All cryptocurrencies other than Bitcoin (BTC) were first described as altcoins for the same reason: there was an increase in scams copying and pasting Bitcoin source code. Early cryptocurrencies were not feature-rich enough to have a unique word, so “altcoin” (alternative coin) best fit their description. The community at the time did not think too much of other cryptocurrencies due to the potential growth of Bitcoin – future price increases, the use of adoption cases primarily.
But things changed when people caught on Ethereum’s smart contract platform, as it could produce “smart contract tokens” in cryptocurrencies with the ability to perform smart tasks automatically.
This led the community to separate altcoins from tokens. Altcoins are now coins with their own blockchain, and tokens are defined as cryptocurrencies that are created on smart contract platforms. Another factor that is now in the works is that there are many blockchain projects that are rapidly scaling up and reducing Bitcoin’s prominence.
The community is starting to notice a weakness in Bitcoin’s relevance to other coins as other exciting new projects emerge, prompting the crypto world to rethink how it sees the cryptocurrency.
Every altcoin now distinguishes itself on the market by offering a unique set of features related to things like transaction management, scripting languages, mining mechanisms and consent algorithms. Although the excellent features of altcoins may outperform Bitcoin in one way or another, their value still depends entirely on Bitcoin market capitalization.
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The community began to imagine a world where various cryptocurrencies, not just Bitcoin, could disrupt the world. Now with the rise of Ether (ETH) in the growing market, it is clear that Ethereum is the leader in cryptocurrency innovation. A large percentage of tokens today are Ethereum ERC-20 smart contracts, so the way strikers classify their projects is simple, common in the community.
Ethereum role in cryptocurrency classification
Ethereum ecosystems are responsible for the growth of cryptocurrencies and for the general public, starting with the initial coin offering (ICOs) – which disrupted the initial public offering model by allowing anyone to purchase coins. Project at the beginning. The attention of ICOs has led to many use cases for ERC-20 tokens, with developers making their next cryptocurrency token based on Ethereum and cryptocurrency users being encouraged to learn more. About technology. With the vast variety of ERC-20 symbols, our human nature must intervene to classify and associate objects.
The term “altcoin” is no longer an acceptable means of defining a project, as it is ambiguous, especially now with decentralized finance (DeFi). People want to know what kind of coin it is, whether it is a bet coin, a coin, a liquidator, a derivative, a cryptocurrency, a stable coin, a token, etc. They know that cryptocurrencies do more than send and receive payments.
“Meme Symbol” has also entered the crypto vocabulary.
“Meme token” is a term that most crypto users are familiar with because Elon Musk tweeted to the world about Dogecoin (DOGE). But the crypto community has to differentiate between tokens and meme tokens, because cryptocurrencies are highly capable of intellectual activity. Content-based social media tokens can potentially affect how the crypto sector is perceived, so further classification must be established.
The proliferation of unusable tokens (NFTs) indicates that the crypto community is ready to launch and learn new definitions. Imagine if NFTs were described as altcoins? By definition, they are technical, but there is so much that NFTs can do that shows their differences. The community recognizes that NFTs are symbolic of ERC-721 and recognizes the capabilities they possess. For starters, they are designed to make cryptocurrencies unique, with no two tokens sharing the same value.
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“GameFi” (gaming DeFi) is another word that is added to the crypto dictionary. It deals with the integration of blockchain technology with NFTs, liquidity mining and other DeFi protocols. The result is a game where people can earn real money, currency and trading assets. GameFi is still new, so there is a chance that something trendy will happen and lead to more classification in space.
Smarter crypto community
The crypto community’s overall understanding of the space is rapidly improving. Content creators, influencers, and YouTubers are also good at converting complex words into easily digestible information. The community recognizes that the proper classification of cryptocurrencies increases the chances of finding the best new projects first. For example, telling someone that NFT revolution is just altcoin will influence their initial interest and may give NFT less value.
Classification of cryptocurrencies helps in comparing them. To effectively compare cryptocurrencies, you need to know what they are and whether others are doing the same thing. That’s why you can not compare Dash to something like ADA, one is a cryptocurrency for payments while the other is a symbol of the use of smart stock platform with proof of stock.
Another argument for the collapse of the ranking of Bitcoin vs. altcoins is the correlation between BTC and other coins. While correlation is higher in some pairs, other pairs show greater dependence on each other. ADA and XRP, for example, show lower correlation with other digital assets, not to mention stable coins such as Tether (USDT) showing a negative correlation.
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Classification also helps in diversification. You can have your cryptocurrency distributed between multiple coins, but the phrase “Do not put all your eggs in one basket” may apply to you if all of your coins are under the same rank.
Despite the rise of new crypto concepts emerging, we can still put them all – DeFi, GameFi, NFTs and meme tokens – under the umbrella of altcoins. In the view of traders, many believe that altcoins will have a bigger return in the future, despite a weaker agreement with Bitcoin for now.
As a Bitcoin maximalist and CEO of Cryptocurrency Exchange, I am happy to see more and more classifications occur as the industry can hardly achieve huge adoption just by Bitcoin.
This article does not contain any investment advice or guidance. All investments and trades involve risk and the reader should do his own research when making a decision.
The ideas and concepts presented here are by the author alone and do not necessarily reflect or represent the views and opinions of the Cointelegraph.
Johnny Lyou Is the CEO of KuCoin, one of the largest cryptocurrency exchanges to be launched in 2017. Prior to joining KuCoin, he gained extensive experience in the e-commerce, automotive and luxury industries.