Finance

Bitcoin, Altcoin, Stablecoin. Which Does What?

Bitcoin, Altcoin, Stablecoin. Which Does What?

Let’s start with the majority’s favourite first – Bitcoin! This cryptocurrency saw its first block being mined on January 3rd, 2009, marking its official launch. The world’s largest cryptocurrency’s inception marked the opening of a genuine Pandora’s box of creativity that would lead to the creation of an entirely new sector. It also initiated a new approach to money by proposing a decentralised system that addresses the shortcomings of centralised institutions and acts as a hedge against inflation. 

Nowadays, Bitcoin (BTC) is a worldwide phenomenon, and its impact on digital assets’ has made it synonymous with the currency movement itself. However, there’s more to crypto than just Bitcoin – you can nowadays take advantage of altcoins and stablecoins, too.

To understand cryptocurrencies and different investment options, grasping the difference between Bitcoins, altcoins, and stablecoins is a good start. 

Understanding Bitcoin

The anonymous developer or group of developers named Satoshi Nakamoto considered that the conventional, traditional financial system is prone to fail due to its dependency on governments and central banks. Therefore, they’ve achieved the dream of computer scientist and cryptographer David Chaum. 

Chaum initiated the “blinding signature” protocol as a data encryption method, so he is credited with laying the technological and intellectual protocol for Bitcoin. 

Thanks to developers’ and miners’ work, you can today easily benefit from cryptography in the financial system by checking the Bitcoin price today, adding some to your investment portfolio, and transferring or storing it, hoping you’ll get a return on your investment. Expert traders and investors get hold of this cryptocurrency for its long-term ROI, as a storage method, or because Bitcoin payments are gaining ground worldwide. 

Note that Bitcoin isn’t unlimited, and there will only be 21 million Bitcoins. However, it’s not the only cryptocurrency with a hard cap; Monero (XMR) and Ripple’s XRP are other examples of limited-supply digital coins. Why can’t there be more than 21 million Bitcoins?

One of the most common theories used to explain this fact relates to scarcity and inflation control. An unlimited supply of coins can lead to inflation, and to control it, Satoshi embedded a fixed supply of the virtual currency into the network’s code. How is this impacting Bitcoin’s value? Well, since it works approximately like gold and is a scarce asset, its price may grow in the future. However, this isn’t a guarantee, so use common sense and make unbiased decisions when investing in assets. 

Understanding Stablecoins

A currency is most useful as a store of value or medium of exchange. Stablecoins, as their name suggests, focus on guaranteeing cryptocurrency stability. These are cryptocurrencies tied to another financial instrument, commodity, or currency. They aim to offer an alternative to Bitcoin’s or other cryptocurrencies’ volatility by pegging their market value to some external reference, like gold’s price or the U.S. dollar.  

Since Tether (USDT) launched in 2014 as the first stablecoin, the list has grown to embrace Binance USD (BUSD), True USD (USDT), USD Coin (USDC), Dai (DAI), and more. 

However, since stablecoins are built on the idea of decreased volatility, prices may not skyrocket. You can get some and forget to check on them. This also means you will not feel ecstatic when you check the price of Bitcoin and see that it has increased quite a bit. 

It would be best if you also kept in mind that certain parties have the power to manipulate stablecoins’ price factors, since they’re centralised, unlike Bitcoin.

And as surprising as it may sound, not every stablecoin is “stable”. Different networks use different methods to preserve a stable value, and not all are effective.

Bitcoin vs Stablecoin 

Bitcoin is an easily accessible and versatile currency, saving time as it only takes a few minutes to be transferred to someone else. When using Bitcoin, you can stay anonymous because you are identified by numerical codes. Each transaction is secured by a public key and there’s no third-party or public tracking implicated in the processes. Bitcoin prices fluctuate dramatically over time due to substantial volatility. As a result, it has a high return potential.

On the other hand, stablecoins are suitable for storing crypto profits, as they’re unlikely to lose value. They differ from the uncontrollable, impossible-to-manipulate Bitcoin because they can be monitored on centralised platforms by a third party.

Understanding Altcoins

Namecoin, the first altcoin in history, was launched two years after Bitcoin and was a copy of the BTC blockchain. Altcoins are usually described as any cryptocurrency other than Bitcoin and were created as an alternative to the giant BTC. They rely on blockchain, like any digital currency, and have dominated the market ever since. There are thousands of altcoins, yet, they have different functions. 

Most altcoins are focused on specific use cases, including financial products like borrowing/lending platforms, exchanges, protocols, or decentralised computational platforms. 

Unlike Bitcoin, altcoins seek fast innovation and to accomplish their purpose in a centralised manner. However, due to the desire for innovation, their prices tend to fluctuate significantly, making them less suitable for conducting transactions and storing wealth. 

Ethereum, Namecoin, and USD Coin are some examples of altcoins. There are several types of them, including:

  • Stablecoins
  • Governance tokens
  • Staking-based coins
  • Mining-based coins.

Pay attention! Only some altcoins are secure; you may sometimes stumble upon scams or projects that end up failing. Also, many altcoins are available on certain exchanges, and some can be difficult to buy. 

To sum up

Bitcoin was created to address issues that arise from centralised finance. Increasingly more institutions recognize it as a powerful financial tool and technology. It’s become a standard means of exchange in some economies while others embrace it while learning about it. It can also be a safe bet for newbies who want to dive into the crypto world but need more expertise.

Two years after Bitcoin’s inception, Namecoin was launched to improve the BTC system. However, it failed but raised hope for other altcoins, like Ethereum. Because of the emphasis on innovation, altcoins are frequently vulnerable to price volatility. 

And some stablecoins are among the most discussed topics in the crypto industry. They’re designed to be stable, but only some stablecoins live up to their name. 

While stablecoins’ value often stays the same, altcoins’ value can rise or fall. 

About the author

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Mike K. Watson

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