Alternatives to bitcoin: why should one learn about them?

The most popular and expensive crypto coin today is Bitcoin, which became the first project of its kind. After some time, wishing to repeat its success, cryptographers began to develop alternative projects based on unique blockchain networks, independent of the first payment system.

Such developments are called alternative coins or, for short, altcoins. Thus, altcoins are the general name for unique payment networks in the cryptosphere that are not related to bitcoin.

Formally, their rate does not depend on the first cryptocurrency, however, the less promoted a new project is, the more bitcoin affects its volatility. Although in general, it should be mentioned that any crypto assets are highly volatile and bitcoin can have an indirect impact on the formation of the rate of any of the alternative crypto.

Reasons for the appearance of altcoins

Having defined what altcoins are, let's consider the reasons why they appeared.

The appearance of altcoins was due to the need to expand the technical financial capabilities of bitcoin, as well as the intention to promote cryptocurrency beyond the boundaries of one sphere. This global goal can be identified in the following paragraphs:

• Increasing the speed of transactions. To achieve the corresponding result, algorithms different from those used with the first cryptocurrency were introduced. Work was underway to expand the size of blocks in the chain, since the experience of bitcoin showed low scalability, which slowed down the work with a large number of participants.
• Increasing the level of anonymity. Despite the fact that the creators of bitcoin made the network anonymous by applying certain encryption methods, the developers of some altcoins went even further, significantly improving this characteristic on their projects.
• Simplification of mining. To mine bitcoin, more and more costs, efforts and time are constantly required. With regard to altcoins, continuous work is underway to make mining easier, more accessible and more profitable.
• Functional expansion. The purpose of bitcoin, for which it was created, is to be used as a means of payment. Each new project in the cryptosphere, which belongs to the group of altcoins, is endowed with more and more new features, due to which the functionality is increased.
• Lots of investment options available. An increase in the number of projects in the cryptosphere makes it possible to diversify the investment portfolio, and, accordingly, the opportunity to reduce risks.

Altcoins: features

In addition, it should be noted that some of the positive features of altcoins attract not only large investors, but also ordinary users.

These features include:

• convenience and accessibility;
• good liquidity;
• high transaction speed;
• stable access to financial instruments;
• high level of confidentiality;
• inexpensive mining equipment.

Alternative coins have received such characteristics, due to the improved program code.

Bitcoin fans believe that there is no need for altcoins and that such projects will inevitably fail. However, this opinion is erroneous, since it is due to new cryptocurrencies that the characteristics of digital money improve and the whole sphere develops.

Types of altcoins

The classification of altcoins depends on hashing algorithms and how the network is protected. At the moment, blockchain engineers have developed many options, including SHA-256; Ethash; Scrypt; Equihash; CryptoNight and others.

So, SHA-256 is considered one of the best hashing algorithms. Most of the altcoins are created on it.

In accordance with the second feature, alternative coins are distinguished using Proof-of-Work (PoW) and Proof-of-Stake (PoS).

The proof of ownership (PoS) algorithm delegates to validators the authority to validate transactions and create new blocks. To become one, you need to have a certain number of network tokens in your wallet and install a special program on your PC.

Proof-of-Work (PoW) is a proof-of-work algorithm. It is based on accounting for the time that the user will spend solving the task proposed by the system.

In addition, there is the following classification of altcoins, according to which they distinguish:

• Stablecoins are cryptocurrencies connected to other popular assets, such as the euro or the dollar. Such a relation allows to talk about a decrease in the volatility of the stablecoin exchange rate.
• Security tokens. They are a form of investment contract that allows you to participate in the management of a certain organization and count on profit.
• Service tokens. Such coins can be used as a means of accessing a web service, as well as to perform certain tasks provided by a particular platform. By the way, IQN also belongs to this type of tokens. It allows you to monetize your gaming achievements.

Sometimes the so-called “comic” altcoins or meme coins are included in a separate category. Examples of such assets are Dogecoin, dedicated to a dog, Potatocoin, dedicated to potatoes, etc. Moreover, even such coins with a humorous character, under certain circumstances, can get into the top of the most popular cryptoassets.

Altcoins: advantages and disadvantages

Created as a perfect version of bitcoin, altcoins have received several undeniable advantages. For example:

• Low entry threshold. The cost of altcoins is much less than the first cryptocurrency, so it is not necessary to be rich for the corresponding investments.
• Possibility of quick earnings. In one trading day, any alternative token can add 50%, 100%, and 200% in price.

Like any financial instrument, altcoins have certain disadvantages:

• Volatility mentioned earlier. The rate of each alternative token can not only soar up to 500 positions, but also drop at lightning speed. Therefore, you need to be careful and consider options for protecting against possible losses. Among them may be an analysis of the situation in accordance with current news, as well as diversification of the investment portfolio.
• The inability to withdraw fiat money on certain exchanges. In this case, if the user has a desire to exchange altcoins for cash, they will first have to exchange them for bitcoins, and then for the desired currency, which, in turn, means additional commissions.

Earnings on altcoins: 4 steps for a good choice

The variety of altcoins that exists today can make any potential investor confused. To choose a promising currency, we offer 4 steps for a successful choice:

• Studying the goals of creation and technical parameters according to WhitePaper and the Roadmap of the project of interest.
  reputation of the founders.
• Liquidity of the coin on the exchange.
• Feedback from users and experts.

Conclusion:
Altcoins can rightfully be called the next stage of evolution in the world of crypto assets. In addition, this is a worthy investment option with a thorough approach to choice.