All cryptocurrencies other than Bitcoin (BTC) were first described as altcoins for a single reason: There was a rise of projects that copied and pasted Bitcoin’s source code. The cryptocurrencies in the early stages weren’t unique enough to have a distinctive term, so “altcoin” (alternative coins) best fit their description. The community, at that point, didn’t put too much thought into other cryptocurrencies due to Bitcoin’s potential advancement — its future price growth, use cases, mainstream adoption, etc. It was the market leader in crypto.
But things changed when people caught onto Ethereum’s smart contract platform, as it can produce “smart contract tokens” — cryptocurrencies with the ability to perform intelligent tasks autonomously.
The community was able to distinguish between tokens and altcoins. Altcoins can be described as coins that have their own blockchain. Tokens can be cryptocurrencies created with smart contract platforms. The other factor now at work is that there are many blockchain projects that are scaling rapidly and decreasing Bitcoin’s dominance.
The community started noticing weaknesses in Bitcoin’s correlation to other coins as other interesting new projects popped up, which provoked the crypto world to rethink how it sees cryptocurrencies.
Each altcoin offers unique features such as scripting language and transaction management. Although altcoins’ superior features may outperform Bitcoin in one way or another, their value is still completely dependent on Bitcoin’s market capitalization.
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This group began to visualize a future in which multiple cryptocurrencies would be used, rather than just Bitcoin. Now, with Ether’s (ETH) growing dominance in the market, it’s clear that Ethereum is the leader of crypto innovation. The majority of tokens used are Ethereum ERC-20 smart-contract tokens. This allows the community to easily accept the classifications of token miners’ projects.
Ethereum’s role in crypto classifications
Ethereum’s ecosystem is responsible for every crypto advancement and for mainstream interest, starting with initial coin offerings (ICOs) — which disrupted the initial public offering model by allowing anyone to buy a project’s coin at launch. Developers created ERC-20 tokens to help make Ethereum their next currency. It gave cryptocurrency users incentive to learn more about this technology. ERC-20 tokens come in many forms. It is essential that we are able to associate and identify items.
The term “altcoin” is no longer an acceptable way to define a project, as it’s ambiguous — especially now with decentralized finance (DeFi). It is important to identify the type of cryptocurrency it is. They’re aware that cryptocurrencies do much more than send and receive payments.
“Meme tokens” have entered into the crypto vocabulary, too
“Meme token” is a term most crypto users are familiar with due to Elon Musk tweeting to the world about Dogecoin (DOGE). Cryptocurrencies allow for intellectual activities, so the crypto community had to differentiate between meme tokens (or tokens) and them. Tokens that are built on social media content could have an impact on the perception of crypto industry. Another classification was needed.
Nonfungible tokens (NFTs) proved that crypto enthusiasts were open to learning new terms. Think about NFTs being called altcoins. By definition, they technically are, but there’s so much that NFTs can do that demonstrates their difference. NFTs can be described as ERC-721 tokens. Their capabilities are acknowledged by the community. For starters, they’re structured to make cryptocurrencies unique, with no two tokens sharing the same value.
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“GameFi” (gaming DeFi) is another term that was added to the crypto dictionary. This term combines blockchain technology with NFTs, liquidity miners, and other DeFi protocol. It has resulted in games that allow players to trade and earn cryptocurrency. GameFi is still new, so there’s a chance that something trendy will come into existence and result in further classifications within the space.
Cryptocurrency is becoming more sophisticated
The crypto community’s collective understanding of the space is improving rapidly. YouTubers and other influencers have the ability to translate complex terms into easy-to-understand information. It is possible to find great projects quickly by correctly classifying cryptocurrency. Announcing to someone that a NFT revolutionary can only be an altcoin might influence their initial perceptions and reduce the NFT’s value.
It is easier to compare cryptocurrencies by categorizing them. Understanding the differences between cryptocurrencies and their similarities is crucial. That’s why you can’t compare Dash to something like ADA — one is a payment cryptocurrency, while the other is the utility token of a proof-of-stake smart contract platform.
Another reason Bitcoin vs. altcoins is unclassifiable has to do with the varying correlations between BTC and different currencies. Some pairs exhibit a strong correlation while others are more dependent on each other. ADA (XRP and XRP for example have a less intimate relationship with digital assets. The negative correlations for Tether (USDT), however are not good.
Related: The creators jump headfirst into crypto bull and bear.
You can also diversify your crypto by using classifications. You can have your crypto distributed between several coins, but the phrase “don’t put all your eggs all in one basket” can apply to you if all your coins are under the same classification.
Although a growing number of new crypto concepts are emerging, we can still put them all — DeFi, GameFi, NFTs and meme tokens — under the umbrella of altcoins. From the traders’ perspective, many believe that altcoins will have a larger return in the future, though maybe there is a weaker consensus than there is with Bitcoin, for now.
As a Bitcoin maximalist and the CEO of a crypto exchange, I’m happy to see more classifications arising, as the industry can hardly achieve mass adoption with just Bitcoin.
This article contains no investment advice. Risk is inherent in every trade or investment. It is important that readers do extensive research before taking any action.
The views, thoughts and opinions expressed here are the author’s alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.
Johnny LyuKuCoin’s CEO is It’s one of the most well-known cryptocurrency exchanges. Prior to KuCoin joining, he was an experienced executive in the auto and luxury industries.