All cryptocurrencies other than bitcoin (BTC) were first described as altcoins For one reason only: There was an increase in projects copying and pasting the bitcoin source code. Cryptocurrencies in the early stages were not unique enough to have a distinctive term, so “altcoin” (alternative currencies) fit its description better. The community, at the time, didn’t think much of other cryptocurrencies due to the potential advancement of bitcoin: its future price growth, use cases, adoption by the general public, etc. It was the leader of cryptocurrencies.
But things changed when people noticed the Ethereum smart contract platform, as it can produce “smart contract tokens” – cryptocurrencies with the ability to perform intelligent tasks autonomously.
This led the community to distinguish altcoins from tokens. Altcoins were now currencies that had their own blockchain, and tokens were defined as cryptocurrencies created on smart contract platforms.. The other factor that is in play is that there are many blockchain projects that are rapidly scaling and declining bitcoin dominance.
The community began to notice weaknesses in the correlation of bitcoin with other currencies as other new and interesting projects emerged.which caused the world of cryptocurrencies to rethink how they view them.
Now, Each altcoin stands apart in the market 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 outperform bitcoin one way or another, their value still depends entirely on the market capitalization of bitcoin.
The community began to envision a world where various cryptocurrencies, not just bitcoin, can change the world. Now, with the growing dominance of Ether (ETH) in the market, it is clear that Ethereum is the leader in cryptocurrency innovation. A large percentage of today’s tokens are ERC-20 Ethereum smart contractsso the way token miners rank their projects is easily normalized in the community.
Ethereum’s role in cryptocurrency rankings
The Ethereum ecosystem is responsible for all the advancements of cryptocurrencies and the interest of the general public, starting with initial coin offerings (ICOs), which upended the initial public offering model by allowing anyone to buy a project’s coin at its launch. The attention from ICOs led to many use cases for ERC-20 tokens, with developers making their next cryptocurrency an Ethereum-based token, while crypto users had an incentive to learn more about the technology. With a wide variety of ERC-20 tokens, our human nature must step in to categorize and associate things.
The term “altcoin” is no longer an acceptable way to define 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 staking coin, a liquidity mining coin, a crypto derivative, a stablecoin, a utility token, etc.. They are aware that cryptocurrencies do much more than send and receive payments.
“Meme tokens” have also entered the vocabulary of cryptocurrencies
“Meme token” is a term most crypto users are familiar with due to Elon Musk tweeting to the world about Dogecoin (DOGE). But the cryptocurrency community had to make the distinction between tokens and meme tokens, as cryptocurrencies are capable of highly intellectual activity. Tokens based on social media content could potentially affect how the crypto industry is perceived, so another classification had to be established.
The rise of non-fungible tokens (NFT) showed that the cryptocurrency community is willing to accept and learn about new definitions. Can you imagine NFTs being described as altcoins? By definition, they technically are, but NFTs can do a lot of things that show their difference. The community recognizes that NFTs are ERC-721 tokens and recognizes the capabilities that they possess. To get started, they are structured to make cryptocurrencies unique, with no two tokens sharing the same value.
“GameFi” (gaming DeFi) is another term that has been added to the cryptocurrency dictionary. It is about the fusion of blockchain technology with NFTs, liquidity mining and other DeFi protocols. The result is games where people can earn real cryptocurrencies and trade assets. GameFi is still new, so there’s a chance something hot will emerge and lead to more rankings within the space.
The cryptocurrency community is getting smarter
The collective understanding of the cryptocurrency community is rapidly improving. Content creators, influencers, and YouTubers are also good at turning complex jargon into easy-to-digest information. The community recognizes that correctly classifying cryptocurrencies increases the chances of finding good new projects early. For example, telling someone that a revolutionary NFT is just an altcoin will influence their first impression and possibly give the NFT less value.
Ranking cryptocurrencies helps to compare them. To effectively compare cryptocurrencies, you need to know what they are and if others are doing the same. This is why Dash cannot be compared to something like ADA: one is a payment cryptocurrency, while the other is the utility token of a proof-of-stake smart contract platform.
Another argument for the collapse of the ranking of bitcoin vs. altcoins is the variation of the correlations between BTC and other currencies. While the correlation is high between some pairs, others demonstrate a weaker dependency on each other. For example, ADA and XRP show lower correlation with other digital assets, not to mention that stablecoins like Tether (USDT) show negative correlations.
Classifications also help diversification. You can have your crypto distributed among several currenciesbut the phrase “don’t put all your eggs in one basket” may apply to you if all your coins are under the same classification.
Although an increasing number of new cryptocurrency concepts are emerging, we can lump them all—DeFi, GameFi, NFT, and meme tokens—into the altcoin group.. From a trader’s point of view, many believe that altcoins will outperform in the future, although there may be a weaker consensus than there is with bitcoin for now.
As a Bitcoin maximalist and CEO of a cryptocurrency exchange, I am glad that more rankings are coming as the industry can hardly achieve mass adoption with bitcoin alone.
This article does not contain investment advice or recommendations. All investments and trading involve risk, and readers should do their own research when making a decision.
The views and opinions expressed here are solely those of the author and do not necessarily reflect the views and opinions of Cointelegraph.
Johnny Lyu is the CEO of KuCoin, one of the largest cryptocurrency exchanges, which was launched in 2017. Before joining KuCoin, he had accumulated abundant experience in the e-commerce, automobile, and luxury industries.
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