Altcoins are coins that are "alternative" coins to Bitcoin, the first cryptocurrency. The success of Bitcoin sparked a new wave of blockchain innovation that led to the inception of altcoins. These altcoins were built by teams trying to either improve on the shortcomings of Bitcoin or create entirely new blockchain applications. Although very few at first, the development of Ethereum (ETH) and smart contract technology, vastly expanded the number of altcoins into the thousands.
With Ethereum, development teams no longer had to create separate blockchains but could use Ethereum's network to launch tokens faster and easier. Smart contract technology also created a myriad of possibilities and use cases that stretched beyond the payment and store of value capabilities of Bitcoin. Altcoins could now launch ICOs (Initial Coin Offerings) to crowdfund their ideas and surpass much of the existing financial regulations. Initial Coin Offerings became a revolutionary funding model that circumvented the traditional venture capital, public stock markets, and current crowdfunding models. While they came with their risks and challenges, the ICO model changed startup financing forever. According to Coinmarketcap.com, there are currently over 2,300 altcoins. While many of these projects may never succeed, the path of perpetual innovation for eager entrepreneurs has been paved.
While Bitcoin is known as the unhackable store of value, unit of account, and payment network, it can't do much else. Thus altcoins were built to serve needs in a variety of industries. Most altcoins rely on a P2P (peer-to-peer) protocols that utilize different consensus mechanisms. Increasingly, more altcoins are switching from the Proof-of-Work (PoW) to the Proof-of-Stake (PoS) system. Still, while the basic mechanics of the coins may be similar, their use cases vary greatly. For example:
Vechain: An altcoin project that seeks to revolutionize the supply chain management industry by increasing transparency and streamlining operations through blockchain.
Icon: Based out of South Korea, this altcoin project is attempting to solve the problem of interoperability that blockchains face today.
Jibrel: Jibrel provides currencies, equities, commodities, and other financial assets as standard ERC-20 tokens on the Ethereum blockchain.
While many projects sought to launch altcoins to change the world, the ICO craze of 2017 brought a lot of scammers with it as well. Thousands of altcoins ended up being nothing more than a house of cards fueled by PR and social media with no other goals than to enrich their founders. As unsuspecting hopeful investors poured in their capital, they quickly saw their investments decline. Those holding on for the long term suffered the most as projects that pre-mined their coins dumped them onto the market with no legal recourse. As many altcoins died off during the crypto winter of 2018, those with solid teams, track records, and real use cases survived and are actively working on being a part of the blockchain future of tomorrow.