Bitcoin has not only been a trendsetter, ushering in a wave of cryptocurrencies built on a decentralized peer-to-peer network, but also has become the de facto standard for cryptocurrencies, inspiring an ever-growing legion of followers and spinoffs.
- A cryptocurrency, broadly defined, is a form of digital tokens or “coins” that exist on a distributed and decentralized ledger called a blockchain.
- Beyond that, the field of cryptocurrencies has expanded dramatically since Bitcoin was launched over a decade ago, and the next great digital token may be released tomorrow.
- Bitcoin continues to lead the pack of cryptocurrencies in terms of market capitalization, user base, and popularity.
- Other virtual currencies such as Ethereum are being used to create decentralized financial (DeFi) systems.
- Some altcoins are being endorsed as having newer features than Bitcoin, such as the ability to handle more transactions per second or use different consensus algorithms like proof of stake.
What Are Cryptocurrencies?
Before we take a closer look at some of these alternatives to Bitcoin, let’s step back and briefly examine what we mean by terms like cryptocurrency and altcoin. A cryptocurrency, broadly defined, is virtual or digital money that takes the form of tokens or “coins.” While some cryptocurrencies have ventured into the physical world with credit cards or other projects, the large majority remain entirely intangible.
The “crypto” in cryptocurrencies refers to complicated cryptography that allows for the creation and processing of digital currencies and their transactions across decentralized systems. Alongside this important “crypto” feature of these currencies is a common commitment to decentralization; cryptocurrencies are typically developed as code by teams who build in mechanisms for issuance (often, although not always, through a process called mining) and other controls.
Cryptocurrencies are almost always designed to be free from government manipulation and control—although, as they have grown more popular, this foundational aspect of the industry has come under fire. The cryptocurrencies modeled after Bitcoin are collectively called altcoins, and in some cases shitcoins, and have often tried to present themselves as modified or improved versions of Bitcoin. While some of these currencies may have some impressive features that Bitcoin does not, matching the level of security that Bitcoin’s networks achieve largely has yet to be seen by an altcoin.
Below, we’ll examine some of the most important digital currencies other than Bitcoin. First, though, a caveat: It is impossible for a list like this to be entirely comprehensive. One reason for this is the fact that there are more than 8,000 cryptocurrencies in existence as of December 2021.1 While many of these cryptos have little to no following or trading volume, some enjoy immense popularity among dedicated communities of backers and investors.
Beyond that, the field of cryptocurrencies is always expanding, and the next great digital token may be released tomorrow. While Bitcoin is widely seen as a pioneer in the world of cryptocurrencies, analysts adopt many approaches for evaluating tokens other than BTC. It’s common, for instance, for analysts to attribute a great deal of importance to ranking coins relative to one another in terms of market capitalization. We’ve factored this into our consideration, but there are other reasons why a digital token may be included in the list.
Types of Crypto
Cryptocurrencies are intended to be used for payments, transmitting value (akin to digital money) across a decentralized network of users. Many altcoins (i.e., not bitcoin or sometimes ether) are classified in this way and may sometimes be called value tokens.
There are also blockchain-based tokens that are meant to serve a different purpose from that of money. One example could be a token issued as part of an initial coin offering (ICO) that represents a stake in a blockchain or decentralized finance (DeFi)project. If the tokens are linked to the value of the company or project, they can be called security tokens (as in securities like stocks, not safety).
Other tokens have a particular use case or function. Examples include Storj tokens, which allow people to share files across a decentralized network, or Namecoin, which provides decentralized Domain Name System (DNS) service for Internet addresses.23 These are known as utility tokens.
Today, while many users of crypto understand and appreciate these differences, traders and lay investors may not notice the difference, as all categories of token tend to trade in the same way on crypto exchanges.
1. Ethereum (ETH)
The first Bitcoin alternative on our list, Ethereum (ETH), is a decentralized software platform that enables smart contracts and decentralized applications (dApps) to be built and run without any downtime, fraud, control, or interference from a third party. The goal behind Ethereum is to create a decentralized suite of financial products that anyone in the world can freely access, regardless of nationality, ethnicity, or faith.4 This aspect makes the implications for those in some countries more compelling, as those without state infrastructure and state identifications can get access to bank accounts, loans, insurance, or a variety of other financial products.
The applications on Ethereum are run on ether, its platform-specific cryptographic token. Ether (ETH) is like a vehicle for moving around on the Ethereum platform and is sought mostly by developers looking to develop and run applications inside Ethereum, or now, by investors looking to make purchases of other digital currencies using ether. Ether, launched in 2015, is currently the second-largest digital currency by market capitalization after Bitcoin, although it lags behind the dominant cryptocurrency by a significant margin.5 Trading at around $4,000 per ETH as of December 2021, ether’s market cap is just over half that of bitcoin.6
In 2014, Ethereum launched a presale for ether, which received an overwhelming response; this helped to usher in the age of the ICO. According to Ethereum, it can be used to “codify, decentralize, secure and trade just about anything.” Following the attack on the decentralized autonomous organization (DAO) in 2016, Ethereum was split into Ethereum (ETH) and Ethereum Classic (ETC).7
In December 2020, Ethereum transitioned its consensus algorithm from proof of work (PoW) to proof of stake (PoS).8 This move is intended to allow Ethereum’s network to run itself with far less energy and improved transaction speed, as well as to make for a more deflationary economic environment. PoS allows network participants to “stake” their ether to the network. This process helps to secure the network and process the transactions that occur. Those who do this are rewarded ether, similar to an interest account.9 This is an alternative to Bitcoin’s PoW mechanism, where miners are rewarded more BTCs for processing transactions.10
2. Litecoin (LTC)
Litecoin (LTC), launched in 2011, was among the first cryptocurrencies to follow in the footsteps of Bitcoin and has often been referred to as “silver to Bitcoin’s gold.”11 It was created by Charlie Lee, an MIT graduate and a former Google engineer.
Litecoin is based on an open-source global payment network that is not controlled by any central authority and uses Scrypt as a PoW, which can be decoded with the help of consumer-grade central processing units (CPUs). Although Litecoin is like Bitcoin in many ways, it has a faster block generation rate and hence offers a faster transaction confirmation time.
Other than developers, there are a growing number of merchants that accept Litecoin. As of December 2021, Litecoin has a market capitalization of $10 billion and a per token value of around $148, making it the 18th-largest cryptocurrency in the world.12