More commonly referred to as “altcoins”, these are cryptocurrencies which have been created after Bitcoin and which, for the major part, are very similar to Bitcoin or are merely outright copies of the same. One of the most popular altcoins, Litecoin, by and large follows the same specifications of Bitcoin, with the two major differences being the mining algorithm used (Bitcoin uses the SHA-256 mining algorithm, whereas Litecoin uses the Scrypt algorithm) and the confirmation times (10 minutes for Bitcoin, 2.5 minutes for Litecoin). Litecoin has also soared to such a difficulty that it can no longer be profitably mined through the use of a normal laptop or desktop computer.
Up until 2013, there were only a handful of altcoins, with the most notable ones being Peercoin, Namecoin, and Ripple.
Peercoin was the first ever cryptocurrency to depart from Bitcoin’s “Proof-of-Work” method and incorporate a much more energy-efficient block confirmation and consensus system named “Proof-of-Stake” (PoS). In PoS, the incentive for people to secure the network is simply to hold a “stake” in the cryptocurrency, i.e. hold a number of coins in your wallet, and after a period of time, participate in the race for solving the next block. However, PoS has been criticised for being less secure than PoW, since if a small group of people were to hold the majority of coins, notwithstanding the fact that the “miner” chosen to forge the new block is based on an element of randomness, they could potentially be in a position to double-spend.
Namecoin touts itself as freeing Domain Name Servers (DNS) in the same way as Bitcoin has freed money. In a nutshell, Namecoin aims to combat censorship and uses the “.bit” domain, which is similar to “.net” and “.com” but is not subject to governance from ICANN, ergo the Internet Corporation for Assigned Names and Numbers. In an even smaller nutshell, Namecoin’s main aim is to offer secure websites free from the threat of censorship and other imposed controls.
Ripple is quite different from Bitcoin in that it is a centralised cryptocurrency, but focusing on it as just another currency would be similar to missing the forest for the trees. Ripple offers a payment system very similar to an IOU-system, where users can conduct instantaneous electronic transactions by logging onto the Ripple system, requesting that money (or any other commodity or object) is sent to another person, and the transaction takes place via the so-called gateways. In essence, this is how it works: Chris wants to send money to Tania. Chris logs onto a Ripple gateway, requests a transfer of 10 Euro from him to Tania, and Tania can withdraw the money from her Ripple gateway instantaneously. Instead of such transactions being handled by physical agents, these can be conducted electronically with such gateways/servers acting as validators of the transaction, which transaction can be checked and verified on a public ledger similar to that used by Bitcoin. The beauty of it is that it’s not just money which can be transferred, but anything of value.
Riding the Bitcoin rocket
Following the explosion in Bitcoin’s value in 2013, prospectors set out to discover the “next Bitcoin” and in doing that, incentivised others to create their own cryptocurrency in the hope that it would soar in value in the same manner as Bitcoin. This led to the birth of hundreds of altcoins, most of which died within a few days of their creation due to various reasons. The majority of altcoins are carbon copies of Bitcoin, with a few tweaks here and there to some parameters such as block calculation times. With the craze over cryptocurrencies rapidly peaking at the time, scams were plentiful and a term was coined (excuse the pun) for those currencies which were created for the sole reason of making a quick profit: pump-and-dump coins. Most of these coins were announced on the most active Bitcoin forums, and miners shifted their attention from Bitcoin onto new altcoins, especially due to the fact that such coins could potentially be “pumped” by 1000% or more over a few hours due to their relatively small market cap when compared to Bitcoin. Therefore, such currencies could easily go from 200,000 EUR in market cap to a staggering 2,000,000 EUR market cap in less than 24 hours!
However, there were a few noticeable gems in such a rubbish heap. Mintcoin was the first cryptocurrency to propose Proof-of-Work block-confirmation and then switch to Proof-of-Stake after a period of time. Unfortunately the execution was ill-thought, although a later coin built on the same concept, Blackcoin, enjoyed quite a higher level of success, with both coins still operative to this very day. Another currency, Myriadcoin, employed a clever multi-algorithm confirmation system which promised to distribute mining power evenly between 5 different types of algorithms, each “mineable” through different and separate machines (ASICs, GPUs, CPUs). Again, the idea did not take off and was employed by other currencies to better acclamation by the community.
One of the most controversial cryptocurrencies ever was launched in December 2013, and used a Shiba Inu as its mascot. Dogecoin was initially created as a joke, with bitcointalk users quickly jumping on the gravy train and sending it freely between them to make light of the altcoin fad. In less than a month, Dogecoin grew from a joke to a currency which threatened Litecoin’s market cap and in fact held the position of the third largest cryptocurrency for a long period of time. The doge meme also ran rampant on social media, which helped fuel the growth of Dogecoin.
Fast-forward 4 years and one can appreciate quite some significant changes in the altcoin world. The previous king has been dethroned, with Litecoin losing its silver stand to Ethereum and even losing out to Ripple. Namecoin, Peercoin and other early alts have also steadily lost their value, although not their innovative edge which still serves as a basis for quite a few modern altcoins. New fads and trends, such as anonymous coins, “national” coins, and Proof-of-Stake coins have come and gone, but as of yet, no altcoin has come even remotely close to perturbing Bitcoin, namely due to the fact that no altcoin has yet offered a ground-breaking innovation which would incentivise people to switch from Bitcoin.
Altcoins proved to be a double-edged sword in the cryptocurrency world; they have tested the ground for innovations or have stretched the boundaries of Bitcoin to breaking-point, effectively creating a path for further development of Bitcoin. However, they have also divested Bitcoin of mining power, and the major altcoins have even gone as far as to temporarily divert the attention from Bitcoin. Will there be a new king some time in the future? Only time will tell.