Altcoins were the first cryptocurrency to be described other than Bitcoin (BTC). This was because there was an increase in projects that copied and pasted Bitcoin’s source code. In the early days of cryptocurrency, there wasn’t enough uniqueness to warrant a distinct term. Therefore, “altcoin” (alternative currencies) was chosen. Due to Bitcoin’s potential progress, the community didn’t give much thought to other cryptocurrencies — its future price rise, use cases, mainstream adoption, and so on. It was the most prominent head in crypto.
Things changed when Ethereum’s smart contracts platform was discovered. It can produce “smartcontract tokens”, cryptocurrencies that are capable of performing intelligent tasks independently.
This allowed the community to differentiate altcoins and tokens. Altcoins are coins with their own blockchain. Tokens are cryptocurrencies that have been created using smart contract platforms. Another factor is the rapid growth of many blockchain projects, which are decreasing Bitcoin’s dominance.
As new interesting projects emerged, the community began to notice weaknesses in Bitcoin’s relationship to other coins. This prompted the crypto world to reconsider how it views cryptocurrencies.
Every altcoin is unique in that it offers a unique set features, such as transaction management and scripting language. Altcoins may have superior features than Bitcoin, but their value remains dependent on Bitcoin’s market capitalization.
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This community began to imagine a world in which many cryptocurrencies, and not just Bitcoin could disrupt the world. With Ether (ETH) dominance on the market, it is clear that Ethereum has become the leader in crypto innovation. The majority of tokens are Ethereum ERC-20 smart contract tokens. This means that the way token miners classify their projects is easily accepted by the community.
Ethereum’s role within crypto classifications
The Ethereum ecosystem is responsible to every cryptocurrency advancement and mainstream interest. It started with initial coin offerings (ICOs), which disrupted traditional initial public offerings by allowing anyone to purchase a project’s coin immediately after its launch. ERC-20 tokens were created by developers to make their next cryptocurrency Ethereum-based. This gave crypto users an incentive to find out more about the technology. Our human nature is called upon to help us categorize and associate things with the wide range of ERC-20 tokens.
Because it is ambiguous, the term “altcoin”, which was once acceptable for defining a project, is not acceptable anymore. This is especially true with Decentralized Finance (DeFi). People want to know the type of coin it’s, such as a stablecoin, liquidity mining coin or crypto derivative. They are aware that cryptocurrency can do more than just send and receive payments.
“Meme tokens,” have also been added to the crypto vocabulary.
Due to Elon Musk’s tweets about Dogecoin, “Meme token” has become a familiar term for crypto users. The crypto community needed to distinguish between tokens or meme tokens because cryptocurrencies can be highly intellectual. A token based on social media content could have a significant impact on how the crypto sector is perceived. Therefore, a second classification was needed.
The rise in nonfungible tokens (NFTs), has shown that the crypto community is open to learning new definitions and joining. Imagine NFTs being called altcoins. They technically are. However, there is so much more that NFTs have that makes them different. NFTs are ERC-721 tokens. The community recognizes their capabilities. They are designed to make cryptocurrency unique and ensure that no two tokens have the same value.
Similar: DeFi, Web 3.0: Let your creative juices flow with decentralized finance
Another term added to the crypto dictionary is “GameFi” which refers to gaming DeFi. It combines blockchain technology with NFTs, liquidity miners and other DeFi protocols. It results in games that allow people to trade crypto and earn real cryptocurrency. GameFi is still in its infancy, so it’s possible that GameFi will become popular and lead to more classifications.
The crypto community is becoming smarter
The collective knowledge of crypto is growing rapidly. Content creators, YouTubers, and influencers are skilled at translating complex terminology into simple-to-understand information. It is well-known that accurately classifying cryptocurrency increases your chances of finding new projects. Telling someone, for example, that a revolutionary NFT can be just an altcoin could influence their first impressions and make the NFT less valuable.
It is easier to compare cryptocurrencies if they are classified. It is important to understand what cryptocurrencies are and whether they are being used by others. You can’t compare Dash with ADA. Dash is a payment cryptocurrency. ADA is the utility token for a proof-of–stake smart contract platform.
Another reason for the failure to classify Bitcoin vs. other altcoins was the different correlations between BTC, and other coins. Some pairs have a high correlation, while others show a weaker dependence on one another. ADA and XRP have a lower correlation to other digital assets. Additionally, stablecoins like Tether (USDT), show negative correlations.
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Diversification can also be achieved through classifications. It is possible to have your crypto divided among several coins. However, the expression “don’t put your eggs in one basket” may be applicable if all of your coins fall under the same classification.
There are many new crypto concepts emerging. However, it is possible to still include all of them — DeFi and GameFi as well as NFTs, meme tokens, etc. — under the umbrella altcoins. Many traders believe altcoins will see a higher return than Bitcoin in the future. However, there may be a weaker consensus than with Bitcoin.
As a Bitcoin maximumist and CEO of a cryptocurrency exchange, I am happy to see more classifications emerge, since the industry cannot achieve mass adoption using Bitcoin alone.
This article is not intended to provide investment advice. Every trade and investment involves risk. Readers should do their research before making any decision.
These views, thoughts, and opinions are solely the author’s and do not necessarily reflect the views or opinions of Cointelegraph.
KuCoin is a cryptocurrency exchange that was founded in 2017 by Johnny Lyu. He had extensive experience in the luxury, automotive, and e-commerce industries before joining KuCoin.
Eileen Wilson –Technology and Energy
My Name is Eileen Wilson with more than 5 years of experience in the Stock market industry, I am energetic about Technology news, started my career as an author then, later climbing my way up towards success into senior positions. I can consider myself as the backbone behind the success and growth of topmagazinewire.com with a dream to expand the reach out of the industry on a global scale. I am also a contributor and an editor of the Technology and Energy category. I experienced a critical analysis of companies and extracted the most noteworthy information for our vibrant investor network.