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ALTCOINS, DLT, TOKENS
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- The story of Altcoins: Altcoins (Alternative + Coins) are various alternatives to the most established cryptocurrency, Bitcoin. They all use a technology called blockchain that allows secure peer-to-peer transactions. Altcoins build on the success of Bitcoin by slightly changing the rules to appeal to different users.
- Working of Altcoins: Generally, these work much like the original Bitcoin. Using a private key, users can send a payment from your digital wallet to another user's wallet. In a cryptocurrency such as these, there is a blockchain, or recording ledger, where the transactions are permanently and publicly recorded, so exchanges can't be altered or denied after the fact. (The blockchain is secured by mathematics proofs which confirm transactions in blocks)
- Altcoin vs. Bitcoin: Altcoins don't all follow the same rules as Bitcoin. So their rate of production can be different. While Bitcoin will only ever mine, or produce, bitcoins every 10 minutes, an altcoin called Litecoin will produce coins every 2.5 minutes. This makes Litecoin able to process payments faster. Litecoin will also produce 84 million litecoins, whereas Bitcoin will only produce 21 million bitcoins.
- Cryptocurrencies are digital or virtual currencies that are encrypted (secured) using cryptography (the use of encryption techniques to secure and verify the transfer of transactions). Bitcoin represents the first decentralized cryptocurrency, which is powered by a public ledger that records and validates all transactions chronologically, called the Blockchain.
- Difference: Litecoin also uses a different set of rules for mining than bitcoin. Whereas bitcoins require costly hardware to mine, litecoins can be mined with common computer hardware.
- Thousands of Altcoins: Litecoin is just one of the thousands of altcoins on the market. Some altcoins stand out as popular alternatives to Bitcoin, although they don't reach Bitcoin's market cap. Examples: Ethereum, Ripple, Dash, Litecoin, etc.
- Pros and Cons of Altcoins: Some positive aspects include improvement on Bitcoin's flaws, providing competition, low transaction fees etc. Some cons are that their value is very volatile, high potential exists for scams and fraud, etc.
- The Pros
- Altcoins are generally designed to address a perceived shortcoming with the Bitcoin framework, whether it's speed, mining cost, or some other factor. By tweaking the rules under which Bitcoin operates, altcoin creators make space for new competitors to the Bitcoin system. One of the benefits of using altcoins as a payment method, in addition to secure blockchain technology, is the relatively low transaction fees charged for each transaction.
- The Cons
- Value is very volatile. As an investment, altcoins are very new and their value can change drastically. Altcoins, as with Bitcoin, are frequently the subject of scams and other fraudulent schemes.
- Types of Altcoins: Altcoins are sometimes projects from enthusiasts, and sometimes the basis for entire new businesses. They can even be more than coins, developing into entire new frameworks for everything from messaging applications to online marketplaces. An altcoin will often change Bitcoin’s rules sufficiently to do something uniquely productive and may have a particular application.
- Specific: Some such as Solarcoin, have been designed as a ?unit of exchange for solar power production. Others, such as Namecoin, have formed the basis for a new system of domain names on the Internet.
- Broad categories: Some distinct categories are (a) mining-based cryptocurrencies, (b) stablecoins, (c) security tokens, and (d) utility tokens.
- Mining-Based Altcoins: These have a mining process by which new coins are generated by solving challenging problems to unlock blocks. That is similar to Bitcoin. Most of the top altcoins in early 2020 fell into this category. Ethereum was the best known mining-based altcoin as of February 2020.
- Stablecoins: These seek to improve on Bitcoin by reducing volatility. In actual practice, this is achieved by tying the value of the coins to existing currencies. Popular choices for backing altcoins include the U.S. dollar, the euro, and gold. Facebook's Libra (Diem) is by far the most famous stablecoin, even though it had not launched yet as of January 2021.
- Security Tokens: These altcoins are linked to a business, and they often launch in an initial coin offering (ICO). Security tokens resemble traditional stocks, and they often promise some type of dividend like payout or ownership in a business.
- Utility Tokens: These provide a claim on services, and they are sometimes sold as part of an ICO. Filecoin is an excellent example of a utility token offered in an ICO. Filecoins are designed to be exchangeable for decentralized file storage space.
- Facebook’s DIEM: The much talked about cryptocurrency launch of Libra was ditched and instead FB is now part of a new digital currency named DIEM. It will be supported by the Diem Association, which consists of 27 members, of which Facebook is one. Libra was meant to be a cryptocurrency and launched as a competitor to the global fiat market. Fiat currency refers to 'established money', regulated by governments such as the pound, US dollar or euro. But diem is meant to complement domestic currencies and not replace them. By definition the diem is actually a 'stablecoin’, pegged to a currency or a commodity price, like gold. At the moment diem's monetary value will be tied to the US dollar – so one diem will equal one US dollar. Diem makes use of blockchain technology.
- What is Ethereum (ETH)?
- Ethereum is a decentralized open-source blockchain system that features its own cryptocurrency, Ether. ETH works as a platform for numerous other cryptocurrencies, as well as for the execution of decentralized smart contracts.
- Ethereum was first described in a 2013 whitepaper by Vitalik Buterin. Buterin, along with other co-founders, secured funding for the project in an online public crowd sale in the summer of 2014 and officially launched the blockchain on July 30, 2015.
- Ethereum’s own purported goal is to become a global platform for decentralized applications, allowing users from all over the world to write and run software that is resistant to censorship, downtime and fraud.
- What Makes Ethereum Unique?
- Ethereum has pioneered the concept of a blockchain smart contract platform. Smart contracts are computer programs that automatically execute the actions necessary to fulfill an agreement between several parties on the internet. They were designed to reduce the need for trusted intermediates between contractors, thus reducing transaction costs while also increasing transaction reliability.
- Ethereum’s principal innovation was designing a platform that allowed it to execute smart contracts using the blockchain, which further reinforces the already existing benefits of smart contract technology.
- In addition to smart contracts, Ethereum’s blockchain is able to host other cryptocurrencies, called “tokens,” through the use of its ERC-20 compatibility standard. In fact, this has been the most common use for the ETH platform so far: to date, more than 280,000 ERC-20-compliant tokens have been launched. Over 40 of these make the top-100 cryptocurrencies by market capitalization, for example, USDT, LINK and BNB.
- Tokens are a representation of a particular asset or utility, that usually resides on top of another blockchain.
- Tokens can represent basically any assets that are fungible and tradable, from commodities to loyalty points to even other cryptocurrencies!
- Creating tokens is a much easier process as you do not have to modify the codes from a particular protocol or create a blockchain from scratch.
- All you have to do is follow a standard template on the blockchain - such as on the Ethereum or Waves platform - that allows you to create your own tokens.
- The main difference between altcoins and tokens is in their structure; altcoins are separate currencies with their own separate blockchain while tokens operate on top of a blockchain that facilitates the creation of decentralized applications.
- Tokens that are built on the Ethereum platform are known as ERC-20 tokens.
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