Bitcoin, Altcoins, and Stablecoins: What is the Difference Between Digital Coins?
Bitcoin, Altcoins, and Stablecoins: What is the Difference Between Digital Coins?
Just ten years after Bitcoin was began trading on exchanges, the digital economy is literally flooded with different types of digital coins. An unprepared reader interested in the cryptoindustry often has questions about the advisability of so much digital money.
In this text, we will briefly and clearly tell you what the cryptocurrency market is rich in, as well as why the current variety of electronic coins appeared.
Content
Briefly about the history of cryptocurrency
Bitcoin - gold in the cryptocurrency market
Main characteristics of bitcoin
What is the price of stable coins tied to?
Briefly about the history of cryptocurrency
Back in 2008 the first cryptocurrency appeared and was named Bitcoin. Its anonymous developer Satoshi Nakamoto submitted a program file that described the features of using a digital coin as a P2P payment system.
Two years later, bitcoin became a key asset of the first cryptocurrency exchange Mt. Gox., Which made it possible to exchange it for fiat (government) money. The exchange lasted until 2014 and was closed with a scandal that resulted in the theft of almost 744,000 BTC from users' personal wallets.
In parallel with this, the emission of other cryptocurrencies began. Some of them exist to this day, but most have failed to overcome the barrier of user trust.
A loud event in the cryptoindustry was the launch of the Ethereum coin on the blockchain of the same name. Its developer, Vitalik Buterin, managed to create a more flexible blockchain that opened up new opportunities for users.
Today, there are more than 7,000 cryptocurrencies that are represented by bitcoin, privacy coins, stablecoins and other types of digital assets.
Bitcoin - gold in the cryptocurrency market
Today, bitcoin is not only the first cryptocurrency, but also the most successful of the existing ones. Its capitalization is over USD 200 billion, and the daily trading volume on exchanges exceeds USD 25 billion. At the time of this writing, the price of bitcoin was $ 12,000, which makes it the absolute record holder among other electronic coins.
But why then do we need other cryptocurrencies? The description of the characteristics of bitcoin will help partially answer this question.
Main characteristics of bitcoin
The BTC blockchain consists of 1 MB blocks. At the beginning of work, this volume was enough to quickly carry out transactions. However, with the growing number of network users, large amounts of digital money began to be transferred more slowly between wallets.
On the other hand, Bitcoin mining (production) becomes more complicated and costly over time. If until 2015 it was possible to mine a coin at home using a small cryptocurrency farm for 4-6 video cards, today this process requires literally prohibitive capacities and takes place in giant mining pools consisting of thousands of GPUs.
Thus, for all the success of bitcoin, it still has some technological bugs.
What is altcoin
Solving some of the problems of cryptogold (and also allowing some development groups to enrich themselves) allowed the creation of other cryptocurrencies. In simple terms, an altcoin is generally any cryptographic currency that is not bitcoin (literally, an alternative coin).
There are a huge number of them, and some of them are very durable and successful.
Why altcoins appeared
Not all digital money was created in order to offer a high-quality alternative to BTC in technical terms. Some of them should be perceived as an alternative to the massiveness of bitcoin, because, with the growth of its price, it has become very unattainable for a common man in the street.
Basically, alternative cryptocurrencies have become popular in narrow financial ecosystems to pay for a specific group of goods and services.
Perhaps, only the Bitcoin Cash coin, which is a fork of BTC, was able to qualitatively change the Bitcoin bugs. What is a fork? Let's take a closer look.
Bitcoin forks
A fork of a cryptocurrency is a fork of its blockchain, which results in another currency. The first altcoins were Bitcoin forks. The aforementioned Bitcoin Cash (BCH) is also a bitcoin hard fork. This means that the BCH blockchain does not have backward compatibility with the BTC blockchain - bitcoin blocks are not valid in the bitcoin cash system.
Why was the new altcoin BCH created? In this fork, the block size in the code chain increased to 8 megabytes, and the SegWit2x protocol was introduced, which made it possible to store a certain part of information about the blockchain in separate files outside the system.
Thus, Bitcoin Cash took one of the leading positions among altcoins and allowed a qualitative reform of the aging bitcoin blockchain.
What is stablecoin
In the broad sense of the word, stablecoin is a stable cryptocurrency with minimal volatility (price volatility). The stability of these coins is achieved by linking them to one of the traditional exchange-traded assets. Such coins are actively used in exchange trading, as well as for storing digital funds.
What is the price of stable coins tied to?
Basically, stablecoins can be linked to anything of material value. However, most often they are tied to the US dollar, less often to stock indices, gold, and sometimes even oil.
The most common stablecoin is Tether (USDT). It is linked to the US dollar, and in the ETH / USDT currency pair, it is the leader in terms of trading volume among all stable cryptocurrencies. How much does the USDT cryptocurrency cost? Quite right, exactly 1 American dollar.
Why are stablecoins needed?
These coins are designed to solve the problem of volatility in systematic payments. The crux of the problem is that it is difficult to pay for utilities, subscriptions, regular payments between counterparties and other types of payments with ordinary cryptocurrencies. It should be borne in mind that the rate of cryptocurrencies can change by more than 60% in a very short time.
Stablecoins in this sense are much more effective, so their existence is quite reasonable.
Afterword
So, we have placed all types of digital coins on the shelves, and now we can confidently move towards the study of cryptocurrency trading. Understanding the functions and capabilities of different digital money makes it possible to determine the methods of their circulation much more accurately, as well as to understand why some coins stay afloat for a long time, while others very quickly disappear from the radar.