In reality, Bitcoin has opened the floodgates to the birth of an entire industry of different blockchain applications. In this post we are going to take a look at the most noticeable, altcoins...
What is an altcoin?
The word altcoin is a contraction of alternative coin and refers to any crypto currency other than Bitcoin. Many are straight derivatives of the bitcoin code with minor variable changes. Others offer wider ranging modifications such as changing the validation mechanism. Some go further still, being completely original code written from the ground up.
Most altcoins try to bring something new to the table, whether that's a change to the economics of the coin, or additional features such as improved privacy.
Each altcoin typically issues its own currency independent of Bitcoin which can be traded and shared as freely as Bitcoin.
An early altcoin
One of the first altcoins to emerge was Litecoin, a derivative of Bitcoin, released by Charlie Lee in October 2011. It makes some significant changes to some of the central working principles of Bitcoin:
- Reduces the blocktime from 10 minutes to 2.5 minutes
- Increases the maximum number of coins from 21 million to 84 million
- Rather than using SHA-256 as it's hashing algorithm, it uses scrypt
- More recently, it has been updated with the first implementation of segregated witness and the lightening network (which I'll cover in a subsequent post)
The main ideal behind the changes above are to make Litecoin a better alternative to Bitcoin for high frequency transactions.
At current count, there are approximately 800 known altcoins being actively traded and there have been thousands more which have not reached this level of activity.
You can get a feel for the different altcoins by taking a look at coinmarketcap.com which provides an easy to use ranking and price for each different coin. Clicking on each coin in turn will provide you with statistics, charts and links to the coins main website.
The market value of the entire crypto currency industry is displayed at the top of the site, this is calculated as the sum of each individual coin's market cap.
The industry has grown from effectively nothing to approximately $70 billion at the time of writing in just over eight years.
Generally speaking, each altcoin can be traded for other crypto currencies using exchanges, just like Bitcoin.
Other exchanges have emerged which only allow trading between different crypto currencies. So to use these, you must already have a crypto currency to be able to trade as they offer no method of depositing fiat currency directly.
These crypto only exchanges tend to offer many more crypto currencies for trade than traditional exchanges.
The next generation of altcoins
The pace of innovation in the blockchain space is astounding, a new technological breakthrough seems to materialise every few months.
Some of the latest altcoins use completely new code independent of Bitcoin. They do still share similar concepts and methods of operation (i.e. peer to peer, distributed blockchain ledgers, consensus mechanisms etc), but they are written from scratch to deliver differing goals.
One of the most talked about altcoins of today is Ethereum, the premise of which is the easy application of another blockchain revolution, smart contracts.
My next post is going to take a look at the genius of smart contracts and following that, a detailed introduction to Ethereum.
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