Bitcoin is still the world’s most popular cryptocurrency, the largest by market capitalization, and the asset with the highest market dominance (54.3%). BTC was introduced by the anonymous Satoshi Nakamoto and intended as a peer-to-peer (P2P) payment system to disrupt traditional finance by enabling the transfer of funds between users without middlemen.
Nearly 15 years later, Bitcoin has a market cap above $1.3 trillion and has ushered in the altcoin market with several thousand options. Bitcoin has also evolved from a simple P2P cash system to a cryptocurrency that supports several industries.
For instance, gamblers in the crypto community will often find that many casino brands that offer Plinko accept crypto deposits, so players can enjoy exciting gambling experiences by making deposits, placing bets, and withdrawing earnings in BTC.
Another popular example is the simple use of the world’s king coin to replace fiat payments in all kinds of day-to-day transactions, from ordering fast food to shopping online for flights and hotels.
Notwithstanding Bitcoin’s success, anyone interested in dealing with cryptocurrencies, whether as a store of value or a medium of exchange, must also understand altcoins and how they function in the crypto sector.
Understanding Bitcoin and Altcoins
Nakamoto introduced Bitcoin in 2009 as the world’s first decentralized digital asset. Bitcoin democratized money, allowing people continuous public access to the blockchain and ensuring privacy since all transactions are verifiable. In addition, Bitcoin’s immutability reduces the chance of fraud because transactions recorded on the blockchain cannot be edited or deleted.
Altcoins (alternative coins) have the same functionalities, as many operate on public and secure blockchains. Altcoins also allow P2P transactions, cutting out the middleman problem traditional finance faces. These alternative assets were created to improve Bitcoin’s limitations and offer expanded use cases, like staking and smart contracts, some of which are still unavailable on the Bitcoin blockchain.
Differences Between Bitcoin and Altcoins
Despite their many characteristics, there are several significant differences between Bitcoin and altcoins. For instance, while Bitcoin mostly operates on the Bitcoin blockchain, several altcoins are available on multiple blockchains for easier access and interoperability.
Another significant difference is the consensus mechanism used. Bitcoin applies Proof of Work (PoW), a consensus mechanism that requires miners to validate transactions, secure the network, and produce new coins by solving complex mathematical problems.
On the other hand, altcoins employ different consensus mechanisms depending on the specific goals and design choices of their networks. A popular option is the Proof of Stake (PoS) mechanism that allows approved validators to confirm transactions and create new blocks based on the number of coins they have and can stake.
Bitcoin and altcoins also differ by supply model. The Bitcoin network has a finite supply of 21 million, while altcoin specifications vary. For instance, Ethereum has no maximum supply but employs mechanisms that help to limit inflation. However, Litecoin (LTC) has a maximum supply of 84 million, while ADA’s hard cap is 45 billion.
Benefits of Bitcoin
Members of the Bitcoin community enjoy several benefits, including the following:
- Security: The Bitcoin network enjoys heightened security from blockchain’s transparency and immutability, like altcoins. However, the PoW mechanism Bitcoin applies, as well as the network’s large number of miners, increases security and significantly reduces the likelihood of an attack.
- Liquidity: Bitcoin is the most liquid cryptocurrency as it is the most traded and recognized option. The high liquidity makes it easy for users to buy and sell BTC without worrying about availability. This feature also makes Bitcoin accessible on nearly all crypto exchanges globally.
- Decentralization: Since Bitcoin is fully decentralized, the risk of censorship or undue control of the network is significantly reduced. No single entity controls the network and can launch a 51% attack.
Drawbacks of Bitcoin
- Scalability: The Bitcoin network struggles with scalability much more than other crypto blockchains. The network can only process 7 transactions per second, a stark contrast to altcoin networks like Solana (SOL) which can handle up to 65,000 per second. Although solutions like the Lightning Network have been developed to improve the blockchain, Bitcoin’s scalability still pales compared to others.
- Cost-Intensive: Unfortunately, Bitcoin mining is very costly. First, miners must buy or rent expensive and complex machinery capable of solving the math problems required to mine Bitcoin. Second, these machines consume a lot of energy, raising environmental concerns in most countries. According to a 2023 estimate, annual Bitcoin electricity consumption worldwide is higher than in countries like Norway.
- Centralization Risk: Although Bitcoin is highly decentralized, there are concerns that mining efforts are concentrated in specific regions, increasing centralization risks. The existence of a limited number of mining pools may risk Bitcoin’s security as it limits decentralization.
Benefits of Altcoins
- Innovation: Innovation is a central point of altcoins since many were focused on improving Bitcoin. For instance, alternative earning methods, including staking and yield farming, common among altcoins, are unavailable on the Bitcoin network. In addition, Bitcoin has no native support for smart contracts, which are essential to decentralized finance (DeFi).
- Energy Efficiency: Most altcoins, especially the options that apply the PoS mechanism, are not energy-intensive and have a lower effect on the environment.
- More Use Cases: Several altcoins are designed for more use cases than Bitcoin can handle. For instance, people worried about privacy can use Monero (XMR), while organizations in the supply chain management sector can consider VeChain. Other use cases include governance, tokenization of real-world assets (RWAs), and crypto gambling.
- Scalability: Altcoin networks are highly scalable, especially with the introduction of sidechains and L2 networks. This expands their use cases, allowing them to support millions of cross-border transactions.
Drawbacks of Altcoins
- Liquidity: Although popular options like ETH or EXP are highly liquid, many others struggle with liquidity. This could considerably impede adoption, as buying or selling large quantities would be difficult. With low trading volumes, some altcoins cannot compete favorably in the industry.
- Market Acceptance: The crypto market is sometimes reluctant to support new altcoins. Since several thousand options are already trading in the market, users may be unwilling to interact with new blockchains and tokens.
- Security: Bitcoin’s security enjoys an extensive network of miners. For altcoins, the lack of mining power or reduced number of participants securing the network via staking could be detrimental to security in the long run.
