There are many things that are inexplicably vast. Consider the incredible distances spanning our oceans and continents, not to mention the vast universe we find ourselves in. Then, there’s megalomania — a psychological condition that describes an unrealistic and excessive desire for power, wealth, or greatness, coupled with self-believed delusions of grandeur.
Finally, we have the Altcoin cryptocurrency sector, which dwarfs all of that despite only existing for a short decade. Starting anywhere to explain this realm that isn’t the wrong approach is almost impossible, but we’ll give it a try anyway to offer you a glimpse into the magical world of alt(ernative)-(bit)coin blockchains…
The Alternative that Embraces its Counterparty
Altcoins come in many shapes and forms, largely due to their digital nature, allowing you to conjure anything your exceptionally vivid and boundlessly creative mind can imagine. Beyond this somewhat irrelevant but enjoyable aspect, Altcoins are defined as alternatives to the leading cryptocurrency, Bitcoin. However, they share a fundamental trait: utilizing blockchain technology. This means that, by nature, they operate on a decentralized and secure digital ledger, recording all transactions across a network of computers (referred to as nodes). Alongside their robust security features, these blockchain ledgers also offer transparency and resistance to tampering.
While Bitcoin was initially created to present an alternative to the traditional financial system and to function as an unprecedented store of value, Altcoins emerged due to the need for targeted modifications and purpose-specific enhancements to the original design. This innovative impetus from countless developers worldwide has led to the creation of tens of thousands of distinct types of blockchains. These focus on providing decentralized application (dApp) services across various industries such as finance, art, music, privacy, logistics, and more.
All tokens are stored in digital wallets, which are software applications allowing users to send, receive, and manage their holdings. As you may recall from a previous article, wallets come in various types, and it’s important to choose the correct one based on the purpose of acquiring a specific coin.
The consensus mechanism, one of the technology’s key pillars, serves the primary purpose of validating transactions and maintaining the blockchain’s integrity. Two key mechanisms determine how a transaction is verified and added to the ledger: Proof of Work (PoW) or Proof of Stake (PoS). Both have their merits and drawbacks, and as a user, understanding each is crucial for assessing an altcoin’s true potential.
The Tokenomics of Altcoins can vary greatly. Depending on the predetermined economic model a project aims to deploy, the token supply can be expansive, deflationary, or fixed. Tokens can be generated through mining (PoW) or staking (PoS) mechanisms. In broader terms, these characteristics influence built-in user utility, incentivize network participation, and enhance appeal to investors. Ultimately, the Altcoin industry is a technology-driven sector seeking to provide innovative solutions within various traditional industries, necessitating funding from both institutional investors and retail users.
Altcoins are More than Just a Chain of Blocks
The blockchain industry is rapidly emerging as a prominent player, and there are numerous reasons behind this phenomenon. Notably, the world is undergoing economic and geopolitical turmoil, attracting a diverse range of newcomers to fill the expanding gaps that are forming. Since the inception of Bitcoin, a technology has been evolving that can address issues within the healthcare system, global logistics, financial services, royalties (music, art, literature, etc.), and much more.
Even from a technical standpoint, Altcoins boast robust features that emphasize their significance as a technology branch worth tracking. For instance, Altcoins have focused on resolving scalability challenges that Bitcoin cannot adequately address, particularly related to transaction throughput. Altcoins offer solutions for interoperability, connecting various ecosystems with each other, thereby creating pathways that were previously unthinkable. Projects can be developed with governance-driven tokens that holders (referred to as the community) can utilize to drive progress through tamper-free democratic procedures (although smaller projects can sometimes be influenced by large-scale investors).
Most notably, Altcoins contribute to the expanding adoption of Decentralized Finance (DeFi), granting users the freedom to engage in a space enabling investment and trading with tokens that have exuberant growth potentials and yield returns. This, in turn, contributes — though not always successfully — to the educational value this technology brings. Users are encouraged and urged to research not only projects they like and technological features but also macroeconomic developments, demographic and social shifts, political discussions, and scientific theories. This comprehensive understanding of trends can in turn enable better understanding of value evolutions that are directly linked to the cryptocurrency market. Though the future is unpredictable by nature, gained knowledge is by virtue a successful by-product.
The Darkside of the Moon
Despite the numerous positive characteristics that blockchain technology offers, unfortunately, there are also some drawbacks to consider. From a technical perspective, many blockchains suffer from network congestion if they experience heavy usage. This often results in failed and delayed transactions, causing frustration and missed opportunities. Furthermore, poorly constructed blockchains can become victims of external attacks, potentially leading to the loss of funds for their users.
Another concern is the significant competition in the space. Despite continuous innovation, many similar applications exist, which can confuse users and dilute potential successes, making the next point even more critical.
The altcoin space is riddled with scams and fraud. Although this may sound overly negative, it’s essential to maintain a critical mindset, especially since most projects are inherently quite anonymous. Despite extensive hours of research and continuous monitoring, we can’t always ascertain what’s occurring behind the scenes. Transparency on the blockchain doesn’t necessarily extend to the development team.
However, not every unsuccessful project is automatically a scam. Occasionally, an idea is conceived, technology is built, but a viable use case doesn’t materialize or lacks the appeal to convince early adopters. More recently, regulatory concerns have also begun to influence the success or failure of a project. The landscape in this regard is still evolving, with governments gradually entering the conversation. This could have positive or negative implications, though it’s too early to definitively predict. The key takeaway from this discussion is that risks do exist, and users should never be blinded by the advantages previously mentioned. However, these risks shouldn’t be a reason to completely abstain, considering that even traditional finance has faced unfortunate series of unfavourable events. It’s all about applying the correct risk profile.
Closing Thoughts
Altcoins are an incredibly diverse topic to discuss, and in this article, we have only scratched the surface of what there is to discover and learn. We haven’t even had the chance to explore topics like ZK-rollups, one of the latest trends in the market, how different blockchains can interact through bridges, or why major industrial players are partnering with blockchain companies to leverage non-fungible token (NFT) technology for customer-facing applications and administrative tools. There are plenty of books available for further reading, and it would be naive of us to believe we can compete with the knowledge that has already been shared. However, the process of learning has to start somewhere, and if this article can be a piece in that puzzle, it has already achieved its purpose.
You’re more welcome to visit our community Discord (https://discord.gg/UZxPcHSJZ7) and engage in discussions on a wide variety of topics with like-minded individuals. We would be honoured to have you there, sharing your knowledge and experiences with us.
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