ALTCOINS EXPLAINED: KEY DIFFERENCES FROM BTC AND ETH

Altcoins, short for “alternative coins,” refer to all cryptocurrencies that are not Bitcoin. Ethereum, though a major player, is also technically an altcoin—though, in practice, the crypto community often treats Bitcoin (BTC) and Ethereum (ETH) as distinct from other altcoins due to their dominance and unique roles in the digital asset ecosystem.

Altcoins encompass a vast range of blockchain-based tokens and coins that vary in structure, use case, and function. Some are designed to improve upon Bitcoin’s perceived limitations; others serve entirely different functions such as enabling decentralised finance (DeFi), powering web applications, or facilitating governance in decentralised autonomous organisations (DAOs). Examples include:

• Litecoin (LTC): Created to offer faster transaction times than Bitcoin.
• Cardano (ADA): Focuses on sustainability and academic research in blockchain design.
• Polkadot (DOT): Enables interoperability among multiple blockchains.
• Chainlink (LINK): Facilitates real-world data integration with smart contracts.
• Solana (SOL): Provides high-speed, low-cost smart contract functionality.

Many altcoins are built on Ethereum’s ERC-20 or ERC-721 token standards, leveraging Ethereum's existing infrastructure. Others use their own independent blockchains. The proliferation of altcoins reflects innovation in the field, as each new project strives to address a specific challenge or explore new possibilities within decentralised frameworks.

While many altcoins have viable use cases, it is also true that a large number of them suffer from lack of utility, security concerns, or poor adoption. Therefore, critical due diligence is essential for those looking to invest or participate in altcoin ecosystems. Altcoins remain essential to diversifying the broader blockchain environment, pushing the boundaries beyond Bitcoin’s original model.

Altcoins often aim to improve upon or offer alternatives to the limitations presented by Bitcoin. These differences manifest in a variety of dimensions—technological, economic, and philosophical. Below we explore the primary distinctions:

1. Consensus Mechanisms

Bitcoin uses a Proof-of-Work (PoW) consensus mechanism that requires significant computational energy. While secure, it has drawn criticism for high energy consumption. Many altcoins utilise alternative consensus mechanisms such as:

• Proof-of-Stake (PoS): Used by Cardano and now Ethereum 2.0, PoS consumes less energy and offers faster transaction speeds.
• Delegated Proof-of-Stake (DPoS): Implemented by EOS to allow higher throughput through elected validators.
• Proof-of-History (PoH): Adopted by Solana for ultra-fast transaction confirmation.

2. Transaction Speed and Scalability

Bitcoin processes approximately seven transactions per second (TPS), whereas many altcoins offer much higher throughput. For instance:

• Litecoin: Processes up to 56 TPS.
• Solana: Claims 50,000+ TPS under ideal network conditions.

These performance differences make certain altcoins more suitable for fast-paced applications like gaming or microtransactions.

3. Use Cases and Ecosystems

While Bitcoin functions primarily as a decentralised store of value—a “digital gold”—altcoins offer a broader array of uses:

• Smart Contracts: Platforms like Ethereum, Cardano, and Avalanche allow the creation of decentralised applications (dApps).
• Privacy Features: Monero (XMR) and Zcash (ZEC) focus on anonymising transaction data.
• Interoperability: Polkadot enables cross-chain communication.
• Stablecoins: Coins such as USDC and DAI are pegged to fiat currencies to minimise volatility.

4. Monetary Policy

Bitcoin’s supply is capped at 21 million. Many altcoins differ significantly:

• Inflationary Models: Coins like Dogecoin have no supply limit, promoting continuous issuance.
• Deflationary Models: Tokens like BNB include regular “burn” events to reduce total supply.

These economic policies create differing incentives and long-term value proposition for holders and developers alike.

5. Community and Governance

Bitcoin’s development is conservative and community-driven via Bitcoin Improvement Proposals (BIPs). Many altcoins adopt different models:

• On-chain Governance: Projects like Tezos and Polkadot involve token holders in direct governance decisions.
• Foundation-led Development: Coins like Cardano are guided by organisations that steer protocol evolution.

These approaches influence how responsive the project is to bugs, upgrades, and ecosystem shifts.

In summary, altcoins differentiate themselves from Bitcoin by expanding upon or rethinking fundamentals—from consensus protocols to real-world applications—thereby enriching the blockchain landscape.

Though Ethereum itself is an altcoin by strict definition, its broad utility as a smart contract platform and its market dominance set it apart from other altcoins. Comparing altcoins with Ethereum highlights distinct differences in technology, versatility, and network effects that define this evolving space.

1. Smart Contract Compatibility

Ethereum introduced the concept of self-executing contracts with the Ethereum Virtual Machine (EVM). Most altcoins either:

• Support EVM (e.g., Avalanche, Binance Smart Chain), allowing high compatibility with Ethereum apps.
• Create alternative infrastructures, such as Cardano’s Plutus or Solana’s Rust-based environment, which differ in coding language and design philosophy.

These distinctions impact how dApps are developed and deployed across ecosystems.

2. Ecosystem Maturity

Ethereum boasts the largest number of decentralised applications, developers, and active users. It has a first-mover advantage and strong adoption in sectors including:

• Decentralised finance (DeFi)
• Non-fungible tokens (NFTs)
• Initial coin offerings (ICOs)

Altcoins seeking to compete must either offer substantial performance improvements or cater to niche functionalities.

3. Scalability and Performance

Historically, Ethereum has faced congestion issues and high network fees. Emerging altcoins address this by prioritising scalability and speed:

• Solana: Known for ultra-fast block times and low costs.
• Algorand: Focuses on fast finality for institutional-grade applications.

Ethereum's transition to Proof-of-Stake and Layer 2 solutions like Optimism and Arbitrum aim to close this gap, but performance remains a battleground.

4. Governance and Development Direction

Ethereum is governed by a decentralised community of developers, steered by the Ethereum Foundation. In contrast:

• Cardano: Uses formal methods and peer-reviewed research under the leadership of IOHK.
• Polkadot: Features advanced governance tools like on-chain voting and treasury proposals.

Different governance models influence the speed and inclusivity of protocol upgrades.

5. Token Economics

ETH, Ethereum’s native token, plays a crucial role in transaction fees and as collateral in DeFi. Some altcoins adopt different models:

• Dual-token systems (e.g., NEO and GAS).
• Utility-based tokens with embedded staking rewards (such as Tezos and Cosmos).

These variations reflect different economic priorities—whether decentralisation, developer funding, or user engagement.

Overall, while many altcoins aim to challenge Ethereum’s primacy by improving speed, cost, or governance, Ethereum's depth and established ecosystem make it a strong player. The interplay between ETH and altcoins is thus both competitive and complementary, with interoperability increasingly forming a unifying goal.