An altcoin is any cryptocurrency other than Bitcoin.
This can be a coin that is tied to a blockchain or a token that is part of a smart contract. Most are ERC-20 which were developed on the Ethereum network. This is compounded by forks of the EVM, creating blockchains such as Polygon and BSC.
There are over 10,000 altcoins listed on Coingecko. While many of these do not have much value, with little to no trading on the open market, it does show the potential of what tokenization can offer.
Tokens are created through the use of smart contracts. This is popular on the forks of Ethereum. These are often called layer 2 since they are usually tied to projects that are built on top of the base layer.
Bitcoin was the first digital currency that was able to solve the double spend problem in a decentralized manner. Other attempts by the Cypherpunks such as Bit Gold required centralized entities to ensure coins were not double spent.
With the introduction of Bitcoin by Satoshi Nakamoto, a new industry formed. Over the ensuring year, there were other coins that came on the scene. Some of the early ones were either forks of BTC, such as Litecoin, or new projects such as Bitshares.
Since there was a bias towards Bitcoin by its supporters, the view was promoted there was Bitcoin and everything else. Many feel that nothing, other than BTC, is worth anything.
Opponents to this position feel that Bitcoin, as a network, is rather limited. There was little done to improve the technology since the Bitcoin White Paper came out. That said, many feel that Taproot carries some potential.
Ethereum is helping to change the narrative although that is running into problems of its own. As the top altcoin, at least by market capitalization, it attacks a lot of attention. Transaction fees are still an issue, something that is to be addressed in future upgrades. One issue that is being discussed with greater frequency is the centralization of the chain. Since switching to Proof-of-Stake (PoS), we see a handful of wallets impacting the staking for block producers.
That said, noted cryptocurrency support, Raoul Pal, claims that Bitcoin lost its way. He is a big supporter of Etheruem after being all in on Bitcoin in the early days. This is an example of how the perspectives can change over time.
The altcoin world is facing some uphill battles regarding regulation.
Since it switched from Proof-of-Work to the Proof-of-Stake consensus mechanism, the Securities and Exchange Commission has repeatedly opined that Ethereum is now a security. This is in line with the long standing battle between the SEC and the cryptocurrency industry. The regulator has maintained that these digital assets are under its jurisdiction just like another other security.
Bitcoin is exempt from this since it was determined that the PoW mechanisms means it operates both like a currency and a commodity. This is something that both the SEC and CFTC have agreed upon.
Alcoins are going to have to prove their decentralization if they hope to get out from under the security laws. Those with large pre-mines or founder's stakes that still exert influence are likely going to have a difficult time. Regulation is being worked upon but we can surmise that entities issuing these types of assets, especially for sale, are going to have to register. This means Wall Street likely grabs a bigger foothold within the industry.
One of the major innovations coming from the altcoin sector is the emergence of stablecoins. These are tokens that are meant to maintain a peg. Most of these are asset backed with a reserve built. The best known of these are USDC and Tether, both of which are backed by US dollars along with US Treasuries.
Stablecoins can also be algorithmic such as the Hive Backed Dollar (HBD). Under this scenario each coin is backed by a pegged amount of the backing agent. Here stablecoin can be converted to $1.00 worth of HIVE. Ultimately, it comes down to the market capitalization of the asset that acts as the back.
Stablecoins seeks to step in where Bitcoin fell short. Due to the volatile nature of that asset, it makes it difficult to operate as a medium of exchange. It is also a problem in short term lending since borrowers putting up collateral that has major volatility is not at the top of things banks want.
At the moment, most stablecoins latch onto the price stability provided by the major central bank currencies such as the US dollar and EURO. This should allow for commerce using cryptocurrency to grow.
