What’s The Difference? • Benzinga

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Bitcoin is the largest cryptocurrency in the world. At the time of writing, it is currently trading above $60,000 per coin and has a market cap of over $1.2 trillion. Conversely, altcoins can trade for millionths of a cent. 

Along with major disparities in price, there are many other factors that differentiate Bitcoin from altcoins. Learn more now.

What is Bitcoin?

Bitcoin was created in 2008 by Satoshi Nakamoto, who remains anonymous to this day. It was the first ever cryptocurrency, paving the way for over 12,000 other tokens. It was created to establish a network that allowed for secure and decentralized payments.

Bitcoin utilizes a peer-to-peer network to facilitate transactions. This allows users to send BTC tokens to anyone else on the globe. Users can use wallet addresses to determine where the BTC goes and who has ownership. Once BTC is in a wallet, it is nearly impossible to steal it without the private key, which is held by the user. 

All transactions on the Bitcoin network are placed into a tamper-proof ledger. This way, all transactions are public and helps mitigate fraud. However, billions of transactions need a way to be verified for legitimacy. To do this, Bitcoin uses a proof of work consensus model.

What Are Altcoins?

The term “altcoin” is broad and simply refers to any cryptocurrency that is not Bitcoin. While there are a handful of large altcoins like ETH and ADA, none come close to Bitcoin in terms of market capitalization and trading volume. Nearly 40% of the crypto market is on the BTC network. 

Due less liquidity and smaller market caps than Bitcoin, most altcoins are more volatile than Bitcoin. Altcoins can double in seconds or lose all value in seconds. They are much less predictable than Bitcoin due to a much lower trading volume. This makes altcoins a more risky investment than Bitcoin.

Many altcoins are also on the Ethereum blockchain. The Ethereum blockchain is known to house smaller projects due to its focus on decentralized applications (dApps) and smart contracts. 

Other chains, such as Solana and Binance Smart Chain also support these protocols. These protocols allow for users to have much more freedom in creating currencies than the Bitcoin blockchain. Many smart contract and dApp wielding chains use proof of stake to verify the transactions of their altcoins.

Verification of transactions is essential for blockchains to be successful. It prevents fraud, increases security and makes chains more scalable. As of right now, Bitcoin uses a proof of work model of verification, while a majority of altcoins rely on a proof of stake model of verification. 

Bitcoin’s proof of work model uses community computing power to verify transactions. Computers on the network compete with each other to solve difficult math problems to receive block rewards. Block rewards are rewards given after a certain amount of time. In the case of Bitcoin, 6.25 BTC are divided out every 10 minutes to those who help verify transactions. 

Proof of work is a very secure method of verification as it relies on a third party. However, it uses massive amounts of energy. In 2020, Bitcoin used more energy than all of Austria combined. This presents major questions surrounding sustainability for the chain.

While Bitcoin uses a proof of work model, many altcoins use a proof of stake model of verification. A proof of stake system works by having validators lock up tokens for the chance to earn block rewards. Rewards are given according to the amount of the asset staked.

This method works by allowing validators to verify transactions and hold their investments as collateral. If validators fail to verify new additions to the ledger, a portion of their investment can be taken as punishment.

Proof of stake is very energy efficient. It hardly uses any energy in comparison to the proof of work model. However, there is a barrier for entry and those with large positions can have a larger influence on validation procedures. 

Altcoins are generally very different from Bitcoin. While Bitcoin is mainly used as a form of payment, altcoins can be used as governance tokens (AAVE, UNI) or stable assets pegged to the U.S. dollar (USDT, USDC). These tokens serve very different functions than Bitcoin. 

One major way altcoins differ from Bitcoin is the use of decentralized finance (DeFi.) DeFi is a way for financial and economic operations to be conducted in new ways. DeFi projects can range from decentralized exchanges (DEXes) to NFTs

These projects are pushing the limits of the internet, beyond just a payment system. Almost all DeFi projects and uses are not conducted on Bitcoin’s chain. In this way, Bitcoin is very limited in new projects it can produce, where altcoins have unlimited potential. 

Bitcoin is also very driven by institutional investors. Institutions buy billions of dollars of BTC as both an investment and hedge against inflation. Conversely, altcoins can be largely driven by retail investors and small firms. One example is Floki Inu, an altcoin whose price went up almost 2,000% due to a large community of small investors. 

Altcoins support a larger variety of tokens, contribute more to DeFi technology and token prices can often be influenced by retail investors. 

Bitcoin is mainly used as a form of payment. Because of the size of the network, it can securely support transactions ranging from pennies to billions of dollars. This can be a valuable tool for businesses across the globe. It can be used to process secure transactions with lower fees than traditional transactions.

Microsoft (NASDAQ: MSFT) has already begun using Bitcoin, accepting it in the Xbox and Windows marketplaces. Microsoft was among the first major companies to begin accepting Bitcoin as a form of payment. CEO Bill Gates has also been quoted saying, “Bitcoin is better than currency.” Perhaps this is the first step towards a much larger Bitcoin adoption.

While altcoins can be used as a form of payment, many of their uses are in different areas. One area is insurance. Altcoins can utilize smart contracts to automate the insurance process. Individuals can submit insurance claims, and smart contracts will determine how much money should be given. This would greatly increase efficiency in the industry.

Another use for altcoins lies in government. Governments can use NFTs to store public records to mitigate fraud. They can also use altcoins to automate tedious tasks with smart contracts, such as legal disputes and real estate transactions. France’s government has already begun to incorporate stablecoins into their bond and interest rate markets. 

If you are looking to buy Bitcoin, almost every exchange and brokerage offers it. Coinbase, eToro, Public.com and Webull are all great options for buying Bitcoin. They are quick, secure and easy-to-use.

If you are looking to purchase an altcoin, not all exchanges will support the asset you wish to buy. Major altcoins like LTC and DOGE are available on Coinbase, eToro and Webull. However, smaller altcoins, such as XDC and dYdX may need to be swapped on a decentralized exchange. 

1 Minute Review

eToro, headquartered in Cyprus, England and Israel, has provided forex products and other CFD derivatives to retail clients since 2007. A major eToro plus is its social trading operations, including OpenBook, which allows new clients to copy trade the platform’s best performers. Its social trading features are top notch, but eToro loses points for its lack of tradable currency pairs and underwhelming research and customer service features

Best For

  • U.S. based cryptocurrency traders
  • Social and copy traders
  • Simple user interface
  • Community engagement and following other traders
Pros

  • 25 cryptocurrencies
  • Expansive network of social trading features
  • Large client base for new traders to imitate
Cons

  • U.S. traders can only buy cryptocurrency

1 Minute Review

Coinbase is one of the Internet’s largest cryptocurrency trading platforms. From Bitcoin to Litecoin or Basic Attention Token to Chainlink, Coinbase makes it exceptionally simple to buy and sell major cryptocurrency pairs. 

You can even earn cryptocurrency rewards through Coinbase’s unique Coinbase Earn feature. More advanced traders will love the Coinbase Pro platform, which offers more order types and enhanced functionality.

Though Coinbase doesn’t offer the most affordable pricing or the lowest fees, its simple platform is easy enough for complete beginners to master in as little as a single trade.

Best For

  • New cryptocurrency traders
  • Cryptocurrency traders interested in major pairs
  • Cryptocurrency traders interested in a simple platform
Pros

  • Simple platform is easy to operate
  • Comprehensive mobile app mirrors desktop functionality
  • Coinbase Earn feature rewards you with crypto for learning about available coins
Cons

  • Higher fees than competitors

Some altcoins with solid development teams and software have lots of room to grow. However, many altcoins will also fail at some point. Altcoin growth depends on the merits of a specific project.

Compared to altcoins, Bitcoin is relatively safer. This is due to a large volume and market cap. However, it is still very volatile. Bitcoin may have more room to grow in the short run due to institutional buyers and hype surrounding Bitcoin ETFs. 

In late October 2021, Bitcoin hit new all-time highs. This caused a market frenzy. Altcoins shot up double-digit percentage points, and other coins hit all time highs. 

This came after the release of the Bitcoin ETF (NYSEARCA: BITO) on October 19, 2021. This was a huge step for Bitcoin in terms of entering the traditional financial industry. If you want to see where Bitcoin and large altcoins are trading at, make sure to check out our price table. 

Bitcoin and altcoins both have their own strengths and weaknesses. Bitcoin is the largest cryptocurrency, but it is not as dynamic in terms of adoption. Altcoins can shoot up in price, but can also fail and leave investors empty-pocketed. 

When deciding between Bitcoin and altcoins as an investment, one must take into account their personal risk tolerance, quality of the specific project and length of investment.

Benzinga crafted a specific methodology to rank cryptocurrency exchanges and tools. We prioritized platforms based on offerings, pricing and promotions, customer service, mobile app, user experience and benefits, and security. To see a comprehensive breakdown of our methodology, please visit see our Cryptocurrency Methodology page.

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