What is altcoin. What problems do they solve
Altcoins, or alternative kriptovalyutyhave become increasingly popular in recent years. They are digital assets created on the basis of blockchain technology, but different from Bitcoin and other cryptocurrencies with their unique characteristics and functionality.
From solving speed and scalability issues to improving security and removing centralization, altcoins play an important role in the development of the cryptocurrency industry.
Let's take a look at what makes altcoins so important and how they can change the way we think about cryptocurrencies.
In this article, we will talk about what an altcoin is, consider what problems altcoins solve and what advantages they can offer.
What is altcoin
Altcoin is absolutely any kriptovalyutawhich appeared after Bitcoin. The name comes from two English words "alternative coin".
Altcoins share characteristics with Bitcoin but use a different consensus mechanism to create blocks or validate transactions. They can also differ from each other with smart contracts or lower transaction fees.
According to information from an analytical resource I coinmarketcap.co, there are about 10 altcoins in the world. The most popular of them is Ethereum.
Simply put, altcoins act as an improved version of bitcoin. They offer certain solutions that are absent from the "first cryptocurrency".
Types of altcoins
An altcoin can have different functions and consensus mechanisms. Depending on the variations, altcoins can belong to more than one category. Here are some of the most important categories:
- based on mining. As the name implies, this type of altcoin is created by mining and using the Proof-of-Work (PoW) method, in which systems create new coins or tokens by creating “blocks” of verified transactions that need to be added to the blockchain. Examples of mining-based altcoins are Litecoin, Monero, and Zcash.
- Stablecoins. Stablecoins mimic fiat currencies such as the US dollar or the euro. They allow traders to transfer stable assets around the world cheaply and quickly. Examples include USDT, USDC и BUSD.
- Security tokens. These are digital assets issued on a blockchain that resemble securities on an exchange. Some offer shares in the form of ownership, dividend payments to holders, or even in the form of bonds. Security tokens are usually launched through security token offerings (STOs) or initial exchange offerings (IEOs).
- Utility tokens. This type makes up the majority of tokens issued as part of the ICO. They are mainly used by companies to generate interest in their products, as well as to create applications and create value for services offered in blockchain ecosystems. Unlike security tokens and shares, they do not confer ownership of any part of the company.
What problems do altcoins solve?
First of all, altcoin developers are trying to solve the problems that Bitcoin has, despite the fact that the world's first cryptocurrency receives major updates from time to time.
Among these shortcomings are:
- Slow transactions. Algorithms can be improved to speed them up.
- Lack of anonymity. In order to complicate the tracking of the sender and recipient, additional encryption methods are used.
- Expensive mining. Due to the fact that mining becomes more and more expensive every year, altcoins offer alternative mining protocols that allow them to do without complex and expensive equipment.
- Lack of functionality. Altcoins offer additional features that Bitcoin does not have. For example, such as the creation of smart contracts.
Note that the shortcomings of altcoins are generally similar to those attributed to bitcoin:
- high volatility;
- strong dependence on actions and decisions that are related to bitcoin;
- high risk of loss of confidence in the asset;
- the danger of a ban on mining or owning cryptocurrencies in individual states.
So let's recap. Everyone is called altcoin kriptovalyuty, Besides Bitcoin. Usually, this is an improved version of the world's first cryptocurrency. However, altcoins have less influence, because they are not so developed. The most influential altcoin now - Ethereum.
Despite the fact that the dominance of Bitcoin has weakened, it still remains the leader, and, therefore, any action that affects the price of Bitcoin is often reflected in the price of other altcoins.
Altcoins usually have advantages over bitcoin, such as offering greater scalability and speed, although each project is unique. They also have disadvantages, such as low liquidity or the risk that the project will not last long.
In this article, we have analyzed: what is an altcoin, types of altcoins and what problems they solve.
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We hope this article was helpful to you. All successful and profitable investments!
- What is a cryptocurrency: just about the complex.
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- What is fiat currency. Its difference from cryptocurrency.
- Bitcoin (BTC) is the #1 cryptocurrency in the world. How to use it?.
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