What is an Altcoin?

What is an altcoin?

In the beginning, there was only Bitcoin, created by Satoshi Nakamoto.

But due to the open source nature of Bitcoin’s source code, this didn’t last.

“Source code” is the code that programmers can manipulate to change how a piece of software program or “app” works.

Open source software is software with source code that anyone can inspect, run, copy, modify, and enhance.

If you have access to a software program’s source code, you can make changes to that program such as fixing parts that don’t work correctly, improving parts to make them work better, or adding new features.

You can think of open source software like a recipe that’s available for all to see and copy.

For example, if you’ve eaten at KFC, you know how delicious their fried chicken is with Colonel Sanders’ original recipe with its 11 herbs and spices. 😋

But the receipt is secret. It’s locked in a vault (cold storage) in KFC’s headquarters. The source code (recipe) for KFC’s chicken is considered “closed source” or “proprietary”.

Since we don’t know the exact recipe, if you wanted to create the same fried chicken ourselves, you’d have to create your own receipt from scratch, probably with a lot of trial and error.

You’d end up consuming a lot of time, instead of consuming a lot of….fried chicken.

Most likely, instead of KFC, you’d end up with GFC…Gross Fried Chicken. 🤣

Now… imagine if Colonel Sanders decided to share the recipe publicly and allow anybody to use it, this would be considered “open source”.

And that’s exactly what Satoshi Nakamoto did! He deliberately shared his “recipe” (source code) with the public and published it online as open source software.

Without the need to have to reverse engineer Bitcoin’s software program and figure out how to create a cryptocurrency from scratch, other cryptocurrencies quickly emerged.

These cryptocurrencies are now referred to as “altcoins”.

What are altcoins?

“Altcoin” is a combination of two words: “alt” and “coin”. The word “alt” is short for alternative and “coin” means uh coin.

So the word, “altcoin” comes from the idea that all other cryptocurrencies are considered “alternative” coins to bitcoin (BTC), the original cryptocurrency.

 

Altcoins are considered to be called an alternative to Bitcoin because they are perceived to be attempts to either take the place of or improve upon Bitcoin. 

A benefit of open source software like Bitcoin is that anyone in the world can take the original codebase and try to improve or extend the software’s functionality.

To give credit where credit is due, the first altcoin was Namecoin (NMC).

Namecoin’s mission was to provide a decentralized domain name service (DNS) system.

Instead of websites being limited to using domains ending with “.com” or “.net“, which were under the control of ICANN (the main governing body for domain names), it created the “.bit” domain that is independent of ICANN and could not be censored or shut down.

For example, instead of using “babypips.com” as our website URL, I could register “babypips.bit” by buying it with some NMC and use that as our URL instead. Unfortunately, the barrier to figuring out how to actually view “.bit” websites was too high. Namecoin was really hard to use which limited its adoption. 😔

While Namecoin was the first altcoin, it definitely wouldn’t be the last.

Within a couple of years after Bitcoin’s source code was released to the public, hundreds of altcoins were born. Then thousands! 😱

A lot of developers simply copied or slightly modified Bitcoin’s software code and then launched their own cryptocurrency. Not surprisingly, most of them weren’t able to gain any user adoption and after a couple of weeks or months, were abandoned and faded away.

These altcoins ended up being called “shitcoins” since they literally ended up being worthless pieces of sh*t.

Not all altcoins were pure crap though. Some were able to able to make enough meaningful adjustments or offer enough different features from Bitcoin that they were able to attract and grow their own community of users.

Here are examples of early altcoins that are still chugging along today:

Litecoin (LTC)

In 2011, Charlie Lee, a developer at Google, began experimenting with the Bitcoin source code, decided to create a “more accessible” version of Bitcoin, and named it “Litecoin“.

While Litecoin is based on Bitcoin’s source code, it has a few technical differences such as a faster transaction confirmation time (2.5 minutes vs. 10 minutes), a different hash function used for mining (Scrypt vs. SHA-256), and a larger maximum supply (84 million vs. 21 million).

Charlie Lee’s goal for Litecoin was not to replace Bitcoin but for Litecoin to be “silver to Bitcoin’s gold“.

Dogecoin (DOGE)

In 2013, Dogecoin is an altcoin that was created as a “joke” but quickly attracted and grew its own online community.

It was inspired by an internet meme known as “Doge“, a picture of a Shiba Inu dog shown in colorful text in Comic Sans font.

Due to its popularity, DOGE, Dogecoin’snative currency, is considered the first “meme coin” and also the first “dog coin“.

White Litecoin was based on Bitcoin’s source code, Dogecoin was based on Litecoin’source code.

(Are you starting to see the “benefits” of open source software? Once you’ve created something, anybody can take your work and copy it. Yay.)

Ripple (XRP)

Let’s say you’re from the U.S. and your famous significant other who is a Brazilian supermodel or footballer (your pick) wants to send you money from their bank to your bank.

There are a bunch of steps that would need to be completed, with each step usually incurring fees. And this is why international bank transfers can take days and are expensive.

Ripple wanted to change this. The founders wanted to create a platform for banks that was designed to allow international cross-border payments to be completed in seconds at a low cost.

Ripple is a c company (originally founded in 2012 as Opencoin, then renamed Ripple Labs, then dropped “Labs”) that created XRP Ledger, their version of a public blockchain, which uses XRP as its native cryptocurrency.

The creators chose the ticker symbol “XRP” from the term “ripple credits” or “ripples” and the “X” prefix for non-national currencies based on the ISO 4217 standard.

Stellar (XLM)

A couple of years after Ripple was created, one of its co-founders, Jed McCaleb created Stellar, (along with Joyce Kim). While Stellar was originally based on Ripple’s codebase, it was later totally replaced.

Stellar’s goal is pretty much similar to Ripple: allow cross-border payments between any pair of currencies. to be sent quickly and cheaply.

They differed in approach though as Ripple initially focused on bank-to-bank transfers, while from the start, Stellar focused on person-to-person transfers, especially from the “unbanked” (people from developing countries who lacked access to financial services).

 

Money transfers or remittances through the Stellar network are completed in almost real-time and at an extremely low cost. 

A big difference between Stellar and Bitcoin is transaction processing speed. Stellar can process about 3,000 TPS (transactions per second) compared to 5 TPS for Bitcoin.

“Lumens” or XLM (originally known as “stellar”) is the native cryptocurrency of Stellar. XLM is required to pay the base fee charged by the Stellar network for any transactions.

While Stellar’s original goal was to increase financial inclusion by reaching the world’s unbanked, its priorities have shifted to helping financial firms connect through blockchain technology

Ethereum (ETH)

One can’t talk about altcoins without mentioning (arguably) the most famous one: Ethereum.

In 2013, Ethereum was conceived to broaden the potential of blockchain technology. Prior to Ethereum, most altcoins were basically Bitcoin clones or spinoffs, designed for one very specific function…to work as an alternative “currency” outside of the traditional financial system.

Basically, the digital equivalent of cash that you can send directly from one person to another without a middleman.

For example, Bitcoin users can directly transact in BTC, Litecoin users can transact in LTC, Dogecoin users can transact in DOGE, Ripple users can transact in XRP, and Stellar users can transact in XLM. (And then exchange back to your local fiat currency if you wanted to.)

Yes, Ethereum can do the same with ether (ETH), its own native currency, but that’s not its main purpose.

What sets Ethereum apart from Bitcoin and other altcoins (back then) is that its blockchain design was more flexible and built like a software platform.

So instead of just being another “currency”, developers were able to expand the functionality of  Ethereum such as having the ability to build decentralized applications (“dApps”) and even launch their own “tokens”.

Ethereum is so important that I cover it in more depth later, but for now, just know it’s an altcoin.

And one of the largest cryptocurrencies, second only to Bitcoin.

Now that you’re familiar with altcoins, let’s learn about some specific “genres” of altcoins.