An altcoin is simply an alternative to the Bitcoin, which is all other cryptocoins except BTC. The Bitcoin or BTC was the first “booming” cryptocoin in the world. Thus far, it is still the biggest by market capitalization. However, the BTC has various problems when being used for payment. This is why altcoins were developed.
How are altcoins related to Bitcoin?
Bitcoin is more than just cryptocurrency. It is also open source software and a blockchain. The blockchain helps to keep an accurate record of who has the Bitcoins at all times. Bitcoin might have been the first cryptocoin to use the blockchain but it has no monopoly to it. Anyone with the right skills can come up with a blockchain and a cryptocoin. That is how altcoins were born. Some of the biggest altcoins in the world are Ripple, Bitcoin Cash, Monero, and Litecoin.
Characteristics of a True Altcoin Anyone can come up with something, call it a cryptocurrency, and then set about convincing others to use it. However, for it to be a true altcoin, it needs to run on the blockchain. In fact, some altcoins are quite similar to the Bitcoin. One of the most popular examples of this is the Bitcoin Cash. It was created by modifying the Bitcoin code, in what is called a fork.
The result was a separate blockchain on which the Bitcoin Cash runs. However, the new blockchain also carried all the history of the Bitcoin. This is why when the fork took place; all those that held BTC also got an equal number of Bitcoin Cash. Since the BTC blockchain is open source, anyone can create a fork. However, there is currently a trusted group of developers, which the community relies on. However, this might change in future.
Since anyone can create altcoins, why does their value not simply fall flat? In short, just like anything else in life, their value is derived from the people.
Why are there so many altcoins?
There are currently thousands of altcoins and some of them have no value. One reason why there are so many altcoins is that BTC has some problems with its design, every once in a while, someone will feel that the BTC needs to be improved. For instance, the transaction fees for BTC are very high. Besides that, a single transaction can take ages to complete. Most developers of altcoins aim to lower the fees and increase the speed.
Another reason is to change the verification mechanism. The transactions are verified using the proof of work, which requires a huge amount of power. Developers feel they can create a new system of verification. As a result, they can save power from being drained from the world. Another issue is privacy. Altcoins such as Monero offer better anonymity, which is attractive to people who want to stay secret when making online purchases.
A cynical reason to create altcoins is simply to cash in on the crypto world. Some people look at crypto and dollar signs pop up in their eyes. If they could create crypto and mine as many coins as possible when the blocks are still young, they could later sell the crypto when the value rises.
In some cases, creating crypto is simply a joke. A good example of this is the Dogecoin. It was created in 2013 as a joke and uses the popular Shiba Inu “Doge” meme. However, it found use as a tipping mechanism on various online platforms. In December 2017, people bought it in large numbers and its market cap rose to a billion dollars. This is despite the fact it had not been updated in ages. The original developer left the Dogecoin project in 2015 but he was critical of crypto. He said that it showed a lot about cryptocurrency in general where a currency that had not been updated in years could rise to over a billion dollars in value.
In the altcoins world, many speculators are always on the hunt for the next BTC. This has caused some of the cryptocoins to quickly rise in value and then suddenly lose it in ‘pump and dump’ operations.
The price of BTC affects the price of altcoins
Altcoins are not much safer as an investment tool than BTC. In fact, their value rises and drops in direct relation to the value of BTC. You would expect that since the altcoins are offering solutions to BTC issues, their value would have surpassed that of BTC. However, this has not been that case. Each time the value of BTC drops, the altcoins drop in value too.
In essence, those trying to diversify their portfolio by investing in altcoins will not benefit much. The entire crypto market appears to be all tied together. All of the coins always go up or down in a similar fashion. Thus if you want to diversify your portfolio, you should invest some of the money outside the crypto markets.
Bitcoin is just like any other crypto
Altcoins are a clear sign that Bitcoin is just like any other crypto. Although the blockchain and crypto are innovative, there is no guarantee that BTC will be part of the future. BTC was the first and the largest cryptocurrency. However, it has major flaws and this keeps it from being reliable. This is why most BTC proponents now claim BTC is a store of value and not a cryptocoin.
There is nothing inherently special about the Bitcoin except that it is well known. Once a better altcoin comes along, it will be replaced. Even if crypto is the future, there is no guarantee that BTC will not drop in value to zero. This is especially so as crypto coins such as Ripple and Ethereum, with more utility, continue to become popular. What makes BTC have value leading to its huge market cap is that people believe it has value. If enough people agree to shift to a dependable altcoin, the BTC could lose all of its value.