Defining Altcoins: Everything You Need to Know
Altcoins are any cryptoassets that aren't Bitcoin. This article looks into the history of altcoins and what they offer today.
On an otherwise uneventful day on January 3rd, 2009, a new technology would change the world forever. Satoshi Nakamoto mined Bitcoin's first block—The Genesis Block—establishing the first decentralized cryptocurrency. Bitcoin, with a mysterious, almost mythical origin story, would go on to change the way we think about money. Its creator birthed Bitcoin through immaculate conception, gave it to the world, and then disappeared without a trace.
Throughout Bitcoin's lifetime, it's sparked evangelists and naysayers in equal measure, made and broken fortunes, and weathered more than a few storms. It's been compared to everything from the invention of the internet to the tulip mania of 1637. The fanfare never stopped, it only grew, and Bitcoin's garnered an almost religious following.
But with all the excitement around Bitcoin and all the staunch defenders of its throne, there have been those who've sought to create alternatives to the cryptocurrency that started it all. These are altcoins.
What are Altcoins?
Put simply; altcoins are any crypto assets that aren't Bitcoin. That's the most straightforward definition, but it doesn't give you much to go on if you're trying to understand what altcoins are and why they exist. So, let's dig a little deeper.
Altcoins are cryptocurrency assets created in the wake of Bitcoin's success. They're often characterized as improved versions of Bitcoin or solutions to perceived flaws in the Bitcoin network. The oft-referenced Blockchain Trilemma posits that it's impossible to have scalability, security, and decentralization all at once—something must be sacrificed for another to exist.
How Did Altcoins Come to Exist?
Soon, people realized that the Bitcoin base layer wasn't fast enough to handle the number of transactions being sent daily. This resulted in increased transaction fees and longer wait times to get your transaction included in a block by miners. As such, many developers created altcoins to improve this metric.
Furthermore, some developers found Bitcoin too "boring" for their taste. They wanted to experiment with different use cases for cryptocurrency beyond just being a store of value or a means of payment.
A whole new generation of coins sprang up. Ethereum, Litecoin, Bitcoin Cash, and other altcoins introduced new features that helped them process more transactions per second than Bitcoin and apply similar cryptographic principles to other financial applications.
How Have Altcoins Fared?
Bitcoin, the original cryptocurrency, still dwarfs all other altcoins in terms of price and market capitalization. It's the most decentralized and secure blockchain, and it's weathered many storms over the years. While some altcoins have come and gone, Bitcoin has remained.
Furthermore, the altcoins that sought to enhance transaction speed have been fraught with issues along the other two Trilemma metrics. Decentralization and security usually decrease as transaction speed increases and vice versa. Consequently, it's become increasingly difficult for altcoins to find that perfect balance.
These days, we've realized that the Blockchain Trilemma may not be a trilemma at all. The Lightning Network, a second-layer solution built on Bitcoin, has helped the network scale without sacrificing decentralization or security. It's growing in capacity and adoption rapidly, making redundant many of the altcoins that sought to improve on Bitcoin's scalability.
Ethereum has done an impressive job differentiating itself from Bitcoin. It's become the de-facto platform for building decentralized applications, and its native currency, Ether, is used to pay transaction fees on the Ethereum network. The technological experimentation that Ethereum's smart contracts enable has resulted in a broad range of use cases, from digital asset management to decentralized exchanges.
Still, it's also faced challenges with scalability, which it hopes to address with the launch of Ethereum 2.0. But Ethereum suffers more systemic risk than Bitcoin, as it must undergo significant protocol changes to upgrade.
What's Next for Altcoins?
The future is very much up in the air regarding altcoins. While some have found success in carving out a niche for themselves, the vast majority have failed to live up to the hype. We should laud experimentation in crypto, but we should also be mindful that most will fail.
On the other hand, Bitcoin continues to chug along, slowly but surely becoming more mainstream with each passing day. Bitcoin is boring, but it works. It doesn't try to do everything, move fast and break things, or make bold promises that it might not be able to keep. Instead, it focuses on being the best store of value and payment network that it can be.
And that, in a nutshell, is the appeal of Bitcoin. It's not the most glamorous cryptocurrency on the market, but it's the most reliable. And in a world full of digital snake oil, that's worth something.
Time will tell what the future holds for altcoins. But one thing is sure: they'll unlikely ever dethrone Bitcoin as money. Bitcoin is more secure. It's more decentralized. It's money in a way that altcoins aren't.
There's Bitcoin, and there's everything else.