All cryptocurrencies except Bitcoin (BTC) were first described as altcoins for one reason only: there has been an increase in projects that have copied and pasted Bitcoin source code. Cryptocurrencies in the early stages were not unique enough to have a special term, so “altcoin” (alternative coins) best fits their description. At that time, the community did not think too much about other cryptocurrencies due to the potential progress of Bitcoin – its future price growth, use cases, general acceptance, etc. He was a leading leader in cryptocurrencies.
But things changed when people got caught up in the Ethereum smart contract platform, as it can produce “smart contract tokens” – cryptocurrencies with the ability to perform intelligent tasks independently.
This resulted in the community distinguishing altcoins from tokens. Altcoins were now coins that had their own chain of blocks, and tokens were defined as cryptocurrencies created on smart contract platforms. Another factor that works now is that there are many blockchain projects that are rapidly increasing and decreasing the dominance of Bitcoin.
The community began to notice weaknesses in Bitcoin’s correlation with other coins as other exciting new projects emerged that challenged the cryptoworld to rethink how it sees cryptocurrencies.
Now, every altcoin on the market is different in that it offers a unique set of features related to things like transaction management, scripting language, mining mechanisms, and unanimous algorithms. Although the superior properties of altcoins may surpass Bitcoin in one way or another, their value still depends entirely on the market capitalization of Bitcoin.
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The community has begun to imagine a world where different cryptocurrencies, not just Bitcoin, can disturb the world. Now, with the growing dominance of Ether (ETH) in the market, it is clear that Ethereum is a leader in crypto innovation. A large percentage of tokens today represent Ethereum ERC-20 smart contracts, so the ways in which token forgers sort their projects are easily normalized in the community.
The role of Ethereum in cryptocurrency classifications
Ethereum’s ecosystem is responsible for every cryptocurrency advancement and general interest, starting with the initial coin offering (ICO) – which has disrupted the initial public offering model as it has allowed everyone to buy a project coin at launch. The attention of ICOs has led to many examples of the use of ERC-20 tokens, with developers making their next cryptocurrency an Ethereum-based token and cryptocurrency users encouraged to learn more about the technology. With the wide range of ERC-20 tokens, our human nature needs to intervene in categorizing and connecting 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, be it an investment coin, a liquidity mining coin, a crypto derivative, a stable coin, a usable token, and so on. They are aware that cryptocurrencies do much more than send and receive payments.
“Meme tokens” have also entered the crypto vocabulary.
“Meme token” is a term familiar to most cryptocurrency users because Elon Musk tweeted to the world about Dogecoin (DOGE). But the crypto community had to differentiate between tokens and meme tokens, as cryptocurrencies are capable of highly intellectual activity. Tokens based on social media content could influence the perception of the cryptosector, so further classification had to be determined.
The rise of irreplaceable tokens (NFT) has proven that the crypto community is ready to get involved and learn new definitions. Imagine if NFT were described as altcoins? By definition they are technically, but NFTs can do so much, which makes a difference. The Community recognizes that NFTs are ERC-721 tokens, and recognizes the capabilities they have. To begin with, they are structured so that cryptocurrencies are unique, with no two tokens having the same value.
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“GameFi” (gaming DeFi) is another term that has been added to the crypto dictionary. He is involved in combining blockchain technology with NFT, liquidity mining and other DeFi protocols. The result is games in which people can earn real cryptocurrencies and trade assets. GameFi is still new, so there is a possibility that something trendy will emerge and lead to further classifications in the space.
The crypto community is getting smarter
The common understanding of the crypto community space is rapidly improving. Content creators, influencers, and YouTubers are also good at converting complex jargon into information that is easy to digest. The community is aware that the correct classification of cryptocurrencies increases the chances of finding good new projects early. For example, telling someone that revolutionary NFT is just altcoin will affect their first impression and may give NFT less value.
Sorting cryptocurrencies helps in comparing them. To effectively compare cryptocurrencies, you need to know what they are and whether others are doing the same. That’s why you can’t compare Dash to something like the ADA – one is a cryptocurrency payment and the other is a useful token of a smart contract platform to prove your stake.
Another argument for the collapse of the Bitcoin classification compared to altcoins is the different correlations between BTC and other coins. While the correlation within some pairs is high, others show a weaker dependence on each other. For example, ADA and XRP show a lower correlation with other digital assets, not to mention that stable coins such as Tether (USDT) show negative correlations.
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Classifications also help with diversification. You can split your crypto between several coins, but 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 more and more new crypto concepts are emerging, all of them – DeFi, GameFi, NFT and meme tokens – can still be placed under the umbrella of altcoins. From the point of view of traders, many believe that altcoins will have a higher return in the future, although there may be a weaker consensus than Bitcoin for now.
As a Bitcoin maximalist and crypto exchange CEO, I am glad that more classifications are emerging, as the industry alone finds it difficult to achieve mass acceptance with Bitcoin.
This article does not contain investment advice or recommendations. Every investment and trading move involves risk and readers should do their own research when making a decision.
The opinions, thoughts and opinions expressed herein 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, established in 2017. Before joining KuCoin, he gained extensive experience in the e-commerce, automotive and luxury industries.