Today, investors can choose from more than 6,000 different cryptocurrencies. Here is a simple way to group them together.
Simply put, “altcoins” is a term for any digital currency that is not Bitcoin. Altcoins, which come from the words “alternative” and “coin,” make up more than 60% of the cryptocurrency market right now. What you need to know is listed below.
How to Sort Cryptocurrencies in a Simple Way
Since there are more than 6,000 cryptocurrencies on the market right now, investors are faced with a huge number of options. There are a lot of tokens, but groups can sort them into different types. When looking at different dimensions, there are different ways to classify tokens. A common and simple way to group things is shown below:
Utility tokens
Utility tokens are digital assets that guarantee buyers when they pay with them that they will be able to use the network’s products and services.
Security tokens
A security token is a digital token that represents the value of an asset like a traditional private security. It can stand for shares in a company, a stake in a fund or trust, a house, a collection of artworks, a farm, or pretty much any other asset that a person can own.
Cryptocurrencies
Tokens can be considered money if they were made to pay for goods or services outside of the platform that runs the token. For instance, bitcoin is considered a currency because it was made to replace fiat money. Because of this, people who own bitcoins can use them to buy goods and services from stores, online stores, and other merchants.
Popular Altcoins
Ethereum
If you’ve heard of Bitcoin, you may have heard of Ethereum as well. Ethereum is also a Blockchain, like Bitcoin, but with many important improvements. Vitalik Buterin, a young Russian Canadian programmer, came up with the idea at the end of 2013. Ethereum is not only a different kind of currency, but also a new kind of ecosystem.
Ether is the currency that keeps the Ethereum ecosystem going. Its market capitalization is just behind Bitcoin’s. For anything to happen on the Ethereum blockchain, there must be “gas.” The main purpose of the Ethereum Blockchain is to run decentralized applications (DApps), which are built on programs called “smart contracts.” Ethereum is a global, open-source platform. Think of it like an Android system for DApps, where developers can get all the tools and environment, they need to make a DApp.
Ethereum developers need to learn Solidity and Vyper, two new programming languages made just for Ethereum smart contracts. Now, there are more than 2,000 DApps in the Ethereum ecosystem. These include games, gambling, identity, decentralized exchange, and other financial tools.
At the moment, there are more than 2,000 DApps in the Ethereum ecosystem. These include games, gambling, identity, decentralized exchange, and other financial tools.
Litecoin
Litecoin came from Bitcoin and was one of the first alternative currencies. It copied Bitcoin’s source code, and it confirms transactions faster and costs less than Bitcoin.
Charlie Lee, who used to work at Google, made Litecoin in 2011. At one point, it was the second largest cryptocurrency by market capitalization. Because Litecoin is similar to Bitcoin, it was often used as a testbed for Bitcoin to try out new technologies like SegWit, Atomic Swap, Lightning Network, and MimbleWimble.
The Scrypt algorithm was chosen as the mining algorithm for Litecoin. It was made to make sure that ASICs didn’t have a huge advantage over miners who used CPUs and GPUs, so that the cryptocurrency could be run by a lot of different people.
Most people in the crypto community agree that Litecoin was one of the first altcoins. Litecoin would be like digital silver if Bitcoin was like digital gold.
Ripple/XRP
Ripple is a privately owned company that is building a payment and exchange network (RippleNet) on top of a distributed ledger database (XRP Ledger).
The main thing that makes XRP Ledger different from most other cryptocurrencies is that it uses a unique consensus algorithm that does not require “mining,” which is what Bitcoin and Ethereum do. Instead, the XRP Ledger uses a system called “validators” to reach a consensus. Every person in the network has a list of “trusted validators” that overlaps with the others. This list is called the Unique Node List (UNL), and the trusted validators agree on which transactions happen first and in what order.
XRP is a cryptocurrency that is built into the XRP Ledger. It is the “bridge” between the exchange of assets and the settlement. Say that Bank A in Canada wants to send Bank B in Japan USD 10,000 CAD so that the transactions can be settled in the same amount of JPY. Instead of directly converting CAD to JPY, the XRP Ledger will convert the CAD in Bank A to XRP and then convert the XRP in Bank B to JPY at the same time.
In the situation described above, the XRP Ledger is used as the underlying protocol, and XRP is the liquidity pool that makes it possible to handle transactions in the XRP Ledger.
In the situation described above, the XRP Ledger is used as the underlying protocol, and XRP is the liquidity pool that makes it possible to handle transactions in the XRP Ledger.
Ripple wants to change the world of payments and money transfers, especially SWIFT. Since its goal is to replace the old payment system in banks, the crypto community often calls it the “Banker’s Coin.”
EOS
EOS was made to fix problems with Ethereum by making transactions free and faster and by making the environment for developers easier.
EOS was made to fix problems with Ethereum by making transactions free and faster and by making the environment for developers easier.
EOSIO is a blockchain platform made for both public and private use. It can be changed to fit a wide range of business needs across industries. Building on EOSIO uses the same development patterns and programming languages as non-blockchain apps that are already out there.
Delegated proof of stake (DPoS) is how EOS comes to a decision. In a DPoS system, any wallet with coins can vote for a witness or delegate to be their representative. The people who win act as super-nodes that can verify transactions and come to an agreement. DPoS makes it possible for blockchain transactions to be confirmed much more quickly. But the delegation made 21 super-nodes, which led to a concentration of power that the crypto community didn’t like.
Stablecoins
Stablecoins are a type of cryptocurrency whose price is tied to a specific asset. Most of the time, this is the US Dollar, but it isn’t always the case. There are several ways to get a nearly perfect one-to-one peg; Reserving pegged assets, Dual coins, Algorithmic coins, and Leveraged loans
Reserving pegged assets
It means a fully collateralized system that is backed by the pegged asset and gives arbitrageurs a reason to help keep the price stable. When the price of the stablecoin is lower than the price of the pegged asset, arbitrageurs can buy cheaper stablecoin, which they can then sell for $1 each. In the same way, they can sell the coins to make money when the price is higher than the pegged asset.
When a user wants to turn their Stablecoin into real USD, the Stablecoin is burned, and an equal amount of USD is wired to the user’s account. This system only works if the company, government, or private person (called a “custodian”) that gives out the stablecoin gains the user’s trust. The stablecoin issuer should be regulated and audited regularly so that users can see what’s going on. This will build trust between the issuer and user.
Dual coins
In these kinds of systems, there are two coins. One is the pegged coin, and the other is used to smooth out the volatility of the pegged coin. Because of rules, this is not a common way to issue stablecoins.
Algorithmic coins
When the price of a stablecoin goes up or down, the supply of this type of stablecoin is changed by a set of algorithms. In theory, there is no such thing as a stable algorithmic coin. There are none on the market right now. For example, a recent algorithmic coin project called Basis has finished its ICO, but it hasn’t been able to do what it said it would do because of regulatory concerns.
Leveraged loans
This kind of stablecoin is backed by a system that has too much money in it. The most successful example is DAI, where the stablecoin is backed by PETH and its value is linked to Ethereum. Since the prices of the collaterals are more volatile, users need more than $1.5 in PETH to borrow $1 in DAI. If the value of the collateral drops quickly, the debt will be paid off and the rest of the collateral will be returned to the user.
In the DAI system, users are given a reason to help keep the price of collateralized debt positions stable and sell them. All operations in the DAI system are run by smart contracts, so it is reliable and spread out.
Stablecoins examples
Tether, TrueUSD, PAXOS, Gemini dollar, USD Coin, and DAI are all examples of stablecoins. Only DAI is a leveraged loan. The other loans use the Reserve of Pegged Asset to keep their values stable.
Altcoins are interesting because they seem to have a lot of potential. There are altcoins for many different types of investors, and more are being made as you read this. We haven’t even started to scratch the surface yet. Those who want to learn more about altcoins should treat them like any other investment: do your research, make smart decisions, and keep in mind that there are no sure things in the world of financial investments, altcoins included.
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