What is Bitcoin / Altcoins?

Bitcoin and Altcoins educational materials

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01 Bitcoin

Released as an open-source software in 2008, Bitcoin is described as the world’s first cryptocurrency based on Blockchain technology and is best defined as a digital currency that only exists electronically, also called “digital gold”. Bitcoin can be used for electronic payments, if both parties are willing. In that sense, it’s like conventional fiat currencies, which are also traded digitally.

Bitcoin’s most important characteristic is that it is decentralized, meaning it doesn’t have a central issuing authority or political institution that controls the amount in circulation. It is maintained by a group of coders, and run by an open network of dedicated computers spread around the system.

Through an unique combination of cryptography and economic incentives, Bitcoin solves the “double spending problem” of electronic currencies (in which digital assets can easily be copied and re-used). In traditional fiat currencies this function is executed by banks, which gives them control over the system. Using Bitcoin, the integrity of the transactions is maintained by a distributed and open network, owned by no-one.

In the blockchain, Bitcoins are registered to Bitcoin addresses created in exchanges or wallets. Creating a Bitcoin address requires to pick a random valid private key and computing the corresponding Bitcoin address. This calculation can be done in a split second. But the reverse, computing the private key of a given bitcoin address is mathematically unachievable. The Bitcoin address can be public without compromising its corresponding private key. There is no risk, because the number of valid private keys is extremely big that it is highly unlikely someone will compute a key-pair that is already in use. The vast number of valid private keys makes it impossible to compromise it with brute force. To be able to make a transaction with Bitcoin, the owner must know the corresponding private key and digitally sign the transfer. Using the signature the network verifies the public key.

If the private key is lost, the Bitcoin network will not identify any other evidence of ownership, then the coins will be unusable and effectively lost forever.

 

01 Altcoins

An altcoin is every digital cryptocurrency similar, but not Bitcoin. The term stands for “alternative to Bitcoin” and is used to describe any cryptocurrency that is not a Bitcoin. Altcoins are created by differing from Bitcoin consensus rules or by developing a new cryptocurrency protocol from scratch.

Most popular altcoins use the same algorithm as Bitcoin. This approach is relatively easy to carry out because Bitcoin is free, open source platform. When an altcoin forks at the blockchain level or build from scratch, an alternate system of consensus rules must be applied and the altcoin will have completely different distributed ledger.

Some altcoins have different monetary policy rules built into the currency protocol to stimulate different uses and consumption. Policies such as positive or negative interest on coins stored or minimum spend can encourage or discourage accumulation.

Generally, altcoins describe themselves as better substitutes to Bitcoin. The success of Bitcoin as the first peer-to-peer digital currency led the way for many to follow. Many altcoins are trying to overcome Bitcoin limitations with newer versions and competitive advantages.

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