Bitcoin vs. Altcoin

Bitcoin vs. Altcoin



Bitcoin vs. Altcoin



In the world of digital assets, there are many digital currencies created by blockchain technology with various purposes. Altcoins are generally what we call the digital currencies that were created after Bitcoin. They usually are decentralized because they are also created with blockchain technology but have different use cases from Bitcoin. So, we can divide digital currencies into two types, Bitcoin and altcoins. 



The two types of digital currency have different purposes, goals, strengths and weaknesses. This can reflect in their risks and returns on investment as we will discuss in this article. 





Bitcoin



Bitcoin is the first blockchain-based digital currency that is fundamentally decentralized. It was created in 2008 by someone who goes by the name “Satoshi Nakamoto.” That person explained in Bitcoin’s whitepaper that it is to be used as a peer-to-peer electronic cash system, which means any person can use it to make transactions directly to one another without any companies, banks, governments or country as an intermediary. 



Bitcoin’s supply is limited at 21 million. It can be earned through a process called “mining,” where people can act as nodes that help confirm transactions on the chain using the Proof-of-Work consensus algorithm. The rewards earned from mining are programmed to decrease in half every four years and we call this phenomenon “Bitcoin Halving.”



The purpose of Bitcoin is to be a decentralized digital currency that can be used as a medium of exchange. Its main qualities are security, transparency and decentralization. People can use it to carry out transactions that are faster and have lower fees. Furthermore, Bitcoin can also act like a form of digital gold because it is designed to hold value and has similar qualities to gold.





Altcoin



Altcoin is short for “alternative coin,” which is any digital currency apart from Bitcoin. Ethereum and dogecoin are some of the more well-known examples of more than 8000 that are currently being traded. Sometimes altcoins are called “tokens” depending on their use cases that can range from governance tokens, utility tokens to security tokens and so on.



Altcoins have vastly different supply, from very few to unlimited. This all depends on how their creators decide to split up the coins or specify their use. In the cryptocurrency world, this specification is what we call “tokennomics” or the economics of each coin. Means of earning each coin are different as well. Some coins can be earned through “staking,” which is a process where holders stake their coins to act as validators. Some can be earned from “yield farming,” which is to provide liquidity to the coins, or even through ICOs (Initial Coin Offerings.)

      

The purpose of altcoins varies. Some are created to be the currency of the next generation of blockchain that aims to solve the problems that Bitcoin has. Ethereum, Cardano and Polkadot are examples of this. Other coins are created to be used on dApps (decentralized applications), such as Compound Finance and Uniswap. More notably, there are even some coins that were created as a meme or a joke. For example, dogecoin was created as a parody of Bitcoin. 





The Differences between Bitcoin and Altcoin 



Bitcoin is the first digital currency that was created by using blockchain technology to be a means of exchange. However, being the first comes with its own drawbacks and strengths. The drawback is that its use case is quite limited, but its strength lies in how credible and widely accepted it is. It has the highest valuation and trading volume among all of the digital currencies and it has been an asset that holds its value quite well.    



In terms of decentralization, it is reasonable to say that Bitcoin is truly decentralized because there are a large number of nodes working together to validate transactions. Its ledger is also, by design, extremely hard to tamper with. Moreover, its creator, Satoshi Nakamoto, is not present, and therefore cannot easily do anything to influence Bitcoin. At this moment, Bitcoin is being run by the people only.



Altcoins are the digital currencies that are used as alternatives to Bitcoin. They have many different use cases that go beyond what Bitcoin can do. Because they were created using the next generation of blockchain technology, they can solve issues and improve on Bitcoin, making them more versatile. Some altcoins are being used to run platforms on blockchain networks. Another thing to note about altcoins is that they have higher potential of growth but that also comes with higher volatility as well.



In terms of decentralization, most altcoins are developed by private companies and are currently being managed. Even though some are using Decentralized Autonomous Organization (DAO) to incorporate users into their governance, the creators are still there to oversee them and make adjustments. 





Conclusion



Bitcoin and altcoins are blockchain-based digital currencies that have different supply and use cases. They also have different growth rates and risks and have varying degrees of decentralization.



Learning about how each coin is created will help investors understand how the coin works, what it aims to do and why it was created. And this in turn can help manage risks and help investors make better decisions in regards to investing.





Reference

Investopedia binanceacademy U.S.News NDTV Timesofindia coinmarketcap

Crypto

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