaction is indeed valid and legitimate. Some altcoins use a PoW consensus like Bitcoin, while others use a different type of consensus mechanism called Proof of Stake (PoS). There are also other hybrid consensus mechanisms.

All the views expressed on this site are those of Thomas Wettermann and do not represent the opinions of any entity whatsoever with which Thomas Wettermann has been, is currently, or will be affiliated.

Trading digital financial assets such as cryptocurrencies can carry a high level of risk, and may not be suitable for all investors. Before deciding to invest, purchase, and/or trade cryptocurrency you should carefully consider your investment objectives, level of experience, adversity to risk, and volatilities. The possibility exists that you may sustain a loss of some or all of your initial investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with cryptocurrency trading, and seek advice from a qualified and independent financial advisor.

Thomas Wettermann is not an independent financial advisor. Any opinions, news, research, analyses, prices, or other information contained on this website is provided as general market commentary of Thomas Wettermann, and does not constitute investment advice. Thomas Wettermann will not accept liability for any loss or damage, including without limitation to, any loss of profit, which may arise directly or indirectly from use of or reliance on such information. All opinions expressed on this site are owned by Thomas Wettermann and should never be considered as advice in any form.