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Bitcoin, Altcoins and Stablecoins: What’s the Difference?

As of October 2021, the global cryptocurrency market is worth more than $2.4 trillion USD equivalent, with just under half of that market share belonging to Bitcoin (BTC). The entire digital asset industry emerged from nothing in a little over a decade, and its meteoric rise to prominence has stunned even its most fervent supporters.

Today there are over 11,000 altcoins in existence, most of which differ greatly from Bitcoin. All of this variety and complexity can make this ecosystem extremely exciting, but also difficult to understand- at first!

One thing that can be important to understand is the difference between Bitcoin, Altcoins and Stablecoins. These represent three different types of digital assets, functionally speaking , although the term “cryptocurrencies” often refers to all of these types of digital assets.

Bitcoin On January 3rd, 2009, the first block of the Bitcoin blockchain was mined. This marked the official beginning of the world's first cryptocurrency, Bitcoin, and the opening of a veritable pandora's box of innovation that would lead to the birth of an entirely new industry.

Only twelve years after its inception, BTC is a worldwide phenomenon. Its massive impact and influence on the evolution of digital assets has made it practically synonymous with the cryptocurrency movement itself.

Bitcoin initiated a revolutionary approach to money: it proposed a decentralized system, free of any top-down rulemakers, to address the shortcomings of centralized institutions.

Today, more and more people are recognizing Bitcoin as an important financial technology, to the point where it’s become a standard medium of exchange in certain economies and a widely used store of value in others. For example, El Salvador officially announced its plan to recognize BTC as legal tender on June 9th, 2021, and will likely be only the first of many countries to do so.

The Bitcoin network is made up of miners, nodes and users which are distributed all over the world.

On a structural level, Bitcoin's decentralized base layer makes it highly resistant to the control and influence of third parties. Bitcoin optimizes for security and decentralization as its core focus, while it achieves scalability via Layer 2’s, mainly the Lightning Network.

And while most Bitcoin developments currently focus on monetary applications, various Layer 2 projects seek to bring programmability to BTC via Rootstock and other smart contract platforms. This community-driven focus on innovation leads us to consider other altcoins whose objectives differ from Bitcoin’s.

Altcoins Two years after Bitcoin’s inception, Namecoin – the first Bitcoin fork (a copy of the Bitcoin blockchain) – was launched. Namecoin sought to improve upon the BTC system by making user domains less visible; however, it failed due to a slew of reasons, mostly related to poor leadership and difficulty of use.

While Namecoin is no longer actively used, it marked the beginning of a passionate wave of innovation that resulted in the creation of more Bitcoin forks (Litecoin and Privacy Coins) and later Ethereum, which became a driving innovator in the cryptocurrency industry.

What Do Altcoins Do? Currently, the majority of altcoins are focused on specific-use cases. These include decentralized computation platforms and financial products like exchanges, options protocols, and borrowing/lending platforms. Other types of altcoins can include privacy coins or governance tokens that allow users to make decisions for various protocols.

Whereas Bitcoin seeks to have a robust base layer which is only changed rarely, many other altcoins focus on rapid innovation! What all of these projects have in common is that they are seeking to accomplish their given goal in a decentralized manner, built on top of blockchain infrastructure.

With the exception of privacy coins, the vast majority of altcoins are built on top of Layer 1 computational platforms, such as Ethereum and other similar projects. These are programmable base layers that permit blockchain developers to deploy complex applications on top of the network

As an example, the Ethereum network has allowed users to develop applications that facilitate the ability of users to lend and borrow funds, issue security tokens, and earn income via various De-Fi (Decentralized Finance) protocols. These projects present a fundamentally new way to provide financial services, and as such have captured the imagination of many passionate investors and users.

However, due to this focus on driving innovation, such altcoins are often subject to drastic fluctuations in price, which makes them potentially less suitable for storing wealth or conducting transactions.

Stablecoins Stablecoins, on the other hand, are designed to be stable in value. The first and original stablecoin is the Tether token (USDt), which launched in July 2014.

A stablecoin is issued on a blockchain, with the goal of maintaining a stable value that can be used to trade, hedge and transact on various blockchain networks . The total supply of stablecoins currently exceeds $100 billion USD, with USDt representing over 70% of that total as of September 2021.

Tether tokens are designed so as to be redeemable by Tether, thanks to its reserves. On Tether.to, 1 USDt equals one dollar. Other stablecoins might be pegged to assets like gold, or various other fiat currencies including the Euro, Yuan, and others.

Defining Stability First off, it may come as a surprise that not every stablecoin is “stable.” Different networks utilize different approaches to maintaining a fixed value, and not all are successful.

There are two kinds of stablecoins: collateralized and uncollateralized. A collateralized stablecoin, such as the USDt, is backed by asset reserves. The value of reserves matches or exceeds the value of all Tether tokens in circulation. Reserves include traditional currency and cash equivalents and, from time to time, may include other assets and receivables from loans made by Tether to third parties.

Uncollateralized stablecoins use various algorithmic methods to maintain price stability. However, these coins have historically suffered much higher levels of volatility compared to USDt. As such, algorithmic stablecoins currently only represent a small fraction of the total supply of stablecoins in the market.

For seven years, USDt has always been redeemable for 1$ which has allowed it to maintain a constant value unlike most cryptocurrencies. Even at first glance, it's apparent that the goal of a stablecoin is very different from the goal of Bitcoin or those of various altcoins.

However, USDt owes much of its success to Bitcoin and the digital asset ecosystem! Each of these types of digital assets actually enhances the value and need for the others.

USDt’s success is in large part due to the global community of cryptocurrency users who wanted a stable digital store of value that is easily able to move between exchanges and could be used within financial applications.

The Future of Money Stablecoins represent a genuinely disruptive financial technology that challenges the incumbent payment industry. And as the creator of the first and largest stablecoin, Tether embraces a leading role driving forward financial innovation.

By the end of the decade, it's likely that millions of people will utilize stablecoins, especially in countries where blockchains are stronger guarantors of property rights than their own governments or banks.

As the world’s preeminent stablecoin, USDt holds the potential to radically alter the future of money for people around the world. USDt will empower them to store their wealth, make transactions, and transcend local limitations that could otherwise impair their financial freedoms.

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