Beginners often ask what altcoins are and how they differ from other digital coins. This group includes all cryptocurrencies except Bitcoin. Below we consider what the features of altcoins are, what the types are, how to mine them, and whether to invest money in them.
Altcoins: what are they?
Altcoins are the alternative cryptocurrencies launched after the success of Bitcoin. The definition has been applied since 2011 when another cryptocurrency appeared. It was called Namecoin. At the time of this writing, it ranks 239th in market capitalization with a figure of $7.8 million. The cost of one coin is only 0.48 cents, and 15.8 million coins are in circulation.
Since then, all digital coins, except Bitcoin, are called altcoins. At the beginning of 2020, more than 1000 different altcoins were released, and their number is growing every year.
Altcoins have the following features:
- Making changes to the algorithm to increase the attractiveness of mining.
- Preservation and improvement of confidentiality during transactions.
- Reducing the speed of operations and reducing commission.
- Development of the technical base for protection from the management by the central authorities.
In simple words, altcoins are clones of the Bitcoin created on the basis of blockchain technology and retaining the advantages of BTC. Note that not all cryptocurrencies became popular in the digital coin market. Many of them have disappeared or are not in demand. However, there are altcoins that are popular and compete with their “progenitor.” This group includes Ethereum, Bitcoin Cash, Tezer, Litecoin, and others.
Followers of Bitcoin believe that altcoins are not necessary, and they are doomed to failure. However, this is not so. Releasing new coins is the path to improving the cryptocurrency field. Altcoins pave the way for experimentation.
All altcoins are classified according to the applied algorithm. Today there are several types of altcoins:
- SHA-256. The algorithm appeared in 2001 and today is considered one of the best in terms of security. Bitcoin uses the SHA-256 hashing algorithm, as well as a number of popular altcoins. These include Bitcoin Cash, PeerCoin, BitcoinDark, Devcoin, Namecoin and others.
2. Ethash is an algorithm created for Ethereum mining but subsequently used by other digital currencies. Ethash powers Musicoin, Pirl, Ubiq, Ethereum Classic.
3. Scrypt is a popular algorithm previously in demand among solo miners. It was first used to create Litecoin. Today, Scrypt powers many altcoins. These include Novacoin, Bitmarkt, Elacoin, Digitalcoin, and others.
4. X11 is the algorithm that was developed by the creator of the Dash cryptocurrency — Evan Duffield. The aim of the release was to increase the anonymity and interchangeability of Bitcoin. Unlike other types of altcoins, coins powered by X11 could be mined using CPU, but with the growth of mining difficulty, this became impossible.
5. Equihash is an algorithm created for Zcash mining. Equihash requires a lot of RAM, not computing powers. This allows you to use a budget GPU for mining.
Other types of altcoins created based on X12, X13, CryptoNight, and other hashing algorithms are available to participants of the cryptocurrency network.
Purpose of altcoins
The main goal of the creators of altcoins is to eliminate the weaknesses of Bitcoin. When developing new coins, the following Bitcoin problems are solved:
- High mining costs. It’s no secret that with the introduction of ASIC miners and an increase in difficulty, it became more difficult to mine BTC. Many miners switch to the purchase of power in cloud services, receiving a stable profit.
- Lack of anonymity. If you have the knowledge and special tools, you can track the participants in the Bitcoin transaction.
- Long transaction time. The small block size and high network load lead to a delay in a Bitcoin transaction. One transaction can be carried out from 20 minutes to several days.
- Weak functionality. The main and only goal of creating Bitcoin is to conduct transactions with a minimum commission fee and maintaining confidentiality. Many altcoins go further and allow you to use smart contracts.
The purpose of altcoins is to eliminate these and other shortcomings of the main cryptocurrency. In each new project, tasks are set to solve the problem and implement a convenient function.
Investors ask many questions – is it worth investing in altcoins? Thousands of real-life examples show the prospects of this filed. The main thing is to choose the right altcoins. The algorithm is as follows:
- Go to coinmarketcap.com.
- Examine the trading volume for different altcoins. Pay attention to coins with a trading volume of more than 10 million dollars.
- Look at the price chart.
- Pay attention to exchanges.
- Go to the altcoin website and examine its content. Regular news updates are a good sign. An advantage if they have Telegram account, Twitter or other social networks.
- Explore cryptocurrency-based projects and the possibility of mining.
It is better to give preference to altcoins with high liquidity, active support from developers and high interest from society. It is recommended to read expert forecasts about cryptocurrency and to study the opinion of experienced investors.
How to get altcoins
In recent years, more and more people have been making money on altcoins. The bottom line is the accumulation of cryptocurrency with the subsequent expectation of a price increase and the sale of coins in the market. To get digital coins, you can use one of the following methods:
- Many exchange services on the Internet allow you to buy altcoins for dollars, euros and other currencies. Exchange is possible using WebMoney, Qiwi, Yandex, etc. wallets. The disadvantage of this method is the high commission fee.
- Special platforms for exchange. A convenient way to buy altcoins is to use the LocalBitcoins service. The essence of the method is to find a seller who is ready to sell cryptocurrency at a bargain price. The LocalBitcoins website acts as an intermediary and guarantor of transaction security. The advantage of the method is a lower commission fee and minimal risk of fraud.
- A profitable method of buying altcoins is to use one of the cryptocurrency exchanges. For example, EXMO. Before making a transaction, you will have to understand the features of the exchange and its conditions.
4. There are several options – private mining, mining pools or cloud mining. The choice of method depends on the mining difficulty, the possibility of mining and other factors. For the extraction of popular altcoins, it is better to buy a hash rate on the cloud mining service and make a profit.
The riskiest way is the ICO, which implies the purchase of cryptocurrency immediately after its appearance.
TOP 5 best altcoins
The list of the best altcoins can be found at coinmarketcap.com. The website provides you with name, rate, trading volume, a link to the site and other cryptocurrency data. As of January 2020, the following cryptocurrencies are included in the TOP-5 altcoin:
- Ethereum is a coin created in 2013 by Vitalik Buterin. It is in second place after Bitcoin. Ethereum is sold at a price of $160 per coin and a market capitalization of about $17.6 million. More than 15.8 million ETH is in circulation.
- XRP is an independent digital currency, which is considered one of the best means of payment. It takes third place in the ranking with a market capitalization of about $9.6 million. The cost of one XRP coin is 22 cents.
- Bitcoin Cash is the most successful result of Bitcoin’s hard fork, which joined the ranks of altcoins almost immediately after its appearance. The market capitalization of Bitcoin Cash is $5.6 million, and the price of one coin is $310. In total, just over 18.2 million coins are in circulation.
- Bitcoin SV is the result of Bitcoin Cash hard fork, which appeared at the end of 2018. This altcoin has a high capitalization of $4.7 million. The exchange rate is 261 dollars per coin.
- Tether is digital money created to display the value of the American dollar with the possibility of use as a digital coin. The cost of an altcoin is as close as possible to the price of a dollar, and market capitalization reaches $ 4.6 million.
The next cryptocurrencies after the “TOP 5” are Litecoin, EOS, Binance Coin, Stellar and Cardano. The situation on the altcoin market is constantly changing, so before buying or mining cryptocurrency, you should study the features of the coin using coinmarketcap.com or other similar websites.
Having a list of the best cryptocurrencies, you can decide to buy digital currencies for storage and further sale. A safe way to get cryptocurrency is to buy power on a cloud mining service and get a stable profit without the risk. It remains only to determine the appropriate altcoin and buy a contract.