What is the Purpose of Altcoin?

Altcoin is short for "alternative coins", and typically describes all cryptocurrencies but Bitcoin. Ever since Bitcoin was first launched in 2009, thousands of altcoins have been released, each with their own features, applications, and economies.

Altcoins were developed to resolve some of Bitcoin's shortcomings, offer new features, and get into different sectors and industries. This article will discuss some of the reasons why altcoins exist and how they fit within the overall cryptocurrency ecosystem.

Diversification and Competition

Altcoins are made in order to compete with and diversify the cryptocurrency market. Altcoins innovation provide different features, consensus mechanisms and usecases, ensuring that we do not end up with a single coin monopoly. Competition by definition is a good thing as it leads to innovation and great technology and price and has been benefiting the ecosystem as a whole.

Addressing Bitcoin's Limitations

The first cryptocurrency, Bitcoin, is by a matter of constraint slow in transaction times, energy-intensive to mine, and has scalability issues. For example, many of the feature and asset focused altcoins are designed to address these limitations by offering faster transaction speeds, lower fees and more energy efficient consensus mechanisms. For example:

• Litecoin (LTC): Often described as silver to Bitcoin's gold, Litecoin was created with the aim to enable better and faster transaction times with costs that were lower than Bitcoin.
• Bitcoin Cash (BCH): Essentially a fork of the original Bitcoin project, Bitcoin Cash seeks to enable more transactions by increasing the block size.

Smart Contracts and Decentralized Applications (DApps)

Upstart cryptocurrencies like Ethereum (ETH) introduced the idea of smart contracts, which are automated contracts with the terms of the agreement put directly into code. These blockchain contracts allow developers to build decentralized applications (DApps) that operate on blockchain networks with no intermediaries. Smart contracts were introduced in Ethereum which opened a new door of possibilities in the blockchain universe, allowing for the development of DApps for several industries like finance, games, supply chain management and more.

Privacy and Anonymity

Privacy and Anonymosity in transactions is addressed by some Altcoins to make transactions non-traceable to some extent that Bitcoin transactions are. This occurs because these altcoins are privacy-focused coins that use cutting-edge cryptographic proposals to hide transaction details and preserve the identities of their users. Examples include:

• Monero (XMR): Through the use of stealth addresses, ring signatures, and secret transactions, transaction details and user identities are kept private and untraceable.
• Zcash (ZEC): Zcash is a cryptocurrency that offers optional privacy features using zero-knowledge proofs (zk-SNARKs) allowing users to shield addresses and transaction details while providing security and privacy to all transactions on the Zcash blockchain.

Specialized Use Cases and Industries

Value propositions of Altcoins can be customized to focus on a specific use case or industry, leading to solutions that are better tuned for certain applications. For example:

• Ripple (XRP): Focuses on unlocking liquidity and real-time settlements between banks; Its consensus algorithm is modelled to close all transactions almost instantly, making it perfect for worldwide money transfers and interbank transfers.
• VeChain (VET): VeChain is a supply chain management and logistics blockchain platform that largely aims at tracking products and verifying authenticity across the supply chain.

Community and Governance Models

Hopefully the advent of some altcoins is starting to change this where alternative governance models are enabling these coins to be developed in more decentralized and community-driven processes. These models allow stakeholders to join in the governing of the network, suggest changes and vote on major decisions. Examples include:

• Tezos (XTZ): On-Chain Governance: This feature allows Tezos stakeholders to propose and vote on protocol upgrades, which eliminates contentious hard forks.
• Dash (DASH): With Dash, masternode operators use a decentralized autonomous organization (DAO) architecture to vote on proposals for budgets and network upgrades.

Conclusion

Ultimately, altcoins fulfill a broad set of reasons in the cryptocurrency economy, ranging from mitigating the well-known constraints of Bitcoin to delivering new prose to focusing on different industries and without privacy.

Altcoins introduce a variety of solutions to the table, creating competition and driving innovation, the broader cryptocurrency becomes. There are therefore a wide variety to pick from and use cases and needs will vary by investors and users.