An Overview of Altcoin

Contributor

October 29th, 2015

Mentioning the term ‘bitcoin’ in company may have drawn some fairly blank stares just a few years ago. Bring up Bitcoin in conversation today, however, and chances are most people will have either heard something about the digital currency or may be investing in Bitcoin themselves.

What is less widely known is that a huge range of Bitcoin competitors have come to fruition in the last number of years. Though some of these ‘alternative bitcoins’, or ‘altcoins’, are pale imitations of the original system, a few emerging cryptocurrencies are sufficiently distinct to warrant further attention.

What's the Difference Between Bitcoins and Altcoins?

Altcoins and bitcoins can be very similar, or very different. Here's a breakdown of the most popular altcoins and their differences when compared to bitcoins:

Ether | Ether is a crypto token used to fuel Ethereum, a decentralized blockchain-based platform that enables developers to build and deploy applications. While the Bitcoin blockchain is used for maintaining records and tracking the owners of digital currency, Ethereum’s blockchain focuses on running programming code. It is within Ethereum’s blockchain that miners can work to earn Ether.
Zcash | The altcoin ‘Zcash’ offers two types of transactions. Unlike Bitcoin, the Zcash wallet will provide the user with both public (t-addr) and private (z-addr) addresses. By using a private address, the only thing revealed is that a transaction has taken place.
Uno | Uno, another promising upstart, is built for fair 'mining' using cryptographic proofs: while other digital tenders are launched secretly to give selected users a head start in currency acquisition, Uno made sure its first coins were worth very little to give the public time to configure hardware and start on an equal playing field.
IOTA | IOTA has no mining, blocks or transaction fees. Nodes attach to the network and generate transactions. Each node must verify two transactions in order for its own transaction to be published. This makes it a well suited altcoin for micro and nano-payments.
Litcoin | There are literally hundreds of new altcoins springing up every few years, with some major or minor comparable differences to Bitcoin. However, there's no question which altcoin is the most popular: Litecoin. This variant, which is itself one of the original virtual currencies, is specially designed to be higher volume than its Bitcoin counterpart. While Bitcoin tender will be limited to 21 million coins, Litecoin users will eventually mine 84 million units. Commentators disagree as to whether this difference has any practical significance. Some observers think having a weaker currency may offer psychological benefits by allowing users to trade in whole units using certain altcoins rather than fractions of single coins. Litecoin, similarly to Bitcoin, has also implemented Segregated Witness (SegWit), a soft fork change that allows for faster transaction and confirmation speeds, amongst a variety of other features.

Getting Hold of Altcoin

Most altcoins are easier to get than bitcoins, and some can even be obtained using a home computer's Central Processing Unit (CPU) or Graphics Processing Unit (GPU). As with all cryptocurrencies, acquisition via 'mining' involves using computer hardware to perform calculations that underpin mathematical proofs.

These mathematical proofs are used to convert blocks of data into strings of characters called 'hash values' that form the backbone of a virtual coin. Mining can be carried out alone for the more sophisticated engineers, or in communal 'pools' that increase the odds of cracking the sums needed to acquire coins.

Users who don't want the hassle (and electricity costs) of mining can opt to trade altcoins via services such as Altquick or ShapeShift. These systems allow users to buy coins with 'real' money in as little as 3 hours, though the need to present photo ID at many exchanges will put off users who prioritise privacy.

As with bitcoins, 'wallet' systems are usually needed to keep altcoin addresses secure –cryptocurrency transactions are, after all, irreversible. The easiest way to find these wallets is to search for altcoin home sites and download the clients recommended by designers, however security-conscious users may wish to opt for a hardware wallet option such as Ledger.

Are Altcoins Risky?

Yes and No. Altcoin variants often suffer from being 'the flavour of the week', meaning that they're released to a great deal of price-inflating hype and subsequently plummet in value when a new variant hits the scene. These 'boom and bust' cycles can make altcoins a risky investment in monetary terms.

There's also the issue of 'scamcoins', altcoins that are set up with extremely unfair 'pre-mining' arrangements that make it nearly impossible for those outside an inner circle to acquire currency – it's important to do plenty of research on the specifics of new coins before dedicating any hardware to the cause.

It's important to realise the allure of cryptocurrencies for many is a distinct lack of rules/red tape. This may change in the future, as European and American lawyers are working hard to clarify the status of virtual denominations as 'vehicles of money transmission' and bring them (kicking and screaming) into the existing financial system.

It's also the case that the security of altcoins depends on which wallets and exchanges users choose; though the digital ledgers used to record virtual currency transactions should be difficult to corrupt in theory, security can be compromised by Denial of Service (Dos) attacks and hacking against web-based storage mediums.

Given that Bitcoin is newish and most altcoins are newer still, it isn't surprising that there are still several unknowns on the road ahead. What is certain, however, is that cryptocurrencies are having a profound effect on world banking systems: the combined worth of all virtual tenders amounts to billions upon billions of pounds.