Altcoins: A Beginner’s Guide

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Altcoins

Altcoin Definition

Following the immense success of Bitcoin after its 2009 release, alternative cryptocurrencies dramatically graced the market one by one. These assets come with just a slight variation from the father of all cryptocurrencies, Bitcoin.

In the industry, these alternative cryptocurrencies are more popularly known as altcoins. The term came from two words, alternative and coin. As the name implies, these assets serve as a substitute to Bitcoin. Initially, the goal of these assets is to provide investors and traders a more viable option in their crypto dealings.

Bitcoin holds the record of being the first-ever peer-to-peer cryptocurrency in the world. Over the years, the industry had witnessed Bitcoin’s fair share of strengths and limitations. As a result, crypto developers aimed to create an option which could eliminate existing problems. In doing so, these creators relied on Bitcoin’s basic framework. However, the alternative versions are designed to withstand or even beat the competition.

Like the predecessor, most altcoins of today are peer-to-peer. There are mining processes involved, and they also promise a cheaper and more efficient way of conducting network transactions. Despite possessing many similar features to Bitcoin, altcoins have their own unique characteristics.

 Why Altcoins Are Created

As mentioned above, Bitcoin has many exciting features, hence its success. However, it has its set of flaws as well. Seeing that the cryptocurrency enjoys worldwide fame despite its weakness, many developers got interested of following this asset’s footsteps. With tight competition, innovation and new features are needed to surpass Bitcoin’s performance. As a result, the basic framework was altered, changes were made, and altcoins were introduced.

Notably, Bitcoin’s transaction time is one of its most significant weaknesses. Many altcoins such as LTC (Litecoin) is designed with faster Blockchain update times compared to Bitcoin. Being able to confirm transactions more quickly significantly boosts the activities in the marketplace. However, it’s worth noting that some altcoins excel in a particular function but is not always the best option for other situations.

There is a growing hype around altcoins which mainly springs out from the question of who’s going to lead the race. As they say, there is only competition, but there is no finish line as the users’ demands continue to change over time. So far, judging based on market indicators, Litecoin is the alternative coin that is closest to Bitcoin in terms of popularity.

Varying Algorithm 

Another weak point of the Bitcoin network is its proof-of-work protocol which is used to define the set of requirements in generating transactions block sets, which would later be added to the Blockchain database of distributed transactions.

The term mining refers to the series of calculations performed on a computer to authenticate the transactions that happen in the Bitcoin network. Miners can create a block of transaction data in 10 minutes and in turn, get a few Bitcoins as rewards. So, aside from being a system of verification, this system also makes way for fair distribution of new Bitcoins. The same principles happen in the altcoin network.

Despite persistent issues, Bitcoin mining still depends on SHA256 mining algorithm. Aiming to improve proof-of-stake, transaction speed, DNS resolution, privacy, and more, innovative mining algorithms such as X11, X13, Scrypt, Groestl, Quark, and Keccak were developed. Some instantly gained popularity while others remained in the shadow of Bitcoin.

Aspiring developers never cease on creating an innovative version of Bitcoin’s mining algorithm to provide efficient solutions to the issues associated with proof-of-work protocol in crypto mining.

Crypto Mining Using CPU and GPU

Modern computers today have built-in multi-core CPUs. This feature is the same as having many CPUs connected to a single unit of physical package. The central processing unit is a component that can be plugged into the primary circuit board of a computer or a motherboard. It is usually placed under a heat sink made of metal. A fan is put in place o prevent the CPU from overheating, a. Other versions have water storage that serves as the cooling mechanism.

Meanwhile, GPU means graphics processing unit. It is a part of the computer’s video rendering system. Its main function is to support the rendering process of 3D graphics and other visual effects. Many people think that a CPU and a GPU has the same functions. However, these two components are designed to perform different tasks. There are internal differences that make GPUs a more favorable altcoin mining equipment. However, some miners still opt to rely on CPUs.

Proof-of-Work Algorithm

Bitcoin uses SHA256 as its proof-of-work mining algorithm. It has been thoroughly analyzed and was chosen because of its ability to coordinate transactions and faster verification speed. Furthermore, there is a minimal centralization risk since the mining algorithm has ASICs (application-specific integrated circuit.) A mining algorithm without a compatible ASICs significantly increases the barrier for entrance. This situation gives the group with well-developed ASICs the chance to take advantage of the market. Many crypto-enthusiasts think that there is an easy solution to the problem –develop an ASIC and change the mining algorithm accordingly. However, this proposal could lead to centralization which opposes the decentralized consensus purpose.

However, despite having multiple companies that develop ASICs, these cryptocurrencies that have successfully avoided centralization are still relying on algorithms that have the same verification speed as SHA256. There are claims of innovations; however, it appears that the processes and functions are still similar to Bitcoin, ultimately making them a worthless clone. There are even existing altcoins with slower hashing algorithms which make the processing time even more complicated and more disadvantageous.

The PoS (Proof of Stake) Concept

While many see this cryptocurrency class as a centralized concept, proof of stake is valuable in some ways because acquiring a stake is expensive. However, it is not ideal for bootstrapping dispersed consensus.

In PoS, stakers who want to generate a block need to prove that they have a sufficient amount of the crypto assets. They avoid sacrificing energy as other miners do. In this system, those who possess a higher amount of cryptocurrency are more likely to generate a block.

Decentralized Apps and Tokens

Bitcoin works similar some way as HTTP. Whereas a website can be created on HTTP, tools can be created on Bitcoin’s application layer as well. Currently, there is a particular class of cryptocurrencies that enables the creation of exchanges, casino websites, and anonymity protocols on top of them. Notably, these features can be built on an Altcoin Blockchain’s top layer.

Take for instance, an open-source Internet protocol, the Counterparty platform. It is a peer-to-peer platform designed for financial transactions. Counterparty is created on top of Bitcoin’s network and Blockchain. This platform extends the functionality of Bitcoin by encoding data during ordinary transactions. The Bitcoin protocol remains as it is while effectively assisting the innovations being made as well as the adoption of new functions. Meanwhile, the Bitcoin network ensures that all processes are secured.

Counterparty also enables users to enjoy services like those of decentralized exchanges. The platform also allows the creation of tokens, price feeds, and bets. There is also a feature in which users can enter smart contracts and issue dividends.

The abovementioned features prove that Bitcoin and altcoins can function as money which can be programmed, and can be valuable tools in different cases such as property-related transactions and document validation, among others.

 The value of Altcoins

 Bitcoin is the first-ever decentralized cryptocurrency in the world. Following its launch in 2009, different terminologies started to gain recognition in the industry as well. One of these most commonly used terms in association with Bitcoin and altcoins is the “market cap.” It describes the total market value of an asset in dollars as well as the total amount of the available supply of the crypto assets in circulation. Sometimes, the market cap is used to describe the estimated value of the total amount of cryptocurrency that will be further issued in the market.

Click here to see the Marketcap of cryptocurrencies.

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