How Altcoins Challenge the Cryptocurrency Status Quo

When cryptocurrency or decentralized finance is brought up, many people think first of Bitcoin. Bitcoin (BTC) is often held up as the progenitor of modern cryptocurrency, and currently comprises approximately 47 percentof the entire crypto market — a higher dominance than any other currency.

At the same time, the rate of altcoin launches has grown exponentially, with some estimates reaching 6,000 varieties. Although altcoin shares several characteristics with Bitcoin, each altcoin ultimately operates under its own rules. Compared to Bitcoin, some altcoins are capable of faster transaction processing, higher transaction volume, or better scaling; others offer advanced functionality such as automated ‘smart contracts.’

New functionality notwithstanding, there remains the question of the extent to which altcoins disrupt the market. Are they capable of challenging the status quo in the crypto space? Disruptive or not, what opportunity might altcoin represent for investors?

To address these questions, we must first take a closer look at altcoin itself — what it is, how it works, and what it can do.

What are altcoins?

Altcoin is functionally a catch-all portmanteau for any form of cryptocurrency that isn’t Bitcoin. Given the sheer number of available altcoins, their value and functionality tends to vary significantly. They range from potential “pump-and-dump” clones such as Bitcoin 2 to newcomers like Cardano, Polkadot, and Avalanche.

What do altcoins and Bitcoin have in common?

Both altcoins and Bitcoin are built on blockchain technology. Described by HBR as a pseudo anonymous peer to peer database in which data is stored in “blocks” of code, blockchain guarantees data integrity through decentralization — a ledger cannot be altered without altering every single instance of that ledger. Additionally, because blockchain has its basis in programming, it can support the presence of active code and algorithms, the basis of the advanced functionality present in many altcoins.

Like Bitcoin, altcoins also serve as a means of facilitating digital transactions, usually independent of any real-world currency.

How do altcoins work?

Because altcoins are built on the same foundation as Bitcoin, they also function similarly. When someone engages in any type of transaction with an altcoin, it’s recorded and validated, becoming a permanent part of the coin’s blockchain. In terms of valuation, most altcoins are at least influenced by bitcoin, increasing and decreasing in value with the dominant cryptocurrency.

How do altcoins differ from Bitcoin?

An altcoin might differentiate itself from Bitcoin in any of a multitude of ways:

Usage

An altcoin may be intended for general spending, or it may, either by coincidence or design, serve a specific market or use case. Harmony, for instance, is intended to be leveraged in the development of decentralized applications. PotCoin, meanwhile, bills itself as the future of the cannabis industry.

Some altcoins may also be created as a means of addressing a perceived shortcoming in either Bitcoin or the crypto market itself. Others may simply have been born from a unique concept or idea. One type of altcoin, known as solarcoin, was created with sustainability in mind, and offered as a reward for anyone using solar technology.

Transaction fees

Bitcoin tends to have slightly higher transaction fees compared to altcoins, likely owing to its high dominance and value.

Consensus

With mining-based cryptocurrencies, transactions are validated as part of the mining process.

Bitcoin, for instance, leverages a consensus algorithm known as Proof of Work (PoW), which has miners compete with one another to solve complicated, arbitrary mathematical equations. Whoever solves the equation first (thereby validating the chain) earns BTC. In addition to being extremely resource-intensive and granting an unfair advantage to miners with more computing power, PoW is limited in the number of transactions it can support at once.

The most widely-used alternatives to PoW are as follows:

• Proof-of-stake gives miners with larger volumes of currency a better chance of being chosen to ‘mine’ the next block.
• Delegated proof-of-stake allows owners to collectively select a group of delegates to validate/confirm transactions.
• Consensus-as-a-service uses a cloud-based algorithmic system to validate transactions, effectively generating an always-online digital account book.
• Hashgraph is an evolution of blockchain technology that may be loosely based on CaaS.

Mining

Consensus aside, Bitcoin generally requires specialized hardware to mine, and limits the production of new coins to one per ten minutes. Altcoins need not be subject to either of these limitations. Litecoin, for instance, allows a new coin to be mined every two and a half minutes.

It’s important to note that some altcoins, rather than being mining-based, are pre-mined, as described below.

What are the different types of altcoin?

Beyond the broad category of ‘altcoin,’ crypto alternatives to BTC may fall under any of the following classifications:

• Mined vs. pre-mined. Like Bitcoin, mining-based altcoins are created through ‘mining,’ usually as part of the consensus/validation process. Premined coins, meanwhile, may be distributed by a crypto exchange, produced by their creator, or generated by an algorithm.
• For some investors, the crypto market may seem too volatile, and carry too much of an element of risk as a result. Stablecoins attempt to address this problem by tying their value to an asset with tangible value in the real world. This could be a fiat currency like the Euro or a commodity such as gold.
• Utility tokens vs. security tokens. The majority of altcoins discussed thus far have fallen under the umbrella of utility tokens. There is, however, an alternative class of altcoin, known as a security token. Coindesk describes the distinction quite well: utility tokens are used as part of an ecosystem, security tokens grant one ownership in said ecosystem.
• Non-fungible tokens (NFTs). NFTs are essentially digital speculative assets. That is to say, each non-fungible token represents a real-world object, such as a piece of art, a YouTube video, or a tweet. Most of the time, an NFT is unique — it cannot be duplicated, nor can it be replaced.

What opportunities do altcoins present for investors?

Compared to Bitcoin, there are both benefits and drawbacks of investing in altcoin.

Arguments in favor of investing in altcoin

• Because so many different types of altcoins exist, and because new altcoins are brought to market with such frequency, there is a great deal of space for altcoins to evolve and to bring the crypto market with them.
• Altcoins often have unique functions or features that may be of interest to your specific objectives as an investor.
• Certain altcoins are designed with greater stability than Bitcoin, giving them the potential to gain traction as widely-accepted digital currency.
• Similar to the above, some forms of altcoin have gained acceptance amongst major financial institutions.
• Altcoin tends to be highly accessible when compared to Bitcoin, which some argue is subject to value manipulation.
• Bitcoin has never quite recovered from its 2017 crash, and its depreciation in value appears to be continuing. In the near future, we may see one of the leading altcoins take Bitcoin’s position as a market leader in crypto.

Arguments against investing in altcoin

• The diversity of altcoin might be considered a strength, but it can just as easily be viewed as a weakness. Because there are so many different types of altcoin, the market may be oversaturated.
• The altcoin market can be highly volatile, particularly to inexperienced investors. Moreover, at first glance, many newcomers to crypto investment may view altcoin as an inferior investment to Bitcoin — potentially creating something of a self-fulfilling prophecy.
• The long-term outlook of crypto as a whole may be adversely affected as a result of China’s decision to ban it entirely.
• Altcoin can be a risky investment. You may have to contend with everything from so-called “pump-and-dump” schemes to organized attacks and targeted scams.

Ultimately, whether or not altcoins represent a sound investment depends largely on who you ask — and on what altcoin you’re discussing. On the one hand, the overall outlook for cryptocurrency as it pertains to the global economy seems promising. Potential future benefits inherent in altcoins could include:

• A boost to multiple digital industries as crypto becomes more widely-accepted.
• A more level playing field for countries that lack access to basic banking services, courtesy of digital wallets.
• Lower transaction fees, as cryptocurrency does not require any presence in the physical world.
• Reduced risk of fraud and corruption thanks to blockchain.
• New opportunities for entrepreneurs.

How a partnership can help you break into an altcoin

Coinbase (COIN)

By far the largest cryptocurrency exchange in the world, Coinbase (NASDAQ:COIN) is easy to use, offers a diverse selection of altcoins for both veteran and first-time investors, and is also highly secure. All coinbase accounts include access to a digital wallet in which cryptocurrency can safely be stored, and also offers fully-insured custodial wallets.

Founded in 2012, Coinbase has only ever had one goal — to democratize the crypto market, making it easy to send, receive, and purchase both Bitcoin and Altcoin. Anyone using the platform can choose a free account with a slightly higher fee structure, or Coinbase Pro, which not only lowers its fees but also includes full insurance protection and a built-in API.

Graph Blockchain (GBLC)

If you’re a Canadian entrepreneur or business looking for your start in decentralized finance, Graph Blockchain (CSE:GBLC) can help. A Proof of Stake crypto miner, Graph Blockchain provides  Canadian retail investors with the only public exposure in the country to otherwise-inaccessible altcoins, all of which have the potential for future growth — including stable coins, mining-based cryptocurrencies, security tokens, utility tokens, and non-fungible tokens.

With $10 million in funding secured as of April 2021, Graph Blockchain has also recently completed a series of significant acquisitions, including NFT specialist New World. As a result, it is well-positioned to take advantage of an exploding market, which some have predicted could reach $10 trillion by 2023.

eToro

Billing itself as “the world’s leading social trading platform,” eToro is focused on more than just Altcoin. Investors who set themselves up on the platform can not only buy digital currency, but also invest in stocks/EFTs and trade commodities and indices. If you’re already well-established as an investor and altcoin represents a potential avenue for diversification, eToro might well be an ideal choice.

Do note, however, that it is limited in terms of where you can access it from — it is not currently available in Canada, for instance.

KuCoin

KuCoin is a crypto exchange featuring one of the largest selections of altcoins on the market. Per the exchange itself, 1 in 4 crypto holders worldwide are on KuCoin, which also possesses a massive global footprint. As a relatively new company, KuCoin has charted out an aggressive roadmap which will see its daily volume top $30 billion by 2023.

The takeaway

Cryptocurrencies have long evolved past the more notable names like Bitcoin and Ethereum (ETH). Altcoins play an important role in the rapidly developing cryptocurrency space. As the altcoin space continues to mature, and with widespread adoption of popular altcoins on recognized markets, altcoins present investors with a significant cryptocurrency investment opportunity that isn’t directly tied to BTC and ETH.

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