A Is For Altcoin: Alternative Tokens and ICOs

Altcoins are cryptocurrencies that provide an alternative to Bitcoin.

The term is not absolute: it can refer to any cryptocurrency that is not Bitcoin, or it can refer to cryptocurrencies that exist below an arbitrary ranking that is outside of mainstream awareness.

How Many Altcoins Are There?

As of June 2020, there are over 5500 different altcoins.

However, that only accounts for altcoins significant enough to earn recognition from CoinMarketCap. Coingecko, by contrast, lists 7651 different altcoins. Furthermore, widely-recognized altcoins may be just the tip of the iceberg: Ethereum also supports many otherwise invisible tokens.

Though there are many altcoins, they only account for a minority of the market's entire capitalization. Altcoins hold about 1/3 of the market's entire "dollar value," while Bitcoin holds about 2/3 of the market's total dollar value.

Why Are There So Many Altcoins?

There are many factors that have led developers to create altcoins:

Code forks: Bitcoin’s code is open-source. This has allowed projects like Namecoin (2011), Litecoin (2011), Peercoin (2012), and Dogecoin (2013) to modify that code for their own purposes.

Chain forks: Divisions within blockchain networks and communities have led to the creation of coins like Bitcoin Cash (forked from Bitcoin in 2017) and Ethereum Classic (forked from Ethereum in 2015). A complete list of Bitcoin chain forks can be viewed here.

Ethereum token standards: In 2015, Ethereum introduced ERC-20, giving users the ability to create their own cryptocurrency without launching a new blockchain. There are over 267,000 ERC-20 contracts according to Etherscan and over 2500 ERC-20 tokens according to Bloxy.

Other token standards: Other blockchains have followed Ethereum’s lead and introduced their own standards, such as TRON (TRC-20), NEO (NEP-5), and Binance Chain (BEP-2). However, these standards are considerably less popular than Ethereum’s own standard.

ICOs: Prior to 2018, the crypto market was highly unregulated, which made it easy for developers to run fundraisers (Initial Coin Offerings, or ICOs) for their altcoin. This led to the so-called “ICO boom” of 2018, during which ICOs raised $11-22 billion over one year.

IEOs: Exchanges like Binance have introduced Initial Exchange Offerings, in which projects run a token sale by partnering with the exchange. This allows projects to offload some of the harder parts of launching an altcoin, such as marketing and regulatory approval, to that exchange.

Challenges For Altcoins

Though the number of altcoins grows each day, there are factors that limit their individual success.

Regulations: Rules imposed by the Securities and Economics Commission (SEC) have made it difficult for developers to raise funds for new altcoins.

Some projects, such as EOS and Sia, have settled with the SEC and paid a fine. Others, such as Kin, are fighting the SEC in court. Others still are running ICOs in more permissive countries, or avoiding ICOs altogether and betting on their altcoin's inherent utility to generate value.

Value: Many altcoins have very low market value, and many lose their value after a period of initial hype. At least 2000 altcoins are "dead", and some tokens, such as Embiggen and Notcoin, are merely intended as conceptual tokens with any real value.

Listing fees: Exchanges usually charge projects significant fees to projects that want to list their altcoin---between $500,000 and $1 million, according to a 2018 report from Business Insider.

There are ways around this: some exchanges offer long-term payments and per-trade trading fees instead of an upfront fee. Extremely popular altcoins are naturally sought after by exchanges and given free listings.

Competition: Many altcoins serve very similar purposes or split away from larger projects over minor differences. As such, it is difficult for new altcoin projects to build their own identity in a highly-populated crypto market.

Originally published on Publish0x