Lesson Learning objectives : What are Altcoins ? How the differ from Bitcoin ? How they created ? What is they role in the Cryptocurrency Ecosystem ? This lesson address these important topics in a simple and efficient way, to allow the participant to understand quickly the Altcoins
What are Altcoins
The terms Altcoin refer to any other cryptocurrency other than Bitcoin. As Bitcoin is an open source piece of software anyone can copy the code and release their own chain. Furthermore, amongst all the Altcoins which are on the market today they can be grouped in four categories based on their purpose :
Currency Coins (Payment) : A digital currency such as Litecoin (LTC), which the purpose is to offer an alternative solution to Bitcoin as a payment currency. Since the launch of Bitcoin many other cryptocurrencies have emerged to imitate Bitcoin proposing some improvements and new features in order to try to compete with Bitcoin. The main characteristic of this category is the fact that those Altcoins have their own Network/Blockchain.
Platform Coins (Network Coins) : A digital currency such as Ethereum (ETH) or EOS (EOS), which their primarily purpose is to offer to other smaller currency’s/projects wishing to emerge (also called Dapps) a network/Blockchain without developing their own. That permits to smaller project to avoid developing an entire public network (Blockchain) and focusing on their core project (Dapps). The process to launched a cryptocurrency using a Ethereum or EOS is done through the smart contracts (For more information about Ethereum and smart contracts view lesson 6 of this course What is Ethereum and Smart Contracts)
Utility Tokens (Dapps) : This type of currency such as Poker (POKER), are projects that are built on Network Coins such as EOS (EOS). This type of project as a specific goal (e.i Poker is an online casino). The funds received through their Initial Coin Offering, called ICO, (when a coin is launched on the market) are mainly used to develop their product.
Stablecoins : Cryptocurrencies such as Tether (USDT) which are paired in a 1:1 ratio to a fiat currency such as US dollar. These types of cryptocurrency are useful to maintain the value of the portfolio when the market goes down and are frequently used by traders.
How Altcoins are created
Altcoins can be mainly created using three different ways :
New Chain (Code) : A brand new Blockchain is created by developers. The Blockchain uses their own protocol and coding and has its own network to run the cryptocurrency (mining) such as Litecoin (LTC).
Fork : This mostly occurs when a divergence occurs amongst the people running the network (miners). As an example BitcoinCash; a change was proposed in the Bitcoin code which didn’t make unanimity. As such, a split in the Bitcoin chain occurred, creating a new cryptocurrency BitcoinCash which is Bitcoin with modify code with the changes proposed.
ICO : A cryptocurrency launched using the cryptocurrency network such as Ethereum (ETH). (For more information about Ethereum and smart contracts view lesson 6 of this course What is Ethereum and Smart Contracts)
Altcoins in the Ecosystem
Once an Altcoin is launched, they will make themselves list on an exchange or multiple exchanges (Subject to exchange approval). Once they are listed it will be possible to trade them on the exchange(s) against the paring the exchange offers/approves (e.i BTC, USD).
The traders commonly use Altcoins to try to increase either their Bitcoin or USD by making trading gains (Sell higher then originally bought).