Have you heard about crazy coins with names like Ethereum, Cardano or Dogecoin skyrocketing in value, being discussed on social media or making headlines? Welcome to the wild world of altcoins!
Altcoins refer to the thousands of "alternative cryptocurrencies" that have launched after trailblazer Bitcoin ever since its code was released to the public in 2009.
I‘m guessing you have some questions about these Bitcoin alternatives. Maybe along the lines of:
- What do these "altcoins" even do?
- Why are there so many coins if Bitcoin was first to market?
- Is it worth understanding or investing in altcoins versus only Bitcoin?
By the end of this beginner‘s guide breaking down the ABCs of altcoins, I‘ll help you learn:
- What key problems led to altcoins being created.
- The main types and use cases of altcoins now available.
- How to evaluate emerging altcoins yourself.
- Reasons why altcoins could be worth paying attention to.
My goal is to make the world of altcoins understandable with no technical expertise assumed! This roundup contains everything to get you started on your altcoin education journey today.
Origins: Why Altcoins Emerged
To understand the significance of altcoins, we have to step back to see why Bitcoin was so groundbreaking when it launched.
For centuries the global financial system has relied on powerful intermediaries like banks to facilitate transactions. Bitcoin‘s revolutionary whitepaper published under the pseudonym "Satoshi Nakamoto" outlined a bold vision. It proposed transferring value in a purely peer-to-peer way, removing the need for financial institutions altogether!
This decentralized network would be powered by transparent blockchain infrastructure and consensus mechanisms replacing trust in third parties. For the first time two individuals could directly exchange money digitally without requiring any centralized authority‘s permission.
Several key advantages this system introduced include:
- No third party risks – Counterparty and intermediary risks are eliminated by disintermediation.
- Pseudonymity – Users interact with the network via blockchain addresses rather than real-world IDs.
- Immutable record – Transactions recorded on Bitcoin‘s tamper-proof ledger are set in stone.
- Censorship resistance – Payments cannot be blocked or reversed as on traditional networks.
- Accessibility – Bitcoin is designed for borderless financial access not tied to geography or socioeconomic status.
Bitcoin delivered on its promises in many ways. Yet its first-gen architecture also has some well known drawbacks engineers hoped to improve upon:
Bitcoin‘s Key Limitations:
- Slow transaction throughput – Bitcoin is currently capped at processing 7 transactions per second, causing delays and congestion.
- Environmental impact – Its Proof-of-Work mining is estimated to consume over 200+ terawatt hours per year – similar to a small country!
- Volatility – Speculation contributes to extreme price fluctuations making payments unreliable.
- Complex usage – Address formats, confirmation times and lack of smart contract functionality reduces applications.
Rather than just critiquing Bitcoin‘s drawbacks from the sidelines, ambitious developers around the world started building their own innovative cryptocurrency models addressing these issues and more.
The name altcoin – meaning "alternative coins" – was born. Exciting new projects began launching at a rapid pace.
The Rise of Altcoins: Bitcoin‘s Successors
Programmers leveraged Bitcoin‘s core code which had been publicly released by Satoshi Nakamoto under an open source MIT license. This allowed modifying parameters to experiment with numous improvements.
People across disciplines from economics to cryptography joined the crypto movement from 2010 onwards, attracted by potential to solve problems from payments to digital identity.
An explosion of creativity resulted from all this talent pouring in to realize the possibilities of decentralized programmable money.
By expanding features, incentives and security far beyond Bitcoin in thousands of directions simultaneously, here are some examples of what altcoins unlocked:
- Web3 platforms supporting decentralized apps like trading, social networks or games that run on blockchain.
- "Smart contracts" enabling complex conditional code and business logic to be executed trustlessly.
- Faster networks significantly increasing transaction speeds and scalability using innovations like proof-of-stake consensus.
- Stablecoins with prices pegged to assets like the US Dollar.
- Privacy improvements to enhance pseudonymity through cryptographic advancements.
- Interoperability between isolated blockchains.
- Algorithmic central banking models not reliant on monetary policy decisions.
The variety of altcoin experiments reflects the diversity of needs and interests across industries. Global teams of developers were now collaborating in open source communities rather than closed corporate walls.
Access was democratized for anyone to leverage these tools by simply plugging into blockchain networks according to alignment with their goals.
The altcoin market cap has ballooned from nothing to over $1 trillion in just 12 years since Bitcoin kickstarted the crypto revolution. That‘s how profoundly altcoins are transforming finance!
Now let‘s explore major altcoin categories in more detail.
Altcoin Categories: An Overview
If the concept of altcoins is entirely unfamiliar, the sheer variety can be bewildering at first glance.
To simplify, altcoins can be grouped into these broad categories according to their purposes and characteristics:
1. Smart Contract Platforms
The most advanced altcoins power entire ecosystems of distributed applications. Rather than just offering an alternative currency, they enable decentralized computing on blockchain.
Ethereum pioneered general purpose smart contract functionality in 2015. Today thousands of apps across finance, gaming, identity, governance, NFTs and more run on Ethereum. Competing smart contract platforms like Cardano and Algorand also support diverse dApp development through their global computing networks.
Leading Smart Contract Altcoin Platforms:
- Ethereum
- Polkadot
- Cardano
- Solana
- Algorand
2. Stablecoins
As discussed earlier, wild price volatility hampers cryptocurrencies from serving as usable payments instruments. Stablecoins solve this by pegging their value to external assets like fiat currencies.
For every 1 Tether (USDT) in circulation for example, the company claims to have $1 in reserves to maintain a stable price around $1. Stablecoins are also backed by precious metals or algorithms. By minimizing fluctuation risk, they have everyday utility for commercial transactions.
Top Stablecoins by Market Cap:
- Tether (USDT)
- USD Coin (USDC)
- Binance USD (BUSD)
- DAI
3. Privacy Coins
Bitcoin offers pseudonymity as users are addressed by alpha-numeric public keys rather than personally identifiable information. However privacy risks still exist on its public ledger.
Altcoins like Monero and ZCash leverage advanced cryptographic techniques like ring signatures, stealth addresses and zk-SNARKs for enhanced anonymity. While debated, privacy coins offer confidentiality appealing to individuals valuing data security.
Leading Privacy Focused Altcoins:
- Monero (XMR)
- Zcash (ZEC)
- Dash (DASH)
- Secret (SCRT)
4. Meme/Joke Coins
Meme coins pay homage to internet culture and online communities by featuring themes from viral memes or celebrities. Most start as jokes poking fun at speculative crypto investments.
Outlandish meme coins somehow struck a chord. Helped by social media word-of-mouth and prominent figures like Elon Musk, some became mainstream. Dogecoin birthed from a meme now has a $16 billion market cap!
Popular Meme Cryptocurrencies:
- Dogecoin (DOGE)
- Shiba Inu Coin (SHIB)
- Dogelon Mars (ELON)
- Samoyed Coin (SAMO)
5. Metaverse & NFT Tokens
Virtual worlds, crypto gaming, digital art and other digital ownership use cases are fueling growth of metaverse and NFT altcoins. These power next generation immersive experiences by integrating blockchain‘s programmability.
Decentraland for example allows buying virtual real estate NFTs. Axie Infinity pioneered play to earn gaming built on transparency of in-game asset ownership via tokens.
Altcoins Driving Metaverse and Digital Ownership:
- Decentraland (MANA)
- The Sandbox (SAND)
- Axie Infinity (AXS)
- Enjin (ENJ)
6. DeFi Governance Tokens
Decentralized finance or DeFi refers to blockchain-based alternatives challenging banks, brokerages and insurance with transparent peer-to-peer models. DeFi apps often have associated governance tokens allowing community control via voting rights over protocol changes.
Major DeFi projects like Uniswap or Yearn Finance with valuations in the billions are entirely governed by respective UNI and YFI token holders. The more tokens owned, the more sway users have on future upgrades like integration new crypto assets or fixing bugs.
Top DeFi Governance Cryptocurrencies:
- Uniswap (UNI)
- Aave (AAVE)
- Yearn Finance (YFI)
- Decentraland (MANA)
This overview shows altcoins can‘t be painted with a broad brush. Their capabilities span art and expression to finance and technology!
Now it‘s easier to approach understanding them categorically based on intentions and use cases vs getting overwhelmed by all ~12,000 coins.
Onward to helpful evaluation criteria if you‘re exploring altcoin participation.
Researching Early Stage Altcoins: 5 Key Factors
Hopefully you now have an idea of the diversity across altcoin models in existence today spanning payments, privacy, platforms, memes and more!
Hundreds continue launching monthly, aiming to power web3 or attract a share of growing crypto demand. The landscape shifts rapidly.
So when a new altcoin grabs your attention, how do you thoughtfully assess its merit and potential?
Here is a 5 step checklist of key factors to analyze:
1. Scan the Whitepaper
Every crypto project publishes technical and commercial details explaining its purpose in a format called a "whitepaper" or "litepaper". This is similar to a business plan or investment prospectus.
The whitepaper allows deeply inspecting:
- Who are the founders and what are their credentials?
- What real-world problem is the coin trying to solve?
- What is the technology behind it? How does it work?
- What demand or community growth forecasts support the case?
- What is the coin distribution and mining/staking model?
Warning signs include anonymous teams, shoddy writing quality or lack of technical specifics beyond hype.
2. Verify Backers and Partners
The project website will typically advertise advisors, investors and corporate partners supporting the initiative.
Big names can superficially seem to signal legitimacy so it‘s essential to verify these claims. Executing partnerships also demonstrates capability to deliver.
3. Review Public Code Activity
The vast majority of cryptocurrencies have publicly viewable code repositories for transparency (like on GitHub). Progress visible in code commits and contributions offers tangible signals around development momentum.
4. Research Tokenomics
"Tokenomics" refers to the designed token economy surrounding a cryptoasset with characteristics covering distribution, governance rights, incentives, burns and other mechanics affecting dynamics of supply and demand.
For instance, bitcoin is minted by miners validating transactions while coins like Uniswap generate rewards for liquidity providers to the protocol. Analyzing tokenomics allows estimating potential appreciation drivers.
5. Join Community Discussions
Every cryptocurrency has community channels whether Discord servers, Telegram groups, Reddit threads or Twitter spaces. Participating in open conversations is invaluable to gauge genuine interest and sentiment versus astroturfed marketing. The most engaged communities with helpful chatter often indicate promising projects.
Using this 5 step checklist equips you to separate quality altcoins with strong fundamentals from the risky speculation bets!
Why Care About Altcoins?: Looking Ahead
We‘ve covered a lot of ground understanding altcoin origins, classifications and analysis best practices! Let‘s pull it all together to address why altcoins could be worth paying attention to.
Even if leading projects end up pivoting over time, the altcoin movement reflects pioneering spirits tackling complex economic problems from new angles. The appetite to keep exploring outside the status quo is irrepressible when incentives align towards better financial accessibility.
And while Bitcoin remains the focal point for now, when it eventually does become unsuitable as base blockchain layer one day, well-positioned successor altcoins offer optionality to carry the crypto torch ahead aligned with the cypherpunk ethos but serving more participatory user experiences.
Until then, new models will continue emerging aiming to balance tradeoffs across scalability, security and decentralization differently according to their contexts. Just like successive generations of technology we‘ve seen transition from mainframes to PCs to mobile phones to cloud, each unlocking access for wider demographics over time, crypto could follow a similar path towards greater real world functionality.
When even a meme coin originally intended as a spontaneous joke ends up becoming one of the largest forms of digital money adopted by millions, it signals underdogs deeply understand innate human incentives and community building better than the incumbents. Altcoins let us shape defining what constitutes "value" on our own terms going forward.
While risks are high given nascency of the ecosystem, dismissing or ignoring this unprecedented cycle of accelerated creativity might come with its own opportunity cost one day.
If you‘ve read this guide all the way until now though, at least understanding altcoin basics will give you an advantage! Whether participating yourself or just following along, familiarizing with "Bitcoin‘s successors" is worthwhile to appreciate this turning point.
I hope mapping altcoin terrain through this beginner‘s guide gives you renewed insight into the crypto revolution‘s possibilities! Here‘s to the dreamers with courage to walk their talk and craft transparent tools seeking to uplift people.
