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Knowing The Key Differences Between Bitcoin and Altcoins Before Investing In Them

When Bitcoin came into being in January 2009, it was referred to as cryptocurrency, but the invention of Namecoin and Litecoin in 2011 and others that came up thereafter necessitated the need for a clear distinction between the first cryptocurrency and others that came up after Bitcoin, which are called altcoin.

Today, there are almost 9,000 cryptocurrencies globally, according to data on CoinmarketCap, meaning you have to know the difference between Bitcoin and Altcoins.

Altcoins are alternatives to the dominant and first cryptocurrency (Bitcoin). Bitcoin’s many alternatives are collectively known as Altcoins.

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While Bitcoin remains the most widely known and used cryptocurrency, the myriad of Altcoins offer interesting alternatives for users and investors.

Understanding Bitcoin

The true financial revolution began in 2009 when Bitcoin emerged as the first-ever cryptocurrency. Thanks to an unknown inventor who prefers to be referred to as Satoshi Nakamoto.

Simply put, Bitcoin is a digital currency, money without physical notes or coins with a cutting-edge technology called blockchain, a pioneer of decentralized network, which is a public ledger that records all transactions.

All transactions are grouped together into ‘blocks’. To ensure security and integrity, the information in these blocks is encrypted – a complex process known as ‘mining’.

Understanding Altcoins

Altcoins are the ‘alternative coins’ to Bitcoin. Since Bitcoin paved the way, many other coins have been invented by coders, which have brought a diverse landscape of cryptocurrencies.

Examples of Altcoins

While Namecoin is the first Altcoin to emerge after Bitcoin, there are many other high-performing Altcoins in terms of market capitalization, they include:

  • Ethereum (ETH)
  • BNB
  • Ripple (XRP)
  • Solana (SOL)
  • Cardano (ADA)
  • Dogecoin (DOGE)
  • TRON (TRX)
  • Chaincoin (LINK)
  • Toncoin (TON)
  • Polygon (MATIC)

Other popular Altcoins include Litecoin (LTC), Shina Inu (SHIB), BitcoinCash (BCH), Monero (XMR), Ethereum Classic (ETC), and more than eight thousand others.

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Each of the Altcoins has its own uniqueness features and uses. Altcoins were created to improve upon and offer something different than Bitcoin.

Some of the altcoins aim to provide advanced functionalities while others focus on enhanced privacy measures.

Bitcoin vs Altcoins: Spotting the Distinctions

While both Bitcoin and Altcoins are cryptocurrencies, their distinctions make each one unique. These differences can be explored across various aspects such as:

  • technology,
  • purpose,
  • market capitalization,
  • liquidity, and
  • community support

Underlying technology

When it comes to the underlying technology, Bitcoin uses a system known as ‘Proof of Work’ (PoW) to validate and record transactions on its network.

However, some Altcoins opt for different systems. For instance, Ethereum is transitioning to ‘Proof of Stake’, a system aiming to be more energy-efficient and secure.

Intended use

The purpose or intended use of the cryptocurrencies also differs. Bitcoin was initially conceptualized as an alternative to traditional currencies. It is often termed as ‘digital gold’ due to its store of value characteristic.

On the contrary, many Altcoins serve specific purposes. Ethereum, for example, enables smart contracts and the creation of decentralized applications. Ripple is used for fast, low-cost international money transfers.

Market capitalization

While Bitcoin enjoys the highest market capitalization and widespread acceptance, Altcoins often provide exciting, albeit riskier investment opportunities.

For instance, Bitcoin’s MarketCap stood at $726,990,020,761 at the time of publication, the only Altcoin that came second (ETH) could only pull $243,211,024,765 as MarketCap.

Value driver

Since Bitcoin is the leader and the first cryptocurrency, its value and price has many times been the driver of value and price of Altcoins.

For instance, when Bitcoin crashed from its All-Time High of $69,044.77 (Nov 10, 2021). We saw BTC’s ATH reflect on the price of other Altcoins. Ethereum, for instance, recorded All-Time High on November 10, 2021, reaching $4,878.26.

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Similarly, when Bitcoin crashed, Altcoins were affected.

What makes the prominent Altcoins unique

While Bitcoin is undeniably the crypto leader, several Altcoins have carved out their own niches in the cryptocurrency world.

Ethereum As The Smart Contract Pioneer

Ethereum, often seen as the second most popular cryptocurrency, offers more than just a digital currency. It introduced the concept of “smart contracts”, which are self-executing contracts with the terms of the agreement directly written into code.

This innovation opened up a whole new realm of possibilities, leading to the development of decentralized applications, or ‘dApps’, on its platform.

Ripple As The Speedster of Money Transfers

Ripple, unlike many other cryptocurrencies, primarily focuses on speeding up international money transfers.

Traditional methods can take days to complete a single transaction. Ripple, however, accomplishes this in mere seconds and at a fraction of the cost.

Cardano As The Blend of Science and Cryptocurrency

Cardano distinguishes itself by employing a scientific approach to its design and development. Every aspect undergoes rigorous peer-review by academics and scientists, setting a high standard of accuracy and reliability.

There are many other Altcoins out there, each with its own purpose and potential. However, it’s essential to weigh the pros and cons before investing.

Advantages of investing in Bitcoin

Bitcoin, with its wide acceptance and significant market capitalization, stands as a stable player in the volatile crypto market.

It offers a degree of security thanks to its robust network and the widespread recognition it enjoys.

Disadvantages of Bitcoin

Bitcoin is not without its challenges. Its energy consumption, due to the ‘Proof of Work’ system, has raised environmental concerns.

Additionally, its scalability issues, meaning the difficulty in handling a large number of transactions, pose another hurdle.

Advantages of investing in Altcoins

Altcoins, with their variety and specific use cases, present the potential for high returns. For instance, Ethereum’s smart contracts and dApps offer exciting opportunities.

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Challenges of Investing in Altcoins

  • Investing in Altcoins can be more volatile and risk-prone.
  • Some Altcoins have limited acceptance.
  • Their security might not be as robust as Bitcoin’s.
  • Altcoins can be more vulnerable to market swings and speculation.

Between Investing in Bitcoin and Altcoins, Which One Is Safer?

So, you might want to ask: Is Bitcoin a safer bet or do Altcoins promise a brighter future?

There isn’t a one-size-fits-all answer to this question. The answer varies, depending on individual preferences, risk tolerance, and long-term financial goals.

If you’re a conservative crypto investor, Bitcoin’s maturity and widespread acceptance might be appealing to you.

BTC has proven itself over a decade and is often seen as a store of value, somewhat like digital gold. Bitcoin may offer a more stable – though by no means guaranteed – investment opportunity.

However, if you’re more of a risk-taker, Altcoins could be your playground. Altcoins, while more volatile, have the potential for high returns.

For instance, some risk-takers made considerable returns from investing in SHIB and DOGE, especially when Tesla Founder Elon Musk and ETH founder Vitalik Buterin mentioned them in their tweets.

Considering the benefits of investing in Bitcoin and Altcoins, in the end, the decision comes down to you, your belief in the project’s future, and your ability to tolerate risk.

Whatever your choice may be, it is always important to do your research, stay updated, and understand your financial situation before stepping into the crypto world.

It all boils down to individual preferences, risk tolerance, and long-term investment goals.

Author

  • Opeyemi Quadri

    Ope is a finance writer and researcher with 10+ years of experience in content creation. His interests cut across investment, foreign exchange, government policies and politics. Ope is available on Twitter @OpeQuadri.

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