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Types of Altcoins
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1. Ethereum (ETH)
The first Bitcoin alternative on our list, Ethereum (ETH), is a decentralized software platform that enables smart contracts and decentralized applications (dApps) to be built and run without any downtime, fraud, control, or interference from a third party. The goal behind Ethereum is to create a decentralized suite of financial products that anyone in the world can freely access, regardless of nationality, ethnicity, or faith.4 This aspect makes the implications for those in some countries more compelling, as those without state infrastructure and state identifications can get access to bank accounts, loans, insurance, or a variety of other financial products.
The applications on Ethereum are run on ether, its platform-specific cryptographic token. Ether (ETH) is like a vehicle for moving around on the Ethereum platform and is sought mostly by developers looking to develop and run applications inside Ethereum, or now, by investors looking to make purchases of other digital currencies using ether. Ether, launched in 2015, is currently the second-largest digital currency by market capitalization after Bitcoin, although it lags behind the dominant cryptocurrency by a significant margin.5 Trading at around $3,200 per ETH as of January 2022, ether’s market cap is just over half that of bitcoin.6
In 2014, Ethereum launched a presale for ether, which received an overwhelming response; this helped to usher in the age of the ICO. According to Ethereum, it can be used to “codify, decentralize, secure and trade just about anything.” Following the attack on the decentralized autonomous organization (DAO) in 2016, Ethereum was split into Ethereum (ETH) and Ethereum Classic (ETC).7
In December 2020, Ethereum transitioned its consensus algorithm from proof of work (PoW) to proof of stake (PoS).8 This move is intended to allow Ethereum’s network to run itself with far less energy and improved transaction speed, as well as to make for a more deflationary economic environment. PoS allows network participants to “stake” their ether to the network. This process helps to secure the network and process the transactions that occur. Those who do this are rewarded ether, similar to an interest account.9 This is an alternative to Bitcoin’s PoW mechanism, where miners are rewarded more BTCs for processing transactions.10
2. Litecoin (LTC)
Litecoin (LTC), launched in 2011, was among the first cryptocurrencies to follow in the footsteps of Bitcoin and has often been referred to as “silver to Bitcoin’s gold.”11 It was created by Charlie Lee, an MIT graduate and a former Google engineer.
Litecoin is based on an open-source global payment network that is not controlled by any central authority and uses Scrypt as a PoW, which can be decoded with the help of consumer-grade central processing units (CPUs). Although Litecoin is like Bitcoin in many ways, it has a faster block generation rate and hence offers a faster transaction confirmation time.
Other than developers, there are a growing number of merchants that accept Litecoin. As of January 2022, Litecoin has a market capitalization of $9 billion and a per token value of around $130, making it the 22nd-largest cryptocurrency in the world.12
3. Cardano (ADA)
Cardano (ADA) is an “Ouroboros proof-of-stake” cryptocurrency that was created with a research-based approach by engineers, mathematicians, and cryptography experts.13 The project was co-founded by Charles Hoskinson, one of the five initial founding members of Ethereum. After having some disagreements with the direction that Ethereum was taking, he left and later helped to create Cardano.
The team behind Cardano created its blockchain through extensive experimentation and peer-reviewed research. The researchers behind the project have written more than 120 papers on blockchain technology across a range of topics.14 This research is the backbone of Cardano.
Due to this rigorous process, Cardano seems to stand out among its PoS peers as well as other large cryptocurrencies. Cardano has also been dubbed the “Ethereum killer,” as its blockchain is said to be capable of more. That said, Cardano is still in its early stages. While it has beaten Ethereum to the PoS consensus model, it still has a long way to go in terms of DeFi applications.
Cardano aims to be the world’s financial operating system by establishing DeFi products similar to Ethereum as well as providing solutions for chain interoperability, voter fraud, and legal contract tracing, among other things. As of January 2022, Cardano has the seventh-largest market capitalization at $37 billion, and one ADA trades for around $1.15.15
4. Polkadot (DOT)
Polkadot (DOT) is a unique PoS cryptocurrency aimed at delivering interoperability among other blockchains. Its protocol is designed to connect permissioned and permissionless blockchains, as well as oracles, to allow systems to work together under one roof. Polkadot’s core component is its relay chain that allows the interoperability of varying networks. It also allows for parachains, or parallel blockchains with their own native tokens for specific-use cases.16
Where Polkadot differs from Ethereum is that rather than creating just dApps on Polkadot, developers can create their own blockchain while also using the security that Polkadot’s chain already has. With Ethereum, developers can create new blockchains but need to create their own security measures, which can leave new and smaller projects open to attack, as the larger a blockchain, the more security it has. This concept in Polkadot is known as shared security.
Polkadot was created by Gavin Wood, another member of the core founders of the Ethereum project who had differing opinions on the project’s future. As of January 2022, Polkadot has a market capitalization of roughly $26 billion, and one DOT trades for $24.50.17
5. Bitcoin Cash (BCH)
Bitcoin Cash (BCH) holds an important place in the history of altcoins because it is one of the earliest and most successful hard forks of the original Bitcoin. In the cryptocurrency world, a fork takes place as the result of debates and arguments between developers and miners. Due to the decentralized nature of digital currencies, wholesale changes to the code underlying the token or coin at hand must be made due to general consensus; the mechanism for this process varies according to the particular cryptocurrency.
When different factions can’t agree, sometimes the digital currency is split, with the original chain remaining true to its original code and the new chain beginning life as a new version of the prior coin, complete with changes to its code.
BCH began its life in August 2017 as a result of one of these splits. The debate that led to the creation of BCH had to do with the issue of scalability; the Bitcoin network has a limit on the size of blocks: one megabyte (MB). BCH increases the block size from one MB to eight MBs, with the idea being that larger blocks can hold more transactions within them, and the transaction speed therefore would be increased.18 It also makes other changes, including the removal of the Segregated Witness protocol that impacts block space.
As of December 2021, BCH has a market capitalization of around $7 billion and a value per token of $372.19
6. Stellar (XLM)
Stellar (XLM) is an open blockchain network designed to provide enterprise solutions by connecting financial institutions for the purpose of large transactions. Huge transactions between banks and investment firms—typically taking several days, involving a number of intermediaries, and costing a good deal of money—can now be done nearly instantaneously with no intermediaries and cost little to nothing for those making the transaction.
While Stellar has positioned itself as an enterprise blockchain for institutional transactions, it is still an open blockchain that can be used by anyone. The system allows for cross-border transactions among any currency. Stellar’s native currency is Lumens (XLM).20 The network requires users to hold Lumens to be able to transact on the network.
Stellar was founded by Jed McCaleb, a founding member of Ripple Labs and developer of the Ripple protocol. He eventually left his role with Ripple and went on to co-found the Stellar Development Foundation.21 Stellar Lumens have a market capitalization of $6.4 billion and are valued at $0.26 as of January 2022.22
7. Dogecoin (DOGE)
Dogecoin (DOGE), seen by some as the original “memecoin,” caused a stir in 2021 as the price of the coin skyrocketed. The coin, which uses an image of the Shiba Inu as its avatar, is accepted as a form of payment by some major companies, including the Dallas Mavericks, Kronos, and—perhaps most notably—SpaceX, an American aerospace manufacturer owned by Elon Musk.
Dogecoin was created by two software engineers, Billy Markus and Jackson Palmer, in 2013. Markus and Palmer reportedly created the coin as a joke, commenting on the wild speculation of the cryptocurrency market.
The price of DOGE hit an all-time high of $0.68 during the week when Musk was scheduled to appear on “Saturday Night Live.” As of December 2021, Dogecoin’s market capitalization is $20 billion and one DOGE is valued at around $0.15, making it the 12th-largest cryptocurrency.23
A memecoin inspired by a memecoin, Shiba Inu (SHIB), rose to prominence in the fall of 2021, briefly surpassing the market capitalization of Dogecoin.
8. Binance Coin (BNB)
Binance Coin (BNB) is a utility cryptocurrency that operates as a payment method for the fees associated with trading on the Binance Exchange. It is the third-largest cryptocurrency by market capitalization.24 Those who use the token as a means of payment for the exchange can trade at a discount.
Binance Coin’s blockchain is also the platform that Binance’s decentralized exchange operates on. The Binance Exchange was founded by Changpeng Zhao and is one of the most widely used exchanges in the world based on trading volumes.
Binance Coin was initially an ERC-20 token that operated on the Ethereum blockchain. It eventually had its own mainnet launch. The network uses a PoS consensus model. As of January 2022, Binance Coin has a $73.3 billion market capitalization, with one BNB having a value of $435.24
9. Tether (USDT)
Tether (USDT) was one of the first and most popular of a group of so-called stablecoins—cryptocurrencies that aim to peg their market value to a currency or other external reference point to reduce volatility. Because most digital currencies, even major ones like Bitcoin, have experienced frequent periods of dramatic volatility, Tether and other stablecoins attempt to smooth out price fluctuations to attract users who may otherwise be cautious. Tether’s price is tied directly to the price of the U.S. dollar. The system allows users to more easily make transfers from other cryptocurrencies back to U.S. dollars in a more timely manner than actually converting to normal currency.
Launched in 2014, Tether describes itself as “a blockchain-enabled platform...to make it easier to use fiat currency digitally.”25 Effectively, this cryptocurrency allows individuals to utilize a blockchain network and related technologies to transact in traditional currencies while minimizing the volatility and complexity often associated with digital currencies.
As of December 2021, Tether is the fourth-largest cryptocurrency by market capitalization, with a market cap of $77.9 billion and a per token value of (you guessed it!) $1.26
10. Monero (XMR)
Monero (XMR) is a secure, private, and untraceable currency. This open-source cryptocurrency was launched in April 2014 and soon garnered great interest among the cryptography community and enthusiasts. The development of this cryptocurrency is completely donation-based and community-driven.27
Monero has been launched with a strong focus on decentralization and scalability, and it enables complete privacy by using a special technique called “ring signatures.”28 With this technique, a group of cryptographic signatures appears, including at least one real participant, but the real one cannot be isolated since they all appear valid.
Because of exceptional security mechanisms like this, Monero has developed something of an unsavory reputation—it has been linked to criminal operations around the world. While this is a prime candidate for making criminal transactions anonymously, the privacy inherent in Monero is also helpful to dissidents of oppressive regimes around the world.29As of January 2022, Monero has a market capitalization of $3.5 billion and a per token value of $192