How Bitcoin + Altcoins Work 101


How Bitcoin + Altcoins Work

While most altcoins on the market are copies of Bitcoin, Ethereum or Ripple in one way or another all share a few key characteristics that make altcoins well... altcoins. Here is a brief list of the core components of Altcoins:

  • Distributed Ledger - there isn't a single system or storage place of transactions. Rather the transactions are stored, recorded and verified across a distributed network of computers. Their computers can be right next to each other or across the world. This is also known as a blockchain. 
  • Miners - many altcoins depend on miners to verify, process and store transaction records. In exchange for doing this process for the network, the miners are in turn rewarded with the specific altcoins for that network.
    • Side note, the mining is the term used to describe solving complex mathematical problems to obtain the block reward (i.e. altcoins).
      • The process of mining gives mined coins a base value and it's known as a Proof of Work system. 
  • Adaptive Scaling - this means that altcoins will be able to work on smaller and larger scales as the system grows. For example, Bitcoins were minable on laptops in 2009 and now super power servers are required. As the system grew the difficulty and demands of the system grew as well. 
  • Cryptographic - altcoins make use of cryptography to verify transactions and regulate production of new coins. It's also how we got the name cryptocurrency. 
  • Proof of Work (PoW) & Proof of Stake (PoS) - these are the computational problems which are hard to solve but easy to verify. This is the work that miners do to validate the system and create new coins. 

There are a variety of other aspects which could be added to this list but they fall more into the realm of how much you believe in being anonymous online, storing value in altcoins, etc. But this will give you a solid understanding of everything that will be discussed in this section of cryptocurrencies.