Bitcoin, altcoins and your coin. Why so many coins? What's the difference?

Even if you're new to the world of cryptocurrency, you've no doubt heard of Bitcoin. In fact, such is its popularity that many use the terms 'Bitcoin' and 'cryptocurrency' interchangeably.

Bitcoin was indeed the world's first cryptocurrency -- and continues to hold a large share of the cryptocurrency market, but today it is but one of thousands of cryptocurrencies used daily around the world.

Termed 'altcoins', from 'alternative coins', these cryptocurrencies open up endless transaction and investment options.

Why so many coins?

Altcoins and Bitcoin alike are all members of the broader cryptocurrency family. However, just as a family likeness might change -- and even diminish -- throughout the generations, some altcoins bear strong resemblance to their predecessor, Bitcoin (in protocol and/or features), and others less so.

Each altcoin seeks to bring something new and different to the cryptocurrency sector. Whether improvements to blocktime (the time taken for cryptocurrency transactions to be confirmed), transaction security, mining processes or incentives -- or even the appeal to a certain sub-culture or set of values, each altcoin has its own point of difference.

Innovative altcoins

Amongst thousands of altcoins, here are a few notable for their popularity and innovation.

Litecoin

Launched in 2011, Litecoin was the world's second cryptocurrency. Developed with strong reference to Bitcoin, Litecoin has been dubbed "the silver to Bitcoin's gold". It markets itself as a coin without pretense, well suited to everyday transactions.

  • Fast blocktime of only 2.5 mins per block (good for everyday purchases and transactions).
  • Coin cap of 84 million.
  • Employs Scrypt algorithm, increasing resistance to specialised mining hardware and 'professional' mining groups. Use of this algorithm seeks to ensure that Litecoin remains a cryptocurrency 'for the people'.

Ripple

In an increasingly globalised world, international transactions can be a source of major frustration. High transaction and exchange fees are not uncommon -- as are long processing times. Ripple aims to move money across borders and between institutions more quickly, cheaply and with greater ease. It is a cryptocurrency seeking to enable exchanges.

  • Fast four-second transaction time.
  • Allows institutions to make small payments without attracting high fees.
  • Touted as revolutionary for the global remittances market.

Ethereum

Ethereum's distinguishing feature is the way it facilitates 'smart contracts'. It harnesses blockchain technology to program 'self-executing' contracts.

Ethereum seeks to make contractual processes faster, cheaper and easier by eliminating the need for third-party mediation and oversight. The terms of a contract are instead written into the Ethereum blockchain, and a contract is automatically executed once all of its terms have been met.

Weighing up the alternatives

While altcoins often represent exciting, cutting-edge cryptocurrency developments and innovation, as with any investment, due diligence is strongly advised.

The cryptocurrency history books are littered with 'pump and dump' schemes whereby developers generate enough hype around the launch of a new coin to encourage investment and raise its value to an all-time high. They then sell rapidly, sending the coin's value plummeting and devastating investors.

So, some questions worth asking when weighing up your altcoin options include:

  • Does the altcoin have an actual application and purpose?

  • What makes it different to other altcoins?
  • What is its distinct advantage?

  • What is the altcoin's market cap?

  • This measure provides a picture of the coin's value in the marketplace.

  • Where can I buy or sell this altcoin?

  • Newer coins may be more difficult to purchase and exchange. They may also be supported by fewer wallet applications.

  • Does the altcoin have a strong, supportive community?

  • Does it have a notable, dedicated following?
  • Is there an active market?
  • What is the liquidity of this altcoin on exchanges?

Altcoins: innovation and opportunities

The sheer number of altcoins in global circulation today tells of the exciting possibilities for cryptocurrency innovation. When it comes to blockchain technologies and their applications, we have only seen the tip of the iceberg.

Find out more about how to compare crypto coins -- and how to purchase cryptocurrency -- at the Cointree Learning Hub.


Credit: Laura Hawting on behalf of Cointree and reviewed by Anouk Pinchetti education consultant Blockchain Centre.