All cryptocurrencies except Bitcoin (Bitcoin) were initially referred to as altcoins for a single reason: there was a proliferation of projects copying and pasting Bitcoin source code. Cryptocurrencies in the early stages weren’t unique enough to have a distinct term, so “altcoin” (alternative coins) best fits their description. The community didn’t give too much thought to other cryptocurrencies at this point due to Bitcoin’s potential advancement – its future price growth, use cases, mainstream adoption, etc. It was the mastermind in crypto.
But things changed when people came across Ethereum’s smart contract platform as it can produce “smart contract tokens” – cryptocurrencies with the ability to perform intelligent tasks autonomously.
This prompted the community to differentiate altcoins from tokens. Altcoins were now coins that had their own blockchain and tokens were defined as cryptocurrencies created on smart contract platforms. The other factor at work now is that there are many blockchain projects that are rapidly scaling and reducing bitcoin’s dominance.
The community began to notice weaknesses in Bitcoin’s correlation to other coins as other interesting new projects emerged, prompting the crypto world to reconsider its view of cryptocurrencies.
Now, every altcoin on the market stands out by offering a unique set of features related to things like transaction management, scripting language, mining mechanisms, and consensus algorithms. Although the superior characteristics of altcoins may surpass Bitcoin in one way or another, their value still depends entirely on Bitcoin’s market cap.
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The community began to envision a world where various cryptocurrencies, not just Bitcoin, could disrupt the world. Well, with ethers (ETH) growing dominance in the market, it is clear that Ethereum is at the forefront of crypto innovation. A large percentage of today’s tokens are Ethereum ERC-20 smart contracts so the way token minters classify their projects can be easily normalized in the community.
Ethereum’s role in crypto classifications
Ethereum’s ecosystem is responsible for all crypto advancement and mainstream interest, starting with Initial Coin Offerings (ICOs) – which disrupted the IPO model by allowing anyone to buy a project’s coin at launch. Attention from ICOs led to many use cases for ERC-20 tokens, with developers making their next cryptocurrency an Ethereum-based token and incentivizing crypto users to learn more about the technology. With a variety of ERC-20 tokens, our human nature has to step in to categorize and categorize things.
The term “altcoin” is no longer acceptable to define a project as it is ambiguous – especially now with decentralized finance (DeFi). People want to know what type of coin it is, whether it is a staking coin, a liquidity mining coin, a crypto derivative, a stablecoin, a utility token, etc. They are aware that cryptocurrencies can do much more than just send and receive payments.
“Meme tokens” have also entered the crypto vocabulary
“Meme token” is a term that most crypto users are familiar with Elon Musk tweets to the world via Dogecoin (DOGE). But the crypto community had to differentiate between tokens and meme tokens, since cryptocurrencies are capable of highly intellectual activities. Tokens based on social media content could potentially influence the perception of the crypto sector, so another classification had to be made.
The rise of non-fungible tokens (NFTs) has proven that the crypto community is ready to onboard and learn more about new definitions. Imagine if NFTs were called altcoins? By definition, they technically are, but there’s so much NFTs can do that demonstrates their difference. The community takes note of this NFTs are ERC-721 tokens and recognizes the skills they possess. First of all, they are structured in a way that makes cryptocurrencies unique, with no two tokens having the same value.
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“GameFi” (Gaming DeFi) is another term added to the crypto dictionary. It looks at merging blockchain technology with NFTs, liquidity mining and other DeFi protocols. The result is games where people can earn real crypto and trade assets. GameFi is still new, so there’s a chance something trending will emerge and lead to further classifications within the space.
The crypto community is getting smarter
The crypto community’s collective understanding of the space is improving rapidly. Content creators, influencers, and YouTubers are also good at turning complex jargon into easy-to-understand information. The community recognizes that the correct classification of cryptocurrencies increases the chances of finding good new projects early on. For example, telling someone that a revolutionary NFT is just an altcoin will affect their first impression and potentially add less value to the NFT.
The classification of cryptocurrencies helps in comparison. To compare cryptocurrencies effectively, you need to know what they are and if others are doing the same. That’s why you can’t compare hyphen to something like THERE IS – one is a payment cryptocurrency while the other is the utility token of a proof-of-stake smart contract platform.
Another argument for the breakdown of Bitcoin vs Altcoins classification is the different correlations between BTC and other coins. While correlation within some pairs is high, others exhibit weaker interdependence. For example, ADA and XRP show lower correlation with other digital assets, not to mention that stablecoins like Tether (USDT) show negative correlations.
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Classifications also help with diversification. You can have your crypto spread across multiple coins, but the phrase “don’t put all your eggs in one basket” may apply to you if all of your coins have the same classification.
Although a growing number of new crypto concepts are emerging, we can place them all – DeFi, GameFi, NFTs, and meme tokens – under the umbrella of altcoins. From a trader perspective, many believe that altcoins will yield greater returns in the future, although there may be a weaker consensus than Bitcoin for now.
As a Bitcoin maximalist and CEO of a crypto exchange, I look forward to further classifications, as the industry can hardly achieve mass adoption with Bitcoin alone.
This article does not contain any investment advice or recommendation. Every investment and trading move involves risk and readers should do their own research when making a decision.
The views, thoughts, and opinions expressed herein are solely those of the author and do not necessarily reflect or represent the views and opinions of Cointelegraph.
Johnny Lyu is CEO of KuCoin, one of the largest cryptocurrency exchanges founded in 2017. Before joining KuCoin, he had ample experience in the e-commerce, auto and luxury industries.
