An altcoin, or alternative coin, explains itself. An altcoin is any cryptocurrency alternative to Bitcoin - the first. Altcoins can differ from Bitcoin in all possible aspects, such as mining mechanisms, coin distribution methods, or the ability to create decentralized applications. Although Bitcoin is innovative and very influential, it has some issues that developers are trying to solve with their own products. There is an altcoin that makes transactions faster, there is an altcoin that is less volatile, there is an altcoin that is more private, and so on. There are currently more than fifteen hundred alternative coins in the market according to coinmarketcap.com. Altcoins are playing a very important role in expanding the boundaries of blockchain possibilities and the scope of applications.
As such, we do not have an official definition, as this term was coined by the community and refers to alternative cryptocurrencies based on Bitcoin's blockchain. This means that altcoins were created with the help of Bitcoin's source code, which is open source.
The compelling reason they use Bitcoin's source code is that it allows them to quickly create software based on blockchain. All they need to do is copy and paste the code that has been tested over the years, and they are ready to go. Although most altcoins are simply copies of another cryptocurrency, there are some differences between them. It is very important to remember that many altcoins can be classified as scams, so we must be cautious with these.
One of the ways to determine if an altcoin is a scam or not is to check its website and ensure that the information it contains is truthful, as well as to look for the names of the development team and their professional experience. Another relevant piece of information to check is the so-called roadmap, which is usually a document that describes how the team plans to achieve certain objectives.
Altcoins, by containing part of Bitcoin's core code, are different in some aspects. However, to understand what makes them unique, we must delve into the world of cryptocurrencies. The first thing you should know here is that infrastructure plays an important role in the creation and maintenance of various altcoins. In other words, the infrastructure used by cryptocurrency wallets is very different for each digital coin. Therefore, if you want to hold a certain altcoin, you will need to download an application on your computer. This application is called a wallet and allows you to store and access your coins whenever you want.
Each cryptocurrency has its own system to protect itself against cyber attacks and unauthorized access. Altcoins that are more secure often use encryption algorithms to send and receive coins, while others opt for private keys or passwords. That's why it is crucial for users to take the appropriate security measures when storing their coins on any digital platform.
On the positive side, investing in altcoins is attractive for several reasons:
Portfolio diversification. They reduce dependence on Bitcoin's performance by including assets with different uses and technologies.
Profit potential. Many altcoins have low initial prices, providing investors the possibility of significant gains if their adoption grows.
Technological innovation. Projects like Ethereum or Cardano offer disruptive solutions capable of transforming, in the future, sectors like finance or smart contracts.
Niche options. There are altcoins designed for very specific markets, such as data management or online gaming.
On the negative side, altcoins show the following disadvantages:
High volatility. Altcoins often experience more pronounced price fluctuations than Bitcoin, which involves taking on more risks.
Lack of regulation. Many of these cryptocurrencies operate in an uncertain regulatory environment. Therefore, that uncertainty could affect the future.
Frauds and unsolid projects. Not all altcoins have a real project behind them, and some might even be simple speculative schemes.
Market competition. There are thousands of altcoins available, although many lack the necessary adoption to maintain their value in the long term.