Types of Cryptocurrencies - Altcoins

The blockchain brings together the three main types of cryptocurrency. Bitcoin was the first blockchain which we already discussed.

After Bitcoin, many new blockchains were created — these are called altcoins. NEO, Litecoin, and Cardano are solid examples of altcoins.

Altcoins

Currently, there are more than a thousand altcoins in existence. But don’t let that number scare you — the majority of altcoins are just alternate versions of Bitcoin with minor changes. That’s how they got the name ‘altcoins’.

It’s important to understand, though, that not all altcoins are just alternate versions of Bitcoin. There are some that are very, very different from Bitcoin, and have very different goals/purposes.

Some altcoins use different algorithms for Bitcoin. For example, Factom is an altcoin that uses PoS (Proof-of-Stake). In PoS, there are no miners. Instead, there are stakers.

Stakers are people that verify transactions for rewards, as miners do. But instead of racing to verify a block before anyone else does, they are selected one by one to take their turn. This uses much less electricity because they aren’t thousands of miners using their electricity to try and verify the same block. Instead, there is just one ‘staker’ per block.

Take note - not all altcoins are similar to Bitcoin.

In fact, Ethereum and NEO are examples of altcoins that are very different from Bitcoin. We’ve discussed Bitcoin is used as a digital currency. On the other hand, Ethereum and NEO were designed as huge platforms for building apps on a blockchain.

That’s right — on Ethereum and NEO, you can actually build your own applications. This is the most common way that new cryptocurrencies are created; they are made on blockchains that allow app building.

This is all possible because Ethereum introduced new technology to the crypto world when it launched in 2015. This technology is called a smart contract. A smart contract can automatically execute transactions when certain things happen.

These ‘things’ (also called conditions) are written into the smart contract when it is created. For example, a condition could be something like “WHEN Peter sends 120 Ether into the smart contract, THEN John’s house will be sent to Peter”.

Because of smart contracts, no third party is needed. In Bitcoin’s case, it means there is no third party needed in direct payments. With smart contracts it means there is no third party needed for a variety of things — like the sale of a house, the sale of electricity, or the sale of stock on the stock market.

Of course, you can’t actually put electricity into a smart contract. So, instead, you put a token into the smart contract that legally represents the electricity. This is one of the best things about smart contracts on Ethereum, NEO, and similar altcoins — you can tokenize real things and put them on the blockchain.