Cryptocurrencies can be divided into Bitcoin and altcoins. Altcoins refer to all cryptocurrencies except Bitcoin. After all, Bitcoin was the first cryptocurrency, and any subsequent cryptocurrencies were an ‘alternative’ to Bitcoin.
Another distinction that can be made between altcoins and Bitcoin is on market cap. This is because Bitcoin has the greatest market cap of all cryptocurrencies. The percentage ratio between Bitcoin and altcoins says something about which group is increasing in popularity.
What is the difference between altcoins and Bitcoin?
Altcoins, which stands for alternative coins, are all cryptocurrencies aside from Bitcoin.
Bitcoin is the first cryptocurrency and thus the first example of blockchain technology.
In this regard Bitcoin was revolutionary.
Soon after the creation of Bitcoin, other cryptocurrencies emerged that began to use blockchain technology. Litecoin was one of the first altcoins to enter the market and was basically a copy of Bitcoin, the only difference was the name.
The technology behind Litecoin was identical to that of Bitcoin in the beginning, but over the years it has been modified several times so the two blockchains are now not interchangeable.
In addition to Bitcoin being the first, there is another big difference resulting in altcoins being designated as a group separate to Bitcoin. This has to do with Bitcoin’s market dominance. Since the creation of Bitcoin, the cryptocurrency has become the largest in the entire crypto market. This means that Bitcoin’s value in percentage terms is the greatest in terms of total market value.
Altseason, also known as altcoin season, is a period when altcoins generally experience higher price increases than Bitcoin. This means that Bitcoin’s dominance decreases relative to altcoins.
Market dominance and altseason can be better understood with an example. Suppose the total value of the crypto market, that is, the value of all cryptocurrencies combined, is 10 million.
If the total value of all Bitcoin is 6 million, it means that the market dominance of Bitcoin is 60%. This is because the value of the entire crypto market then consists of 60% Bitcoin.
Price increases could increase the value of altcoins, giving the total crypto market a value of 13 million. In this case, if the total market value of Bitcoin remains the same at 6 million, then Bitcoin’s market dominance drops to 46%.
This would mean that the market dominance of altcoins has increased to 54%.
This could be one of the reasons to speak of an altseason.
Types of altcoins
Together with Bitcoin, these altcoins are also called digital assets. After all, they are digital products representing a certain value. However, there is a difference between these assets, as well as a difference between the various altcoins.
An altcoin may vary from other altcoins in a number of ways. For example, consider the technique and function of the altcoin. In general, altcoins can be divided into the below categories.
Something is called a coin or crypto coin if it operates through its own blockchain. For example, Ethereum or Ripple. These coins run on their own blockchain.
A cryptocurrency does not always have to run its own blockchain. For example, it may be possible to create a cryptocurrency that runs on another blockchain. Often, Ethereum’s blockchain is used to run other cryptocurrencies. These types of cryptocurrencies are called tokens. A token is much easier to develop than a coin.
Often, coins are designed primarily to serve as means of payment. They will therefore compete with other coins to become the best payment method.
A token can have various functions, and does not always serve as payment. A token can therefore also represent an entirely different value. For example, the representation of a share or work of art.
A utility token can be used to employ a certain service or function. For example, a decentralized token can develop its own utility token with which people can use the application.
For example, a utility token can be used as proof of payment. The token does not serve as a means of payment, but can be used purely and only to show that payment was made for a certain service or product. The utility token can therefore not be used in another application.
A security token represents a financial product. It can thus be compared with a stock being sold in the share market.
Examples are security tokens that represent a stake in a company. If 10 such security tokens are issued, each token will represent a 10% share. Consequently, security tokens can also be used to pay dividends to a company’s shareholders.
A stablecoin represents the value of a fiat currency, such as the euro or US dollar. This means that the value of a stablecoin is always equal to the underlying currency and is not subject to price volatility. It will only increase or decrease in value once the value of the underlying currency changes.
Stablecoins are mainly used to protect assets from the high volatility of most cryptocurrencies.
An example of this is when someone has made a positive return on an investment in Bitcoin, then sells his/her Bitcoin against Ethereum and its value would then fall rapidly. The profit made on Bitcoin would then go up in smoke.
By selling Bitcoin for stablecoin, the profit made will always remain the same. This does not require the user to convert their crypto currency to fiat currency, which can save a lot of costs. This is because it usually costs more money to convert cryptocurrencies to fiat and vice versa than it does when cryptocurrencies are exchanged against each other.
Meme coins are cryptocurrencies developed as a joke, and in most cases have no serious objectives. The names or images of these cryptocurrencies are often based on a meme, celebrity or current event.
What are popular altcoins?
There is an enormous range of different altcoins. However, for a number of years, some altcoins have been a lot more popular than other altcoins. Below is a list of the most popular altcoins.
Ethereum is one of the most famous and largest altcoins in terms of market cap. The blockchain can be used not just to carry out transactions, but developers also have the possibility to run applications. This is referred to as a decentralized application, or dApp.
Ethereum’s crypto coin is called Ether, and may be better known as its acronym ETH.
Like with Ethereum, developers have the opportunity to build a decentralized application on the blockchain of Cardano. Cardano’s cryptocoin is also known as ADA.
Dogecoin is an altcoin that falls within the category of memecoins. Dogecoin’s blockchain is a copy of Bitcoin’s and was first created by Dogecoin’s founder as a joke. In recent years, the price of this altcoin has however risen sharply, in turn also growing its reputation. Dogecoin’s crypto coin is also known as DOGE.
Like Dogecoin, Litecoin is an altcoin that copied Bitcoin’s blockchain.
Litecoin was developed to create a digital currency that was more suitable for making payments and other fast transactions. This is achieved in part through a higher block rate and a different hash mechanism, this makes for low transaction costs.
Litecoin has a significantly lower market cap than Bitcoin because there is more Litecoin in circulation, but the demand for Litecoin is lower than Bitcoin.
The Litecoin crypto currency is also known by its abbreviation LTC.
Tether is a stablecoin whose value is equal to the US dollar. This means that one Tether, also known under its acronym USDT, is always worth the same amount as a single US dollar.
The underlying project of an altcoin
An altcoin usually represents an underlying project. Indeed, the altcoin must be developed by someone or a group of people. They have an idea in mind that they believe will provide a solution to certain problems.
An example might be that a company develops its own blockchain and application to use the blockchain as cloud storage. User data is then stored not on a central server, but within the blockchain’s ledger. Next, the development team develops its own altcoin that serves as a utility token. This token users can turn in to pay for cloud storage with.
If the project behind the altcoin catches on with a large audience, the value of the altcoin could rise. After all, there is more demand for the project and the altcoin.
However, the altcoin can also be bought as an investment.
This is because the possessor does not necessarily need to buy the altcoin with the idea of using it to pay for cloud storage. It is possible that someone expects that the project will continue to catch on in the future, which will increase the value of the altcoin.
Thus, in many cases, the value of an altcoin is determined by the underlying project. However, this is not true for every altcoin. In fact, the development of an altcoin does not have to be difficult. It is possible to develop your own altcoin within minutes. This is the reason why there are an awful lot (millions) of different altcoins.
What is market cap?
The market cap, also known as market capitalization, is the value of the total number of coins in circulation. Thus, it is something different from the price of a cryptocurrency. To calculate the market cap of a cryptocurrency, the price of a cryptocurrency is multiplied by the number of coins in circulation.
Like the price of a cryptocurrency, the market cap fluctuates constantly. This is because the price of a cryptocurrency is constantly changing. The number of coins in circulation can also change. Mining, for example, puts more and more new Bitcoin into circulation.
What is market cap used for?
Market cap can be used for various purposes. Firstly, market cap indicates how big a market or cryptocurrency is. For example, it’s possible to calculate the total market cap of the crypto market, after which it can be compared for example with the market cap of a single cryptocurrency. In this way, a cryptocurrency’s dominance can be determined.
Imagine Bitcoin’s market cap is 60% of the total crypto market’s market cap, meaning that Bitcoin’s dominance is 60%.
It’s not just cryptocurrencies that use market cap. It’s also possible to calculate the market cap of other markets, such as those for shares, gold or fiat currencies.
By calculating the market cap of other markets and comparing that with the market cap of all cryptocurrencies, it becomes clear which market holds the most money. Suppose the market cap of the crypto market is greater than that of gold, one could conclude more people are investing in crypto than in gold. Or that the people who invest in crypto have more money to spend than those who invest in gold.
Market cap for crypto trading
The market cap is also used by crypto traders. The market cap allows a trader to calculate how much growth a cryptocurrency could experience, by comparing it to the largest competing cryptocurrency.
For this example, Bitcoin has a market cap of 100 million. A trader has found an altcoin that serves as a payment currency with a market cap of 20 million euros. The likelihood that the price of this altcoin will multiply by 20 is small, because the market cap would be 400 million euros. That is four times the size of Bitcoin. A multiplication of five or less is more plausible, because the market cap would then not exceed that of Bitcoin.
The market cap is one of many factors that can play a role for crypto traders in responding to price increases and decreases. Using market cap to determine growth is purely speculative.
How is market cap calculated?
Often, the market cap of a cryptocurrency is shown on the crypto exchange where it is for sale. However, it is also possible to calculate the market cap of a cryptocurrency yourself. You can do so with the following formula:
Price of the cryptocurrency * number of coins in circulation = market cap
Bitcoin was the first cryptocurrency ever developed. All cryptocurrencies that were developed afterwards can therefore be regarded as alternatives, which is why they are called altcoins. There are many different altcoins, which can be divided into various groups. Namely coins, utility tokens, security tokens, stablecoins and meme coins. Some of the most famous altcoins are Ethereum, Cardano, Dogecoin, Litecoin and Tether.
By multiplying the price of a cryptocurrency by the number of coins or tokens in circulation, one can calculate the market cap. In comparison, Bitcoin’s market cap is a lot larger than that of the altcoins. This relationship determines how dominant a cryptocurrency is and its potential growth.