What’s Better: Bitcoin or Altcoins?
Undeterred by the proliferation of various digital assets in the market, Bitcoin continues to dominate the cryptocurrency landscape. Traders can take advantage of Bitcoin’s dominance to get a pulse of the market, manage risks, and identify possible trends and opportunities. Bitcoin is the first and most valuable cryptocurrency, but, as mentioned earlier, it’s not the only one out there. Every cryptocurrency that’s not the original Bitcoin is regarded as an alternative or altcoin. Altcoins provide higher returns but carry bigger risks, meaning they have a higher chance of failure, so choose your investments carefully.
Here’s a guide to help you explore Bitcoin and altcoins without falling in.
What Is Bitcoin?
Bitcoin, created by Satoshi Nakamoto, was the world’s first cryptocurrency, but it wasn’t the first attempt to create a digital, decentralized currency. Read a guide on how to buy Bitcoin to get all the knowledge you need to make an informed decision before purchasing. You can trade Bitcoin for other cryptocurrencies or physical currencies on different websites. Equally, you can exchange your Bitcoins for goods and services from a wide range of vendors. Transactions are verified by network nodes via cryptography and recorded on the public distributed ledger, i.e., the blockchain. Bitcoin was created as a way for people to send money over the Internet, operating free of central control. It’s unlikely that Bitcoin will replace existing currencies soon, even if it functions as legal tender in two countries.
The value of Bitcoin has slowly but surely increased over the years, so if Hanyecz had held onto his Bitcoin instead of buying pizza, it would have been worth a lot more today. Bitcoin fell more than 2% on Monday as traders became frightened by the potential liquidation plan of bankrupt exchange FTX. Liquidating a portion of the digital assets would help FTX regain its financial footing. If you’re looking to invest in Bitcoin to preserve capital or grow your assets, keep in mind that its price is highly volatile. There’s no certainty of a return on your money.
What Is an Altcoin?
An altcoin is an alternative cryptocurrency to Bitcoin. Altcoins are typically designed and released by developers who have a different vision or use for their tokens. Ethereum is the most valuable altcoin in terms of market capitalization. It was designed to allow peer-to-peer contracts and decentralized applications powered by Ethereum’s native token, Ether. Ethereum was conceived to complement Bitcoin, but the two cryptocurrencies ended up competing against one another. Ethereum transactions can be affixed with executable code, meaning they occur when certain conditions are met. Other examples of popular altcoins are Litecoin, Ripple, and Cardano.
Altcoins are meant to be more efficient or functional than Bitcoin, so it doesn’t come as a surprise that many have witnessed considerable growth with time. Both altcoins and Bitcoin use blockchain technology, but they vary in purpose, features, and operation. Prior to choosing an altcoin to invest in, take into account market capitalization, technological advancements, use cases and adoption, community support, and the regulatory environment. Litecoin, for instance, was adapted from Bitcoin’s open-source code, but it’s less energy-intensive and faster than Bitcoin. Stablecoins are altcoins that guarantee price stability within the cryptocurrency market. Although they provide lower returns than altcoins, stablecoins offer a more secure form of currency.
What Are the Similarities and Differences Between Bitcoin and Altcoins?
Given that cryptocurrencies are a relatively new technology, they’re mostly speculative, meaning there are risks involved before making an investment. Bitcoin and altcoins alike are volatile, which translates into the fact that their value can change unexpectedly as the price moves up or down. Several factors can increase the volatility of digital assets, including but not limited to regulatory announcements and geopolitical news. Altcoins don’t create inflation for Bitcoin because they represent a different asset class. There will only be 21 million Bitcoins, after which miners will earn income from transaction fees only. Bitcoin is largely considered a good inflation hedge.
To buy or sell Bitcoin and altcoins, you need a digital wallet. It doesn’t store the actual amount of cryptocurrencies but holds the private keys that allow you access to your holdings. You need a different wallet for different digital assets – a Bitcoin wallet for Bitcoin, an Ethereum wallet for Ethereum, a Cardano wallet for Cardano, and so on. Several altcoins have copied Bitcoin’s hard cap, such as Ripple, whose maximum supply is limited at 100 billion. The hard cap is the maximum number of tokens that can be produced, set in the code of the blockchain.
Bitcoin was launched in 2009, whereas the first altcoins emerged in 2011. The first altcoin to be introduced was Namecoin, a peer-to-peer naming system based on Bitcoin. Created in April 2011, Namecoin is used to protect domain name servers by embedding them on the distributed ledger. Bitcoin has been around longer than any other cryptocurrency. The first Bitcoin purchase was in 2010 when Florida-based Laszlo Hanyecz traded 10,000 Bitcoins for two pizzas from the local store. Indeed, Bitcoin is the oldest surviving cryptocurrency, but it’s not the first one. The first cryptocurrency was eCash, developed by David Chaum to transfer funds anonymously.
Investing in digital assets, whether Bitcoin or altcoins, is an excellent way to diversify your earnings, as they have yielded high returns in the past. Nevertheless, it’s important to understand that it entails risks. The decision to hold Bitcoin or altcoins depends on your investment goals, risk tolerance, and tax considerations. Bitcoin has a long track record, which might help you get a better understanding of how it performs in different economic backgrounds. It’s viewed as a store of value because it’s limited in supply and doesn’t deteriorate with time. Be honest with yourself. Do you genuinely believe that Bitcoin will have value in the long run?
Altcoins are innovative projects that address distinct needs within the cryptocurrency ecosystem. The smaller ones have the potential to provide exponential returns on the investment, so ensure you choose the right one. Monero, for instance, can be used to achieve anonymity and fungibility – it’s impossible to decipher trading addresses, transaction amounts, or transaction histories. There’s always the possibility that an altcoin could overtake Bitcoin, but one can predict the future. You should be prepared.