What Are Altcoins And How Do They Differ From Bitcoin?

Is Bitcoin the only currency that you should consider when making a crypto investment? While BTC was the pioneer and sparked the hype surrounding digital currency, the crypto space has diversified far beyond it. 

From Ethereum to Solana, now we can use thousands of alternative cryptocurrencies (altcoins), with each of them offering unique and innovative features. 

But how do they differ from BTC? 

An altcoin is essentially any other cryptocurrency that’s not named Bitcoin. While BTC was primarily designed as a decentralized digital currency, alternative coins have taken blockchain technology in a new direction. 

Some altcoins focus on offering improved privacy, while others prioritize creating a faster transactional ecosystem. A few of them also help power decentralized apps or facilitate smart contracts. But the question is – are they better than Bitcoin? 

Let’s find an answer to it. 

Understanding Bitcoin – A Brief Overview 

Before diving into our discussion of Bitcoin versus altcoins, let’s discuss what makes BTC so special.

Launched in 2009, Bitcoin isn’t just the first cryptocurrency ever created, it also introduced a decentralized, P2P (peer-to-peer) financial system to the world.

Also, BTC or any other cryptocurrency-related transactions are verified by a network of computers through blockchain technology. So, it’s free from the centralized control of banks and other government-based institutions too. 

Key Features Of Bitcoin 

Decentralization is one of the biggest strengths of Bitcoin. Unlike fiat currencies (such as USD or sterling pound), which are controlled by central banks – Bitcoin is operated on a global network by nodes and miners. This makes it resistant to censorship and government control. Also, even if the stock market crashes, it won’t affect the value of BTC. 

Apart from this –

1: Limited Supply

Limited supply is one of bitcoin’s key features. Only 21 million bitcoins will ever exist, and more than 19.5 million of them have already been mined, leaving fewer than 1.5 million left to pull from. https://t.co/XWRopJO9pD

— The Washington Times (@WashTimes) April 20, 2024

Unlike traditional money, Bitcoin has a fixed cap of twenty-one million coins. You can mine the coin with your PC, but it cannot go over the number we’ve mentioned before. This scarcity makes the currency like gold and increases its value over time. 

Note: According to Investopedia, around 19.9 million BTC has already been mined, and only 1.1 million is left. 

2: Proof-of-Work Consensus

How Proof-of-Work Works (Source: Researchgate) 

Bitcoin uses a PoW (proof-of-work) mechanism to validate transactions and security. A BTC miner must solve complex mathematical problems to add new blocks to the blockchain. This makes the ecosystem more secure while incentivizing miner participation through block rewards. This is resource-intensive but can also provide protection against cyberattacks. 

3: Widespread Networking 

As the first and most popular digital currency, Bitcoin has an excellent networking system and often dictates cryptocurrency market trends.

Its widespread adoption and recognition have helped it create a stronger user base, which is impossible for other altcoins to create. This makes BTC’s pricing much more stable and helps it dominate the crypto market. 

The Curious Case Of Altcoins 

Unlike the king – Bitcoin – altcoins are the new challengers, trying to carve out their own space in the digital economy. Unlike BTC, however, these currencies have different use cases other than being just another decentralized currency.

Types Of Altcoins 

Altcoins are available in different forms and offer unique features within the crypto ecosystem. Here are some of the most notable options you should know about – 

1. Ethereum (ETH) 

Apart from being a currency, Ethereum can also be used to create smart contracts (self-executing programs that can automate pre-made agreements). This innovation, consequently, has led to the creation of NFTs (non-fungible tokens) and DeFi (decentralized finance). 

2. Litecoin (LTC) 

Litecoin is quite similar to Bitcoin, but with one difference – it makes transactions faster and cheaper. Thanks to its design, LTC can process blocks 4x faster than BTC, which makes it a perfect alternative for everyday transactions. 

3. Ripple (XRP) 

Unlike other altcoins, Ripple helped in establishing cross-border payments by collaborating directly with government-controlled financial institutions. Transactions made with Ripple are much faster than BTC and it also commands lower fees. 

Key Differences Between Bitcoin And Altcoins

Altcoin wave is here! Be sure to ride along, but avoid the floating myths! 🌊#CryptoMyth #Facts #Altcoins https://t.co/jAwH85WAIH pic.twitter.com/sbyMMAn5BO

— CoinDCX : India Ka Crypto Coach (@CoinDCX) December 21, 2024

Bitcoin, indeed, had started the revolution of digital currency. But over time, it’s become too boring and rather single-minded. While altcoins aren’t as stable as BTC, they are much more innovative and have turned blockchain into a unique and inventive space. 

But is there anything else that sets these two apart? 

A: Usage Of Technology 

The mysterious Satoshi Nakamoto created Bitcoin as a decentralized currency that uses blockchain technology to keep a secure record of transactions. It works on a PoW mechanism where miners solve difficult mathematical problems to authenticate transactions. 

Conversely, altcoins have used the same blockchain technology to improve transaction speed, security, and efficiency. For example, security tokens can be used to represent ownership of a physical asset or a financial instrument. Meanwhile, Solana and Cardano use a PoS (proof-of-stake) mechanism to save energy and process transactions even faster. 

B: Supply Limitations 

Bitcoin is limited and has a supply cap of 21 million, which is expected to be mined around the year of 2140. After this, miners won’t be able to get block rewards anymore. Instead, they’ll have to rely upon transaction fees that are being made on blockchain. 

The supply models of the altcoins are different. For example, there are a total of 84 million Litecoins that can be mined, which makes them a limited resource. On the other hand, Dogecoins are produced annually (almost five billion) and don’t have a supply limit yet. 

C: Development And Innovation 

Bitcoin primarily focuses on offering stability and security. There have been little to no changes to its core protocol since 2009.

Altcoins, however, innovate much more rapidly and focus on introducing new features, use cases, and technologies to solve issues within the crypto space. 

Nevertheless, due to how unstable they are, altcoins can provide higher potential returns. So, they are ideal for short-term investments. 

Popular Altcoins And Their Features 

Ethereum, the most popular altcoin, helps create smart contracts and offers lower transaction fees. Apart from ETH, some other altcoins and their features are as follows – 

1: Solana (SOL) 

SOL is an open-source, blockchain-based altcoin that aims to improve the scalability issues faced by BTC and ETH while maintaining lower transaction fees. It uses different blockchain technology variations, which helps it – 

• Process more than 710,000 transactions in a second, thanks to the PoH (proof-of-history) mechanism.

• Be more developer-friendly and can facilitate dApps.

• Support different types of applications, including NFTs and DeFi.

Thanks to its low power consumption ability, Solana remains a focal point in cryptocurrency market trends, albeit not as popular as BTC.

2: Dogecoin (DOGE) 

Source: BBC 

Dogecoin was initially created as a meme coin but has garnered worldwide popularity due to Elon Musk’s interest in it. Some of DOGE’s features that make it one of the best cryptocurrency investment options are as follows –

• Used as a tipping currency for content creators on X and Reddit.

• Faster transactions than Bitcoin (which makes it perfect for microtransactions).

• Uses the Scrypt proof-of-work mechanism, which is less resource-intensive than BTC.

However, Dogecoin currently has no maximum supply cap, unlike Bitcoin. So, you may have to create different altcoin investment strategies if you are planning to invest in it. 

3: Cardano (ADA) 

Cardano was created and developed through proper peer-reviewed academic research, which ensures a strong foundation for its technology. Some features that make ADA unique are – 

• Uses the PoS (proof-of-stake) mechanism to offer more scalability while lowering energy consumption.

• It’s interoperable and allows for seamless communication between different blockchains.

• Can help create smart contracts and operate in the DeFi space.

While you can invest in Cardano through all cryptocurrency trading platforms, it’s important to do a proper altcoin market analysis beforehand to avoid its volatility. 

Investing In Altcoins vs. Bitcoin: Which One Is Right For You? 

Bitcoin is and probably will always be the most established digital asset. However, altcoins are also gaining their ground, thanks to offering more functionalities than BTC.

But which one should you invest in?

1: Bitcoin 

Although volatile, Bitcoin is still a safer bet due to how long it’s been dominating the crypto market. For a long-term investor, it might be best to choose BTC over altcoins. 

Pros 

• It’s the most widely accepted cryptocurrency investment option.

• BTC is more stable than other altcoins due to its market cap.

• Governments and other financial institutions recognize BTC more than other assets.

Cons 

• Limited use cases.

• A congested network may lead to delays and high fees.

• Requires significant capital compared to other altcoin investment strategies.

2: Altcoins 

Aside from varied functionality, altcoins also offer investors a high-risk, high-return opportunity. However, they’re not ideal for investors with a long-term mindset. 

Pros 

• Offers new technologies, such as XRP’s fast payments or ETH’s smart contracts.

• Cheaper and more accessible to investors with lower funds.

• Some altcoin investment strategies can deliver massive returns over time.

Cons 

• The cryptocurrency regulatory framework around altcoins is still under-developed.

• Experiences volatile price swings almost always.

• Higher risk of scams.

The Bottom Line – Diversification Is The Answer 

Both Bitcoin and altcoins offer something unique that any investor would want to keep in their portfolio. So, if you want to have the best of both worlds, it might be best to diversify your investment.

As Bitcoin provides more stability, you can invest a large chunk of your funds in it (65%, for example), while the other 35% can be spent on unpredictable altcoins. If you don’t have a “hope for the best” attitude, it’s best to create a risk tolerance strategy beforehand. This way, you can get out of the market at the right time and avoid losing money.