What is an altcoin

If 2017 was the year of Bitcoin, 2018 certainly belongs to the altcoins.

This trend has already been set in motion with altcoins like Ripple, Ethereum, and Cardano blowing into 2018 with triple-digit gains.

For those of you who are new to digital currencies, an altcoin is technically any token that came onto the market after Bitcoin.

You may recall from our Bitcoin education page that Bitcoin was introduced in 2009.

That means altcoins have been trickling onto the market for nearly 10 years. But only recently did this steady trickle become a flood.

At the time that this education series was written, there were over 1,500 altcoins on the market.

Today, we want to teach you about altcoins and initial coin offerings (ICOs), which is the process that many altcoins go through to come onto the market.

By the end of this email, you should have a better understanding of why Bitcoin is different from its altcoin peers...

What Is an Altcoin?

We've pretty much said all there is to say. An altcoin is any digital currency that came after Bitcoin. The term stands for "alternative coin."

That aside, being a "coin" is where the similarities between Bitcoin and most altcoins end.

Altcoins can function in dramatically different ways than Bitcoin.

Many are built on different protocols. Many are mined in different ways. Some altcoins allow users to be anonymous, and others can be used by developers to produce decentralized applications (dapps).

Some of the applications mentioned above belong to digital currencies that you may have already heard of.

Ethereum can be used to build dapps. Ripple's currency XRP is used in financial tools. Bitcoin Cash, though it was forked from the same protocol as Bitcoin, is different.

All that may seem like a lot to process...

But we really dig into altcoins in our 44-page e-book in our Token Authority pro service. We also talk about them in our monthly email and our resource pages.

For now, just know that these tokens and coins are different from Bitcoin, and their value as investments lies in that difference. When you look at an altcoin, you have to think about what need it fills and whether or not it has real-world utility.

As soon as investors start looking at this, they will learn about a process called an initial coin offering, which is how most altcoins come onto the market...

What Is an ICO?

An initial coin offering is when a company decides to release a digital token onto the market to raise capital.

ICOs are largely unregulated, allowing small companies to skirt around the regulations that apply to traditional venture capitalism and crowdfunding methods.

The token or coin the company releases could be used within a blockchain platform that the company is developing. A good example of this is the KODAKCoin, which is native to the KODAKOne blockchain platform. Another example is XRP, which is the currency that operates in the Ripple Transaction Protocol (RTXP). These tokens are known as utility tokens.

Other companies release tokens that operate more like traditional stocks. This is called a security token.

Now, this all may seem new and exciting, but ICOs have actually been around for a while.

Ethereum had its ICO back in 2015. At the time, a Bitcoin (priced around $600) would have gotten you 2,000 ether tokens. Today, those ether tokens would be worth over $200,000.

That being said, ICOs didn’t really pick up speed until 2017 when they became the buzz of the venture capital world.

In 2017, ICOs generated over $1.2 billion, surpassing early-stage VC funding. You can see some of the big winners in the chart below:

ICOs are groundbreaking because they open a new avenue through which nonaccredited investors can partake in crowdfunding and venture capitalism.

This sounds great. And to a degree, it is.

People have made verifiable fortunes from ICOs. You can see just a few of the gains from the ICOs below:

• Augur is up over 13,666%.
• Lisk is up over 29,888%.
• Stratis is up over 203,843%.

But ICOs also pose a danger to uneducated investors — many of which don’t know how to look for the trademark signs of a scam or bad company.

In 2017, many companies were simply slapping the word “blockchain” onto projects and petitioning investors for funds.

These companies lacked long-term marketing plans, strong leadership, and goals. But they still managed to generate massive sums of venture capital from investors.

Then, many of these companies disappeared, taking millions of dollars with them. Some famous examples include BitConnect, which reduced the value of its coin to nearly nothing. And investors got the short end of the stick.

That being said, it's clear that while some digital tokens and ICOs are lucrative, some can be very dangerous.

The SEC issued a statement on ICOs in 2017. You can read the full statement here, but a synopsis of it is simple...

Basically, the SEC says to do your due diligence. Don’t just shoot money at any random blockchain company that asks for it.

While many of these technologies are incredibly valuable, like the companies in the early age of the internet, others are filled with con men and scams.

One of our goals at Token Authority is to educate readers about these scams and notify investors of some warning signs.

A Brave New World

Over the course of 2017, it became apparent that with initial coin offerings, we were seeing the birth of a whole new market.

Digital currencies allow companies to reach a wide range of investors and tap otherwise untouched avenues of venture capitalism.

With that said, this market has been generally unregulated. Token Authority's team expects to see more regulation as we head into 2018.

We view this regulation as a positive. A sheriff has entered the digital currency Wild West, and this is good for traditional investors who want to partake in the digital currency revolution.

ICOs are likely to settle down while more reputable companies come onto the market.

You can keep an eye on your Token Authority weekly emails for more updates.

Alexandra Perry
Managing Editor, Token Authority