Introduction
The crypto world widely recognizes that apart from Bitcoin and Ethereum, all other coins are considered altcoins. While Bitcoin remains the pioneer of cryptocurrencies, its imitators—ranging from sophisticated to poorly designed—share the common label of "altcoins" or "alternative coins" (Altcoins).
Today, over 2,400 altcoins are documented, with countless others unnamed. But how do these digital currencies come into existence? Here, we break down the three primary methods of altcoin creation.
1. Independent Blockchain Development
The Basics
Projects raise funds to develop a standalone blockchain with its own ledger system. However, this method faces significant challenges:
- Low initial consensus and limited users.
- Difficulties in fundraising and high technical barriers.
- Poor interoperability between blockchains.
Due to these hurdles, most projects opt for simpler alternatives.
2. Forking an Existing Blockchain
What Is a Fork?
A fork occurs when a cryptocurrency’s code is altered, splitting it into two separate chains—a process known as an Initial Fork Offering (IFO).
Example: Bitcoin Hard Fork
- Bitcoin’s original code (like "Windows XP") is upgraded by some users to improve speed/functionality (e.g., "Windows 7").
- If the changes are incompatible, the chain splits: one continues the original code, the other follows the new rules.
- Result: A new coin is born (e.g., Bitcoin Cash).
Risks of Forking
- Consensus Damage: Splits communities and dilutes trust.
- Long-Term Instability: Divergent development paths weaken both chains.
3. Token Issuance via Smart Contracts
How It Works
Projects issue tokens on smart contract-compatible blockchains (e.g., Ethereum) through:
- Initial Coin Offerings (ICOs): Minting tokens as "promissory notes" (e.g., loyalty points).
- Whitepapers: Outlining token utility (e.g., "exchange for services").
Advantages
- Low cost and technical barriers.
- Flexibility to migrate to a standalone chain later.
Caveats
- High Fraud Risk: Copy-paste projects flood the market.
- Regulatory Scrutiny: Many ICOs face legal challenges.
Key Takeaways
- For Investors: Stick to top 10 cryptocurrencies—vetted by market consensus and lower risk.
- For Developers: Forking/token issuance are cost-effective but require robust use cases to avoid being labeled "shitcoins."
FAQs
Q1: What’s the difference between altcoins and shitcoins?
A: Altcoins have viable use cases; shitcoins lack utility or are scams.
Q2: Can a forked coin surpass the original?
A: Rarely. Examples like Bitcoin Cash show forks often struggle with adoption.
Q3: Are all tokens built on Ethereum?
A: No, but Ethereum dominates due to its smart contract flexibility.
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Disclaimer: Always conduct thorough research before investing in cryptocurrencies.