Bitcoin Vs Altcoins: All You Need To Know

What is Bitcoin?

Bitcoin is the first cryptocurrency that was introduced in the form of a distributed ledger network in 2009. The Bitcoin blockchain network was introduced by a pseudonymous developer named Satoshi Nakamoto.

The same individual or group also published the Bitcoin White Paper. Bitcoin is the first decentralized blockchain network meaning that it does not require third-party authentication service providers to perform transactions.

Bitcoin is also a trusted and permissioned network meaning that anyone can perform verified transactions. The total supply of Bitcoin is capped at 21 million coins.

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How does Bitcoin Blockchain Work?

Bitcoin creators kept the source code of the blockchain network open-sourced allowing other developers to examine and reuse it. Bitcoin blockchain employs consensus model called Proof-of-Work. This method allows nodes to act as miners and compete against each other to solve the encrypted puzzle of transaction first using computational power.

The winning miner can verify the transactions on the network, add a new block, and earn rewards in the form of transaction fees and newly minted BTC tokens.

Bitcoin has incorporated different governance mechanisms as a way to address various problems. Bitcoin blockchain is primarily known as a BFT network. BFT or Byzantine Fault Tolerance is the ability of a distributed network to ensure that its operation remains intact in the event that some nodes act rogue or malfunction.

Bitcoin network allow independent nodes to verify transactions and blocks and reach a consensus to validate records. Bitcoin blockchain also incorporates mining difficulty to keep the competition among miners fair.

Mining difficulty is increased when miners went offline and decreased when more hash power is generated.

Bitcoin blockchain also uses halving method as a way to control its total supply. Bitcoin blockchain is deflationary network meaning that its total supply decreases over time meaning that ensures that its value continues to increase. Halving is a method that cuts down BTC rewards in half after every four years.

In this manner, the total circulatory supply of the BTC is decreased.  Bitcoin is a predominantly immutable blockchain but the network incorporated Segregated Witness or SegWit update in 2017. This upgrade shrank the data size for storing transaction data on a block.

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The network also incorporated Taproot update in 2021 bringing private and more secure transactions to Bitcoin network.

What is an Altcoin?

Bitcoin blockchain allows developers to create new blockchains and decentralized protocols for issuing new tokens. In this manner, the cryptocurrency market was created with thousands of tokens issued from various protocols and DLTs.

Altcoin is the combination of two words namely Alternative and Coin. Cryptocurrency investors use altcoin to refer to any virtual currency except Bitcoin. Bitcoin blockchain issues a central currency on the network called BTC.

However, there are other blockchains such as Ethereum, Solana, Cosmos, Tezos, and Polkadot that issues various tokens in additional to a central coin. These blockchains are smart contract enabled.

Such blockchains provide tools and hosting environment for the blockchain developers to create and place decentralized applications on them.

These decentralized applications uses democratic governance that require majority consensus to incorporate new updates or make changes. Altcoin issuing blockchains can also incorporate different features and consensus mechanism on them.

Consensus mechanism is a method that ensures that all transactions and records on a blockchain are verified. Some of the most popular alternative consensus options are Proof-of-Stake, Proof-of-Authority, Proof-of-History, Proof-of-Capacity, Proof-of-Burn, and Proof-of-Identity etc.

Altcoins are also listed on the spot market and added in other crypto-related financial services such as futures, forwards, and option contracts.

Types of Altcoins

Depending on their functions, design, and utility there are many different types of altcoins. Some of the most common classifications of altcoins are mentioned as under:

Stablecoin

Stablecoins are altcoins that have a fixed value at all times. Stablecoins are backed by an asset reserve that can contain a combination of cash equivalents, bonds, commodities, fiat currencies, or other virtual coins etc.

Utility Tokens

Utility tokens allow investors to access a specified service or product within its native blockchain ecosystem.

Governance Tokens

Governance tokens allow community member to cast their votes regarding a new update on the blockchain or DeFi protocol. In some cases, governance token holders may also delegate their power to other users.

NFTs

NFTs stand for non-fungible tokens meaning that each NFT is unique. NFTs are used to indicate real digital ownership. NFTs can exist in the form of media files such as audio, video, or images etc.

Conclusion

Bitcoin and altcoins make up the whole virtual currency marketplace. Bitcoin accounts for more than 50% of the overall crypto market cap which is called Bitcoin dominance. Bitcoin dominance is inversely proportional to the aggregate altcoin market cap.

Author: Isacco Genovesi

Isacco writes news articles, reviews and guides about cryptocurrencies including technical analysis, blockchain events, coin prices marketcap and detailed reviews on crypto exchanges and trading platforms.

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