The term altcoin refers to any cryptocurrency created after Bitcoin, the first cryptocurrency, on October 31, 2008. The term is said to stand for “alternative to Bitcoin”. Altcoins are created by diverging from Bitcoin consensus rules (the fundamental rules of the cryptocurrency’s network) or by developing a new cryptocurrency from scratch.^[1][2][4]

The first altcoin was introduced in 2011, and thousands of them have been created since then. Early altcoins sought to improve aspects of Bitcoin such as transaction speed and energy efficiency. Altcoins now serve a variety of functions depending on the developers' objectives.^[11]

As of October 2021, over 12,000 cryptocurrencies exist. Altcoins accounted for almost 60% of the overall cryptocurrency market in October 2021. Altcoin price changes tend to follow Bitcoin's trend because they are based on it.^[12] The most popular Altcoins are Ethereum, Binance Coin, XRP, Cardano, Solana, and Dogecoin.^[29]

History

The first Altcoin originated only after two years, after the birth of Bitcoin in 2009. Then the rate of Altcoin debuting began to rise from 2013 to 2014 and has continued to grow ever since. The first generation of Altcoins was developed using the same blockchain engine as Bitcoin.^[13][14]

In 2011, The first altcoin Litecoin debuted and was forked from the Bitcoin blockchain. Litecoin uses a different proof-of-work (PoW) consensus mechanism than Bitcoin, called Scrypt (pronounced es-crypt), which is less energy-intensive and quicker than Bitcoin's SHA-256 PoW consensus mechanism. Ether is another altcoin. It did not however fork from Bitcoin. It was created to support Ethereum, the world's largest blockchain-based scalable virtual machine, by Vitalik Buterin, Dr. Gavin Wood, and a few others. Ether (ETH) is used to compensate network participants for the transaction validation work performed by their machines.^[15]

In 2017, over 600 new altcoins were introduced to the cryptocurrency ecosystem. As of October 2021, over 12,000 cryptocurrencies exist. Altcoins accounted for almost 60% of the overall cryptocurrency market in October 2021.^[12]

Overview

An altcoin is a combination of the two words "alternative" and "coin." It is generally used to include all cryptocurrencies and tokens that are not Bitcoin. Many are forks, a splitting of a blockchain that is not compatible with the original chain—from Bitcoin and Ethereum. These forks generally have more than one reason for occurring. Most of the time, a group of developers disagree with others and leave to make their own coin.^[8]

Many altcoins are used within their respective blockchains to accomplish something, such as ether, which is used in Ethereum to pay transaction fees. Some developers have created forks of Bitcoin and re-emerged in an attempt to compete with Bitcoin as a payment method, such as Bitcoin Cash. Others fork and promote themselves in order to raise funds for specific projects. For instance, Bananacoin forked from Ethereum in 2017 as a way to raise funds for a banana plantation in Laos that claimed to grow organic bananas.^[15]

Altcoins forked from Bitcoin frequently use a similar mining process that relies on the Proof of Work consensus algorithm. Several other cryptocurrencies, however, are experimenting with alternative methods of reaching consensus within distributed blockchain networks. The most common alternative to Proof of Work is the Proof-of-Stake consensus algorithm, but other notable examples include the Delegated Proof of Stake, Proof of Burn, Proof of Authority, and Delayed Proof of Work consensus algorithms.^[15]

Types of Altcoins

Various types of altcoins now exist in the cryptocurrency market, including:

Payment Tokens

As the name implies, payment tokens are designed to be used as currency—to exchange value between parties. Examples of payment tokens include Monero and Ethereum.^[30]

Stablecoins

Cryptocurrency trading and use have been marked by volatility since its launch. Stablecoins aims to reduce this overall volatility by pegging their value to a variety of commodities, such as fiat currencies, precious metals, or other cryptocurrencies. The variety of commodities is meant to act as a reserve to redeem holders if the cryptocurrency fails or faces problems. Price fluctuations for stablecoins are not meant to exceed a narrow range.^[15]

As of October 2022, the top five stablecoins include Tether (USDT), USD Coin, Binance USD, DAI, and FRAX.^[31]

Security Tokens

Security tokens are tokenized assets offered on stock markets. Tokenization is the conversion of an asset's value into a token, which is then distributed to investors. Any asset, including stocks and real estate, can be tokenized. The asset needs to be held and secured for this to operate. If not, the tokens wouldn't have any value because they wouldn't stand for anything. Because they are intended to function like securities, security tokens are subject to Securities and Exchange Commission regulation.^[15]

Utility Tokens

Within a network, utility tokens are employed to deliver services. They could be used, for instance, to pay for services, cover network costs, or get rewards. Examples of utility token include Ether (ETH) and Filecoin, which is used to pay for network storage space and safeguard data. Utility tokens can be purchased on exchanges and held, but they are meant to be used in the blockchain network to keep it functioning.^[15]

Meme Tokens

As their name suggests, meme coins are inspired by a joke or a silly interpretation of other well-known cryptocurrencies. They typically gain popularity in a short period of time, often hyped online by prominent influencers or investors attempting to exploit short-term gains.
Many refer to the sharp run-up in this type of altcoins during April and May 2021 as "meme coin season," with hundreds of these cryptocurrencies posting large percentage gains based on pure speculation.^[15]

Governance Tokens

Governance tokens allow holders certain rights within a blockchain, such as the ability to vote on protocol modifications or participate in the decision-making of a decentralized autonomous organization (DAO). Because they are generally native to a private blockchain and used for blockchain purposes, they are utility tokens but have come to be accepted as a separate type because of their purpose.^[15]

List of Altcoins

Here is a list of some popular Altcoins:

• Ethereum^[17]
• XRP^[18]
• Tether^[19]
• DAI^[20]
• Cardano^[21]
• Polkadot^[22]
• FRAX^[23]
• Stellar^[24]
• USD Coin^[25]
• Dogecoin^[26]
• Chainlink^[27]
• Uniswap^[28]