While the popular press has fallen in love with bitcoin, its distant cousin altcoin toils in relative obscurity on crypto exchanges.
This could be the shortest BCG article ever:
“Altcoins are all cryptocurrencies that are not bitcoin.”
Period. Hard stop. Finito.
But what fun would that be?!?
Sure, altcoins are those cryptocurrencies that are not bitcoin. (I know, I’m repeating myself here like this is an 11th grade term paper requiring I fill the whole page) But what ARE they? What purpose do they serve? What is the MEANING of altcoin?!?
We are so glad you asked! Read on…
The Altcoin Difference
If you were to scan the headlines of major newspapers from late in 2017, you would quickly notice that bitcoin was all the rage. The one-year trend line of price growth for bitcoin was stunning … but the one-year trend line of people asking, “What is bitcoin?” dwarfed it.
As bitcoin took its moment in the sun, altcoin remained the realm of the most hardcore crypto traders. As such, it is easy for those new to the game to call everything from stellar lumens and ripple to zcash and dogecoin: “Bitcoin.” Upon closer examination, altcoins are, in most cases, nothing like bitcoin.
Bitcoin’s Distant Cousin
They are more like distant cousins, sharing a similar blockchain structure, while borrowing a piece of cryptocurrency DNA from here and another from there and another from there to form a purpose and a value all their own.
Very few of these altcoins are looking to be used as an actual currency in commerce the way bitcoin is. And that right there may be the most understandable difference. It is not, however, the only difference.
Additional differences range from the proof-of-work requirements for mining (if they require proof of work at all!); their value, which is dwarfed by the value of bitcoin; their level of security; and their function.
For instance, some altcoins offer the ability to process transactions much faster. The tradeoff here is that transactions may not be as secure as bitcoin.
Others offer a programming language that is simple to build apps on. Again, a tradeoff in this case is often security.
Others still, offer up a very specific purpose, like facilitating data storage, with little or no value.
While some traders are all-in on altcoins, most see them as being in the “penny stock” stage-high risk with the potential for high reward.
As the crypto market grows, there will be hundreds, if not thousands or tens of thousands or more, stories of altcoins that went belly up. Just like brick-and-mortar businesses, not all companies which offer a coin on the exchange are going to make it.
If there is one thing crypto market thought leaders can agree on (it literally may be the only thing), it is that jumping into the altcoin market requires you do your homework to ensure the best odds for your investment to blast off, instead of blowing up.