Bitcoin is the largest cryptocurrency in the world. At the time of writing, it is currently trading above $60,000 per coin and has a market cap of over $1.2 trillion. Conversely, altcoins can trade for millionths of a cent.
Along with major disparities in price, there are many other factors that differentiate Bitcoin from altcoins. Learn more now.
What is Bitcoin?
Bitcoin was created in 2008 by Satoshi Nakamoto, who remains anonymous to this day. It was the first ever cryptocurrency, paving the way for over 12,000 other tokens. It was created to establish a network that allowed for secure and decentralized payments.
Bitcoin utilizes a peer-to-peer network to facilitate transactions. This allows users to send BTC tokens to anyone else on the globe. Users can use wallet addresses to determine where the BTC goes and who has ownership. Once BTC is in a wallet, it is nearly impossible to steal it without the private key, which is held by the user.
All transactions on the Bitcoin network are placed into a tamper-proof ledger. This way, all transactions are public and helps mitigate fraud. However, billions of transactions need a way to be verified for legitimacy. To do this, Bitcoin uses a proof of work consensus model.
What Are Altcoins?
The term “altcoin” is broad and simply refers to any cryptocurrency that is not Bitcoin. While there are a handful of large altcoins like ETH and ADA, none come close to Bitcoin in terms of market capitalization and trading volume. Nearly 40% of the crypto market is on the BTC network.
Due less liquidity and smaller market caps than Bitcoin, most altcoins are more volatile than Bitcoin. Altcoins can double in seconds or lose all value in seconds. They are much less predictable than Bitcoin due to a much lower trading volume. This makes altcoins a more risky investment than Bitcoin.
Many altcoins are also on the Ethereum blockchain. The Ethereum blockchain is known to house smaller projects due to its focus on decentralized applications (dApps) and smart contracts.
Other chains, such as Solana and Binance Smart Chain also support these protocols. These protocols allow for users to have much more freedom in creating currencies than the Bitcoin blockchain. Many smart contract and dApp wielding chains use proof of stake to verify the transactions of their altcoins.
Proof of Work vs. Proof of Stake
Verification of transactions is essential for blockchains to be successful. It prevents fraud, increases security and makes chains more scalable. As of right now, Bitcoin uses a proof of work model of verification, while a majority of altcoins rely on a proof of stake model of verification.
Bitcoin’s proof of work model uses community computing power to verify transactions. Computers on the network compete with each other to solve difficult math problems to receive block rewards. Block rewards are rewards given after a certain amount of time. In the case of Bitcoin, 6.25 BTC are divided out every 10 minutes to those who help verify transactions.
Proof of work is a very secure method of verification as it relies on a third party. However, it uses massive amounts of energy. In 2020, Bitcoin used more energy than all of Austria combined. This presents major questions surrounding sustainability for the chain.
While Bitcoin uses a proof of work model, many altcoins use a proof of stake model of verification. A proof of stake system works by having validators lock up tokens for the chance to earn block rewards. Rewards are given according to the amount of the asset staked.
This method works by allowing validators to verify transactions and hold their investments as collateral. If validators fail to verify new additions to the ledger, a portion of their investment can be taken as punishment.
Proof of stake is very energy efficient. It hardly uses any energy in comparison to the proof of work model. However, there is a barrier for entry and those with large positions can have a larger influence on validation procedures.
How Are Altcoins Different Than Bitcoin?
Altcoins are generally very different from Bitcoin. While Bitcoin is mainly used as a form of payment, altcoins can be used as governance tokens (AAVE, UNI) or stable assets pegged to the U.S. dollar (USDT, USDC). These tokens serve very different functions than Bitcoin.
One major way altcoins differ from Bitcoin is the use of decentralized finance (DeFi.) DeFi is a way for financial and economic operations to be conducted in new ways. DeFi projects can range from decentralized exchanges (DEXes) to NFTs.
These projects are pushing the limits of the internet, beyond just a payment system. Almost all DeFi projects and uses are not conducted on Bitcoin’s chain. In this way, Bitcoin is very limited in new projects it can produce, where altcoins have unlimited potential.
Bitcoin is also very driven by institutional investors. Institutions buy billions of dollars of BTC as both an investment and hedge against inflation. Conversely, altcoins can be largely driven by retail investors and small firms. One example is Floki Inu, an altcoin whose price went up almost 2,000% due to a large community of small investors.
Altcoins support a larger variety of tokens, contribute more to DeFi technology and token prices can often be influenced by retail investors.
Use Cases of Bitcoin vs. Altcoins
Bitcoin is mainly used as a form of payment. Because of the size of the network, it can securely support transactions ranging from pennies to billions of dollars. This can be a valuable tool for businesses across the globe. It can be used to process secure transactions with lower fees than traditional transactions.
Microsoft (NASDAQ: MSFT) has already begun using Bitcoin, accepting it in the Xbox and Windows marketplaces. Microsoft was among the first major companies to begin accepting Bitcoin as a form of payment. CEO Bill Gates has also been quoted saying, “Bitcoin is better than currency.” Perhaps this is the first step towards a much larger Bitcoin adoption.
While altcoins can be used as a form of payment, many of their uses are in different areas. One area is insurance. Altcoins can utilize smart contracts to automate the insurance process. Individuals can submit insurance claims, and smart contracts will determine how much money should be given. This would greatly increase efficiency in the industry.
Another use for altcoins lies in government. Governments can use NFTs to store public records to mitigate fraud. They can also use altcoins to automate tedious tasks with smart contracts, such as legal disputes and real estate transactions. France’s government has already begun to incorporate stablecoins into their bond and interest rate markets.
Where to Buy Cryptocurrency
If you are looking to buy Bitcoin, almost every exchange and brokerage offers it. Coinbase, eToro, Public.com and Webull are all great options for buying Bitcoin. They are quick, secure and easy-to-use.
If you are looking to purchase an altcoin, not all exchanges will support the asset you wish to buy. Major altcoins like LTC and DOGE are available on Coinbase, eToro and Webull. However, smaller altcoins, such as XDC and dYdX may need to be swapped on a decentralized exchange.
Cryptocurrency is offered by eToro USA LLC (“the MSB”) (NMLS: 1769299) and is not FDIC or SIPC insured. Investing involves risk
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What Has More Room to Grow: Altcoins or Bitcoin?
Some altcoins with solid development teams and software have lots of room to grow. However, many altcoins will also fail at some point. Altcoin growth depends on the merits of a specific project.
Compared to altcoins, Bitcoin is relatively safer. This is due to a large volume and market cap. However, it is still very volatile. Bitcoin may have more room to grow in the short run due to institutional buyers and hype surrounding Bitcoin ETFs.
Current Cryptocurrency Prices
In late October 2021, Bitcoin hit new all-time highs. This caused a market frenzy. Altcoins shot up double-digit percentage points, and other coins hit all time highs.
This came after the release of the Bitcoin ETF (NYSEARCA: BITO) on October 19, 2021. This was a huge step for Bitcoin in terms of entering the traditional financial industry. If you want to see where Bitcoin and large altcoins are trading at, make sure to check out our price table.
What’s Better: Bitcoin or Altcoins?
Bitcoin and altcoins both have their own strengths and weaknesses. Bitcoin is the largest cryptocurrency, but it is not as dynamic in terms of adoption. Altcoins can shoot up in price, but can also fail and leave investors empty-pocketed.
When deciding between Bitcoin and altcoins as an investment, one must take into account their personal risk tolerance, quality of the specific project and length of investment.
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About Caden Pok
Caden has been involved with crypto since 2018, when he began investing, trading, and mining tokens. He took part in undergraduate research studying cryptoeconomics at the University of Michigan, where he will graduate Phi Beta Kappa with a bachelor’s in economics in 2025. He is experienced with DeFi technology and multiple blockchains, currently investing in Ethereum and Bitcoin.