Today, the world of cryptocurrencies includes thousands of different coins, each with its own characteristics and purposes. In this article, we will define altcoins, explain how they appeared, and compare them with Bitcoin in terms of function and use.

Altcoin (from alternative coin) is any cryptocurrency or token that is not Bitcoin. The term applies both to native blockchain coins (such as ETH, ADA, SOL) and to tokens issued on top of other networks (such as USDT on Ethereum, TRON, etc.).

Why Do We Need Altcoins?

Most altcoins aim to solve a wider range of tasks than Bitcoin originally did: creating smart contracts, Web3 applications, and systems with alternative approaches to speed, cost, and more.

Altcoins can be roughly divided into three groups:

  1. Layer-1 blockchain coins
    Native assets that power their own networks and pay transaction fees: ETH in Ethereum, SOL in Solana, TRX in TRON, ADA in Cardano, XRP in XRP Ledger, BNB in BNB Chain, LTC in Litecoin, XMR in Monero, DOGE in Dogecoin, etc. These are the base layers on which applications and token standards are built.
  2. Layer-2 networks and their native tokens
    L2 solutions scale base networks (most notably Ethereum) while inheriting their security. Transactions are aggregated outside L1 and finalized on the base layer. Some L2 networks issue their own governance and incentive tokens (e.g., ARB in Arbitrum, OP in Optimism, STRK in StarkNet), though gas in EVM-compatible L2 is often paid in ETH. Examples include Arbitrum, Optimism, Base, zkSync, and StarkNet. Their role is to increase throughput and reduce fees without changing L1 rules.
  3. Tokens on top of L1 and L2 platforms
    Issued via smart contracts according to standards: ERC-20 (Ethereum and EVM-compatible L2, including Arbitrum and Optimism), BEP-20 (BNB Chain), TRC-20 (TRON), SPL (Solana), etc. These include utility tokens, stablecoins, and application-specific assets. A token can exist across multiple networks, but its true “home” is the one where it was first deployed.

How Did Altcoins Appear?

Bitcoin was minimalistic from the start: limited supply, PoW mechanism, and a simple scripting language without full programmability. Naturally, developers wanted to try new ideas — from alternative network parameters to new functions.

Altcoins first appeared between 2011–2014:

  • Namecoin (2011): decentralized domain names and identifiers using Bitcoin-like mechanics.
  • Litecoin (2011): “silver to Bitcoin’s gold” — faster blocks (~2.5 min), different hash function, 84M supply.
  • Peercoin (2012): first steps toward Proof-of-Stake (staking instead of mining).
  • Ripple/XRP Ledger (2012): separate payment ledger with fast confirmations and fixed initial supply.
  • Dogecoin (2013): the first meme coin that became popular thanks to simplicity and low fees.
  • Monero (2014): focus on transaction privacy and coin fungibility.

Altcoins began as experiments and alternatives to Bitcoin — with changes in block generation times, consensus models, issuance, and functionality.

Later, the need arose for platforms where tokens could be issued, rules formalized as smart contracts, and financial services built without intermediaries. This led to Layer-1 platforms like Ethereum, BNB Chain, TRON, Solana, and Cardano. They allow not only coin transfers but also contract execution. Token standards (ERC-20, BEP-20, TRC-20, etc.) emerged, ensuring wallets and exchanges could handle them consistently. To improve scalability and reduce fees without changing L1 rules, Layer-2 solutions like Arbitrum, Optimism, and zkSync appeared.

Decentralized Solutions in Practice

  • DEX: crypto trading directly from wallets without central operators. Prices form through liquidity pools with automated market makers or on-chain order books.
  • DAO: governance of protocols via token-holder voting, with rules enforced by smart contracts.
  • Earn and staking: earning income from assets — staking in PoS networks or lending, liquidity provision, etc. in DeFi.
  • Lending and borrowing: loans secured by tokens, with terms, interest, and liquidation handled by smart contracts.
  • Stablecoins: tokens with stable value (usually pegged to USD); network choice affects fees and confirmation speed.

Altcoins evolved from simple payment alternatives to full-fledged ecosystems. Native coins serve as settlement assets and fee tokens, while other tokens became standard tools for assets, rights, and services — from swaps and loans to staking and governance.

Since 2020, the market has matured: users prioritize speed and low fees, businesses need predictable costs, and developers seek better tools. Blockchains are no longer just payment systems but ecosystems with specialization. L2 solutions offload L1, making transactions faster and cheaper.

Practical Changes

  • DeFi became mainstream. DEX swaps, collateralized loans, liquidity pools, and yield strategies run by smart contracts without intermediaries.
  • NFTs as rights representation. Not just images but also in-game items, tickets, memberships, and service access — all governed by contracts.
  • L2 networks eased L1 congestion. Ethereum L2s (Arbitrum, Optimism, zkSync, StarkNet, etc.) handle many transactions off-chain, then publish results to L1, increasing throughput and lowering fees while maintaining security.
  • Alternative L1s specialized. Solana emphasizes high throughput, BNB Chain focuses on low fees and Ethereum compatibility, TRON is popular for low-cost stablecoin transfers. Each balances speed, cost, and integration differently.
  • Stablecoins became standard. USDT, USDC, and others exist across multiple chains, simplifying settlements. Network choice affects fees and speed.
  • Niche solutions emerged. Networks and protocols for private payments, gaming, real-world asset tokenization, and specialized registries.

Altcoins and L2 solutions address programmability, scalability, and tokenization. Bitcoin remains the resilient monetary layer, while L1 and L2 ecosystems focus on daily use cases like swaps, transfers, loans, governance, and staking.

Takeaway on Altcoins

Altcoins did not emerge to oppose Bitcoin but to meet new needs: programmable finance, tokenization, speed, privacy, and tailored use cases.

Why Altcoins Shouldn’t Be Compared to Bitcoin

  • Different purposes: Bitcoin is primarily money and a store of value. Altcoins are platforms and tools for applications and fast payments.
  • Different architectures: PoW versus PoS/DPoS and many parameter variations.
  • Different monetary policies: BTC has a fixed cap; altcoins vary — fixed caps (LTC, XRP), burning (ETH with EIP-1559, BNB), continuous issuance (DOGE), tail emissions (XMR), etc.

Extra: PoW, PoS, and DPoS

  • PoW (Proof of Work): miners solve computational puzzles to create blocks. Security comes from total hash power; costly to attack but energy-intensive and slower. Examples: Bitcoin, Litecoin.
  • PoS (Proof of Stake): validators stake tokens and are selected to propose/confirm blocks based on stake size and randomness. Efficient and scalable, though large stakers concentrate power. Examples: Ethereum, Cardano, Solana.
  • DPoS (Delegated Proof of Stake): token holders vote for a limited set of delegates who produce blocks in turn. Fast and scalable, but risks political centralization. Examples: TRON, EOS.

Summary: PoW prioritizes resilience with high resource costs, PoS balances efficiency and security, and DPoS maximizes speed through fewer block producers.

Conclusion

Altcoins appeared because, after Bitcoin, the market needed other features: programmability, speed, privacy, token standards, and specialized payment systems. The evolution was gradual — from forks with single features, to smart contract platforms, to full ecosystems with DeFi, NFTs, and stablecoins.

Bitcoin is sound money with strict supply rules; altcoins are a diverse set of technologies serving different goals. When choosing, consider the purpose of the network, its consensus, its monetary policy, and its layer type (L1 coin or token standard).