Bitcoin vs altcoins: what are the differences?

Rebecca Cattlin
By :  ,  Financial Writer

What is bitcoin?

Bitcoin is the world’s first and most popular cryptocurrency or virtual currency. It allows for secure peer-to-peer transactions over the internet.

Bitcoin, or BTC, came into existence back in 2008 when Satoshi Nakamoto (pseudonym) released a whitepaper named ‘Bitcoin: A Peer-to-Peer Electronic Cash System’. The idea was to offer people a decentralised method of exchanging funds for services at a time that coincided with the 2008 financial crash.

All bitcoin transactions are logged on a blockchain ledger for transparency. It’s similar to a bank ledger, but it’s not owned by a single entity. Any individual can become part of the network and perform transactions without the need for a middleman or payment processor.

Unlike traditional currencies, bitcoin has a supply cap of 21 million BTC. This means that no more of it will ever be produced, regardless of the demand for it. So, unlike normal monetary policy, it can never be inflated or manipulated.

Bitcoin is still not fully accepted by all traditional financial institutions, but it has started to become accepted by some companies. For example, PayPal has announced it will allow customers to buy and sell in bitcoin.

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What are altcoins?

Altcoins are any other cryptocurrency that isn’t bitcoin. It is a term used to group together all of the challenger coins that appeared in the market after the original crypto grew in popularity and began to be traded online.

While some altcoins are fads that do not last the test of time, there are plenty that have maintained popularity including Ethereum, Litecoin, Ripple, NEO, and Dogecoin.

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Most altcoins are created to try and solve an issue with bitcoin – although some have been made as a joke. The success of each cryptocurrency is determined by how useful it is and how well it stacks up to bitcoin.

They tend to have lower prices than bitcoin too, which means they provide a lower barrier to entry and seem more accessible than the market leader.

Top 10 Altcoins

The following table shows the top 10 altcoins according to Coinbase as of February 2022.

Rank

Coin

Market cap

1

Ethereum

$369 billion

2

Tether

$77.9 billion

3

BNB

$71.2 billion

4

USD Coin

$51.1 billion

5

Cardano

$39.9 billion

6

Solana

$37.6 billion

7

XRP

$37.1 billion

8

Terra

$23.1 billion

9

Polkadot

$22.2 billion

10

Dogecoin

$20.9 billion

Source: Coinbase 7/2/2022

 

1. Ethereum

When it comes to cryptocurrency trading, Ethereum is the second-most valuable crypto behind bitcoin by some distance. It was created by Vitalik Buterin and released in 2015.

It’s got many similar traits to bitcoin, such as the blockchain ledger and decentralisation. But there are a few key differences.

While bitcoin was designed as a store of value or currency, Ethereum is a digital platform that processes contracts, non-fungible tokens and applications – similar to those you’d find on a smartphone. Transactions on the platform are largely denoted in Ethereum’s own cryptocurrency, known as ether or ETH.

Other cryptocurrencies can also be hosted on the Ethereum blockchain, despite being owned by other companies. This has meant its use extends beyond its own platform.

Ethereum also demands less energy and has higher transaction speeds than bitcoin.

However, in terms of market cap, Ethereum struggles to match its elder sibling. Although many believe this may soon change, and ether could overtake BTC. This is known as the ‘flippening’.

2. Tether

Tether is what’s known as a fiat-collateralised stablecoin, which means each token in circulation is pegged to a traditional currency. In the case of Tether, each unit or USDT is backed by one US Dollar. It maintains this 1 to 1 ratio at all times.

Tether was first developed by the crypto exchange BitFinex in 2014 under the name RealCoin, which was rebranded a year later. It’s hosted on the Ethereum blockchain.

The stability that the peg provides means Tether is far more widely used as a medium of exchange and store of value. Tether creates a bridge between fiat and digital currencies, which is why it’s used by payments processors, ATMs and exchanges to easily access blockchains.

3. Binance Coin (BNB)

Binance Coin is the cryptocurrency issued by and used on the Binance exchange – the largest in the world.

Initially, BNB was hosted on the Ethereum network, but Binance created its own blockchain and BNB is the native currency for it. It was created to lower transaction fees, but it can now be used across a variety of platforms such as payments, booking accommodation and buying online services.

Like bitcoin, Binance Coin has a strict maximum supply of 200 million BNB tokens. Although 100 million BNB were put into circulation at the initial coin offering, the available supply is much lower. That’s because every quarter, Binance uses some of its profits to repurchase and permanently remove any BNB it holds in its treasury. This is meant to bring BNB in line with bitcoin as a store of value and stop its price inflating.

4. USD Coin

USD Coin (USDC) is another fiat-collateralised stablecoin, its price is pegged to the US Dollar at a 1:1 ratio. Like Tether, this is to smooth out the volatility that cryptos are known for and provide greater security to investors.

USDC was created in 2018 by a consortium called Centre, which was founded by tech company Circle. Other members include the crypto exchange Coinbase and bitcoin mining firm Bitmain.

While Tether is more widely adopted, giving it greater liquidity, USDC is thought of as safer due to its transparency, security and legal framework. USD Coin is audited regularly by Grant Thorton – a leading accounting audit firm – while USDT doesn’t verify its audit trails.

Like Tether, USD Coin is hosted on Ethereum’s blockchain.

5. Cardano (ADA)

Cardano is a blockchain platform that facilitates peer-to-peer transactions via its native currency ADA. It was founded in 2015 by Ethereum co-founder Charles Hoskinson, who had a dispute with his partners, and now directly competes with Ethereum over decentralised app creation.

The platform operates on a third-generation blockchain – bitcoin being the first and Ethereum the second. It uses proof of stake (PoS), instead of proof of work (PoW) like bitcoin and Ethereum.

What this means is that Cardano transactions are approved by randomly selected miners, while BTC and ether transactions are approved via a method of competitive mining – the first miner to solve a cryptographic equation and validate a transaction wins a reward.

PoS is more energy efficient and environmentally friendly than PoW, which is a major criticism bitcoin and Ethereum face. This is why Cardano claims to be the most scalable and secure alternative.

6. Solana

Solana is also a blockchain platform for decentralised apps and NFTs. Transactions on the app are denominated in the native cryptocurrency, also called Solana.

It was founded in 2017 as a competitor to Ethereum that would have faster transactions and lower transaction fees. As a comparison, Solana can process as many as 50,000 transactions per second (tps), and its average cost per transaction is $0.00025, while Ethereum has an average of 34 transactions per second and its transaction fees hit a record high of $70 in 2021.

Solana also uses a PoS blockchain, but it uses a new technology called Proof of History (PoH) too, which verifies how much time has passed between events. By adding in a standardised clock or timestamp by which all transactions are measured, Solana aims to increase the level of trust that participants have in each transaction.

7. Ripple (XRP)

Ripple was one of the earliest cryptocurrencies on the market and started life with a real-world banking function. Initially conceived by Jed McCaleb as a payment settlement system in 2005, the platform supports tokens that represent fiat currencies as well as other cryptocurrencies and some commodities. Transactions are recorded on the blockchain with the native crypto XRP.

Ripple was created to solve a lot of the original issues that bitcoin presented. XRP transactions use less energy than bitcoin, have a higher speed of transactions, and cost very little.

In terms of market value, Ripple is certainly on the other end of the scale to bitcoin, it’s a much more affordable option for those looking to get into the crypto space. But as with most other cryptos, it experiences a lot of volatility, and traders can still look to benefit from its fluctuations in value.

8. Terra (Luna)

Terra is a blockchain that underpins a decentralised finance system that creates stablecoins – which we’ve already seen examples of. The platform was created by Terraform Labs.

Luna is the native cryptocurrency, which is used to regulate the stablecoin pegs and absorb any shocks to the digital currencies. It is primarily used for paying network fees and enabling participants to govern the platform.

Terra operates on a PoS model, which requires less energy than other models. The system depends on how many Luna each validator is in possession of.

Luna also directly benefits from more users on the Terra platform. When someone buys something using UST, it generates a small transaction fee, which is distributed to those who hold Luna tokens. However, when demand for UST rises, some Luna is automatically ‘burned’ to help stabilise prices.

9. Polkadot

Polkadot is a relatively new cryptocurrency, but it’s quickly soared in popularity. It’s a blockchain that allows data to be sent across existing networks that were previously incompatible – such as bitcoin and Ethereum.  

While it cannot perform some of the more complicated tasks that the Ethereum platform provides, Polkadot has lower costs and faster processing speeds thanks to its ‘parachains’ – a series of connected blockchains – which take processing demand off of the main blockchain.

As a result, the Polkadot network can process more than 1000 transactions per second, compared to about 7 for bitcoin and 34 for Ethereum.

10. Dogecoin

Dogecoin is a crypto that has reached popularity through a meme and by riding a wave of celebrity endorsements.

Originally created by Billy Markus and Jackson Palmer in late 2013, Dogecoin was recently labelled as ‘The People’s Crypto’ by Elon Musk. Following this, Dogecoin’s value grow exponentially in 2021.

Despite the recent pop culture references, the fundamental workings of Dogecoin act in the same way as many other crypto coins. Dogecoin is mined, used as a payment method that avoids banking fees, and all transactions logged within a blockchain ledger.

However, unlike bitcoin and other cryptos, Dogecoin does not have a cap on the number that can be mined, and it can therefore make it more susceptible to inflation. This can mean that its price may hold less correlation to other limited coins.

How to trade bitcoin and altcoins

You can trade a range of cryptocurrencies with FOREX.com, including both bitcoin and altcoins – such as Ethereum, Litecoin and Ripple. Learn how to start cryptocurrency trading or follow these simple steps to get started:

  1. Open a FOREX.com account, or log-in if you’re already a customer
  2. Search for the crypto you want to trade in our award-winning platform
  3. Choose your position and size, and your stop and limit levels
  4. Place the trade

Alternatively, you can practise trading cryptocurrencies in a risk-free demo account first. 

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