All cryptocurrencies other than Bitcoin (bitcoin) was originally described as an altcoin for one reason: Copy-and-paste Bitcoin source code projects are on the rise. Early cryptocurrencies weren’t unique enough to have a unique term, so “altcoin” (alternative coin) best fits their description. Due to Bitcoin’s potential advancements – its future price growth, use cases, mainstream adoption, etc., the community didn’t give much thought to other cryptocurrencies at the time. It is a leader in the cryptocurrency space.
But that changed when people came into contact with Ethereum’s smart contract platform, which can produce “smart contract tokens” — cryptocurrencies that can autonomously perform smart tasks.
This has led the community to differentiate altcoins from tokens. Altcoins are now coins with their own blockchain, and tokens are defined as cryptocurrencies created on smart contract platforms. Another factor at play now is that there are many blockchain projects that are rapidly scaling and eroding Bitcoin’s dominance.
The community is starting to notice weaknesses in the following areas Correlation of Bitcoin with other coins Along with other interesting new projects, this has caused the crypto world to rethink how it views cryptocurrencies.
Each altcoin now stands out in the market by offering a unique set of features related to transaction management, scripting languages, mining mechanisms, consensus algorithms, and more. While the superior properties of altcoins may somehow outperform Bitcoin, their value still depends entirely on Bitcoin’s market capitalization.
The community began to envision a world where various cryptocurrencies, not just Bitcoin, could disrupt the world. Now, with ether’s (Ethereum) increasingly dominate the market, and it is clear that Ethereum is the leader in crypto innovation.A large percentage of coins today are Ethereum ERC-20 Smart contracts, so the way token minters categorize their projects is easily standardized across the community.
Ethereum’s role in crypto taxonomy
Ethereum’s ecosystem is responsible for every cryptographic advancement and mainstream interest, starting with initial coin offerings (ICOs) — which disrupted the IPO model by allowing anyone to buy tokens at project launch. The ICO focus has led to many use cases for ERC-20 tokens, developers making their next cryptocurrency an Ethereum-based token, and crypto users are motivated to learn more about the technology. With a wide variety of ERC-20 tokens, our human nature must intervene to categorize and correlate things.
The term “altcoin” is no longer an acceptable way to define a project because it is ambiguous – especially now with decentralized finance (DeFi). People wonder what type of token it is, whether it’s a staking token, a liquidity mining token, crypto derivatives, stablecoins, utility tokens, etc. They know that cryptocurrencies do much more than send and receive payments.
‘Meme tokens’ have also entered the crypto vocabulary
“Meme token” is a term familiar to most crypto users because Elon Musk tweeted About the world of Dogecoin (Governor). But the crypto community must distinguish between tokens and meme tokens, because cryptocurrencies are capable of a high degree of intellectual activity. Tokens based on social media content may influence perceptions of the crypto industry, so further categorization must be established.
The rise of non-fungible tokens (NFTs) is proof that the crypto community is ready to jump in and understand the new definition. Imagine if NFTs were described as altcoins? They are technically by definition, but there are so many things that NFTs can do that justify their difference.community recognition NFTs are ERC-721 tokens and acknowledge the abilities they possess. For starters, they are structured to make cryptocurrencies unique and no two tokens share the same value.
“GameFi” (Game DeFi) is another term added to the crypto dictionary. It deals with combining blockchain technology with NFTs, liquidity mining and other DeFi protocols. The result is a game where people can earn real cryptocurrency and trade assets. GameFi is still new, so it’s possible that something pops up and leads to further categorization of the field.
The crypto community is getting smarter
The crypto community’s collective understanding of the space is rapidly improving. Content creators, influencers, and YouTubers are also adept at translating complex jargon into easy-to-understand information. The community recognizes that properly categorizing cryptocurrencies can increase the chances of finding good new projects early. For example, telling someone that a revolutionary NFT is just an altcoin will affect their first impression and may reduce the value of the NFT.
Categorizing cryptocurrencies helps to compare them. In order to compare cryptocurrencies effectively, you have to know what they are and whether other people are doing the same thing.That’s why you can’t compare sprint similar to have — One is a payment cryptocurrency and the other is a utility token for a proof-of-stake smart contract platform.
Another argument for the collapse of the Bitcoin vs altcoin classification is the different correlations between BTC and other coins. While correlations were high in some pairings, others showed weaker interdependencies. For example, ADA and XRP are less correlated with other digital assets, not to mention stablecoins such as Tether (USDT) shows a negative correlation.
Classification also helps with diversification. You can spread your cryptocurrency among several coins, but if all your coins fall into the same category, the phrase “don’t put all your eggs in one basket” might apply to you.
While more and more new crypto concepts are emerging, we can still put them all – DeFi, GameFi, NFTs and meme tokens – under the umbrella of altcoins. From a trader’s perspective, many believe that altcoins will have greater returns in the future, although the current consensus may be weaker than Bitcoin’s.
As a Bitcoin maximalist and CEO of a cryptocurrency exchange, I am excited to see more disaggregation emerge as the industry struggles to achieve mass adoption with Bitcoin alone.
This article does not contain investment advice or recommendations. Every investment and trading move involves risk and readers should do their own research when making a decision.
The views, thoughts and opinions expressed here are solely those of the author and do not necessarily reflect or represent the views and opinions of Cointelegraph.
Johnny Lu is the CEO of KuCoin, one of the largest cryptocurrency exchanges launched in 2017. Before joining KuCoin, he gained extensive experience in the e-commerce, automotive and luxury industries.