The Rise of Altcoins, Courtesy Blockchain
Since Bitcoin’s launch in 2009, over a thousand other cryptocurrencies have been launched. With the recent Initial Coin Offering (ICO) frenzy amidst a meteoric rise in cryptocurrency prices, here’s what you need to know about Altcoins (cryptocurrencies other than Bitcoin) and how Blockchain technology underlies the rise of cryptocurrencies.
Blockchain technology has brought about a revolutionary change in how we store and transfer value.
The case for Altcoins
Bitcoin came about as a novel experimental decentralised cryptocurrency away from the reach of any central authority after the global recession of 2008. It was hailed as an answer to the grave problems that plague fiat money. Bitcoin established itself as a viable and secure, decentralised alternative to fiat money. It combined disparate technologies such as blockchain as proof of work. Though Bitcoin has definitely revolutionised money as we know it, it is not without its share of shortcomings. For example:
- A transaction on the Bitcoin network could take anywhere between a few minutes to many hours to get confirmed (to get validated by miners), depending on how much you pay as transaction fee.
- Miners (people who validate Bitcoin transactions using special processors) wield an inordinate amount of power and most mining is now centralised.
- The network quickly becomes sluggish as unconfirmed transactions (transactions which haven’t been validated by miners) pile up. Transactions could take forever to get confirmed once miners start mining other cryptocurrencies. It could take several months from the start of the mining for confirmations to pick up speed again. Mining for cryptocurrencies is a difficult process dependent on the processing power it takes to confirm transactions. Mining difficulty however, climbs down progressively.
- Finally, some gripe that Bitcoin is energy intensive and that it costs too much to transact with it (transaction fee).
Though solutions to these problems are in the works now, with many roundabouts and innovative ideas being proposed and already underway , Bitcoin is not a perfect cryptocurrency. This makes the case for Altcoins and provides alternative coins a window of opportunity to exploit. Altcoins offer differentiated features not seen with Bitcoin and solve some problems that Bitcoin is grappling with at the moment.
A chronicle of the rise of Altcoins
The very first Altcoins
Namecoin
In 2011, less than two years after the launch of Bitcoin, the first ever Altcoin called Namecoin was launched. This cryptocurrency used a protocol almost similar to the Bitcoin protocol, except that the Namecoin protocol allowed for information to be stored on its blockchain. The developers of Namecoin intended it to be used as a decentralised platform to store Domain Server Names (DNS) and make the internet censorship resistant. Though the project failed to catch on and fell apart, it set a precedent for other blockchain based cryptocurrencies.
Peercoin
In the same year, another cryptocurrency called Peercoin based on a different novel protocol called ‘proof of stake’ was launched. It allowed the coin owners to validate transactions based on the duration and value of their holdings, in a process that demanded much less energy than Bitcoin mining. Unfortunately, it failed to capture the imagination of the Bitcoin community.
Ethereum
Later on, Ethereum, an Altcoin, would go on to become the second most popular cryptocurrency, after unveiling plans to adopt the ‘proof of stake’ protocol.
Litecoin
Towards the end of the year 2011, Litecoin, a Bitcoin tweak, using a slightly different protocol than Bitcoin’s scrypt, launched as a complementary coin to Bitcoin. One could transact faster on the Litecoin network and mining was more decentralised as special processors offered little, if any, mining advantage. Litecoin is one of the top ten cryptocurrencies by market cap and is quite popular with Bitcoin enthusiasts.
Pseudo-decentralised cryptocurrencies
Ripple
In 2012, Ripple, an Altcoin, launched as a payments network between participating banks and financial institutions worldwide. Ripple Inc., a private corporation, issues this cryptocurrency. The coin has no public blockchain which is stored privately by banks and financial institutions. Not much about the inner workings of the coin is known, including how it is mined and how transactions are validated. Though Ripple is one of the top ten most valued cryptocurrencies, it has invited scorn and derision from the cryptocurrency community at large, because of its opaque nature.
Dash
In 2014, Dash, another cryptocurrency in the top ten list and a Bitcoin rip-off with certain added features, was launched. Dash offers instant transactions (on payment of increased fee), totally anonymous private transactions and faster transaction times. To make all of this possible, Dash uses a two tiered system to verify transactions – some transaction verifiers/validators are given special privileges to authorise instant and private transactions. Anyone who holds over a 1000 Dash can acquire this privilege. Also, transaction fees are distributed amongst these privileged users. This creates a pseudo-decentralised system with the concentration of power in the hands of a few.
Stealth coins – Totally anonymous Altcoins
In 2014, Monero, a totally anonymous cryptocurrency, was launched and quickly became a favourite among absolute privacy advocates and dark web drug markets. If you transact with Monero, nobody would ever know your identity as the monero blockchain doesn’t reveal your identity. Also, monero can’t be mined using special purpose processors making mining more decentralised.
Numerous spinoff coins based on the Monero protocol have been launched since then, though Monero is undoubtedly the most popular cryptocurrency offering absolute privacy.
Decentralised Blockchain applications – Ethereum
In 2015, a novel project that envisioned decentralised apps using the Blockchain technology. These apps turned into a reality with the launch of Ethereum. Just like the apps we use on phones and computers every day, the Ethereum blockchain allowed developers to build apps that differed from other apps only in that they were decentralised. This project has rightfully garnered much attention from the crypto community for the huge potential and promise it holds. For example, consider land records. In every region, a database of land records is maintained by a central authority. This system lends itself to abuse as any record can be changed easily as has happened in many instances of abuse of power. All such disputes and discrepancies can be resolved by a decentralised record maintained by many people and a fool proof technology to validate and add new records/transactions. All of this is made possible by a service like Ethereum. A lot of applications have been developed or are under active development on the Ethereum platform and many big corporations also contract the services of this project. The Ethereum ecosystem uses a common cryptocurrency called Ether which is the second most popular cryptocurrency, only next to Bitcoin.
The great ICO bubble
Following a lull year, cryptocurrencies became rockstar assets in 2017 following steep appreciation in value that reached staggering heights in response to a spate of positive developments. This spurred the launch of countless other cryptocurrencies and a whole new method of fundraising with no dearth for investors. Initial Coin Offerings (ICOs), as they are called, are used to raise funds by an issuing firm and investors are given cryptocurrency from a custom Blockchain created by the issuing party, equivalent to shares in the firm. Initially, when anyone could create a new Blockchain and launch an ICO without having to comply with regulations, a lot of ICOs launched every day as gullible investors poured money into these ventures. Most of these ICOs made good with the money prompting regulation agencies worldwide to either ban or set stringent norms for ICO launches. Thankfully, the craze has died down.
Moreover, Bitcoin has had its fair share of challenges in 2017 as two major hard forks (a process where a modified protocol is implemented on a cryptocurrency’s network) happened and one was thwarted. The two forked coins, Bitcoin cash and Bitcoin gold are also in the list of top ten cryptocurrencies by market cap. Bitcoin cash, especially, has emerged as a possible contender against Bitcoin for the coveted title of most popular cryptocurrency. It does look like things are unlikely to change anytime soon thanks to Bitcoin’s network effect and strong development community.
Many new cutting-edge and promising cryptocurrencies are being launched even now, gaining popularity and acclaim. From IOTA, a cryptocurrency that promises to be a solution for decentralised microtransactions, to Petro, an oil backed cryptocurrency launched by the state of Venezuela, the field of cryptocurrencies is blowing up exponentially. These are exciting times as cryptocurrencies redefine how we store wealth, trade value and give back power to its rightful owners – the people.
Definitions/ Terms to remember:
Altcoins: cryptocurrencies other than Bitcoin.
Miners: people who validate Bitcoin transactions using special processors.
Unconfirmed transactions: transactions which haven’t been validated by miners
Fork: a process where a modified protocol is implemented on a cryptocurrency’s network.