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altcoin

Contributor(s): Matthew Haughn

An altcoin is any digital cryptocurrency similar to Bitcoin. The term is said to stand for “alternative to Bitcoin” and is used describe any cryptocurrency that is not a Bitcoin. Altcoins are created by diverging from Bitcoin consensus rules (the fundamental rules of the cryptocurrency’s network) or by developing a new cryptocurrency from scratch.

Most popular altcoins use the same fundamental building blocks as Bitcoin. This approach is relatively easy to carry out because Bitcoin is a free, open source platform. When an altcoin forks at the blockchain level, an alternate system of consensus rules must be used and the coin will have an entirely different distributed ledger. The same is true for altcoins built from scratch.

Some altcoins have different monetary policy rules built into the currency to encourage different uses and treatment. Policies such as minimum spend, or positive or negative interest on coins stored, can encourage or discourage hoarding. Policies for coin mining may function differently from Bitcoin, as may the number of coins paid out per new block mined.

Some altcoins are made to discourage ASIC or GPU mining. This limitation is designed to reduce the advantage of specialized coin miners, as in the case of Litecoin, upon which half of all altcoins are based. An altcoin blockchain may also store different metadata about the coin’s previous transactions or may allow the coin to be repurposed as an alternate asset.

While some altcoins can be attempts to enrich founders and offer little new, many have found niches because of way their differences encouraged new miners and uses. Since Bitcoin's inception there have been upwards of 500 altcoins created. Litecoin, Dogecoin, Blackcoin, Freicoin, Peercoin, Vericoin, Myriad, NXT are just a few examples of altcoins.

This was last updated in February 2017

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