Altchains Explained: What Are Alternative Blockchains?

23 November 2022, 10:14 GMT+0000
Updated by Maria Petrova
24 November 2022, 14:36 GMT+0000

Satoshi’s Bitcoin is the original, most famous blockchain. Likewise, Ethereum has become a household name, even among many non-crypto natives. But altchains — blockchain networks other than Bitcoin and Ethereum — are steadily on the rise.

Most altchains won’t have a significant impact on the progression or adoption of crypto technology. Yet, some alternative blockchains offer legitimate alternatives to the network behemoths: from Polygon to Solana and Cosmos to Avalanche, to name a handful. Here’s what you should know about altchains, how they differ from altcoins, and what the future might hold for alternative networks.

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What are altchains?

An altchain is a blockchain that isn't Bitcoin or Ethereum.

A blockchain is a cryptographically secured and continually updated public ledger. An “altchain” or “alternative blockchain” simply refers to any blockchain that isn’t one of the “big 2” — Bitcoin or Ethereum.

These two blockchains are by far the most popular and well-known in the crypto space at present. The main Bitcoin blockchain was launched in 2009, while Ethereum’s first iteration came in 2015.

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Altchains have existed since the early days of crypto. The Litecoin blockchain was launched as a Bitcoin competitor back in 2011. Dogecoin and Ripple followed in 2013. Yet, the number of altchains really exploded when the Ethereum blockchain began to run into scaling problems in 2017.

Users began searching for more dynamic, nimble, and environmentally friendly alternatives to Ethereum. Where gaps appear, the market is often quick to respond: the likes of the BNB Smart Chain, Ripple, Cardano, Dogecoin, Polkadot, and Solana subsequently emerged.

This growth in competition is likely one of the reasons behind the development of Ethereum’s second iteration — Ethereum 2.0. In September 2022, the network merged from a proof-of-work to a proof-of-stake network — dramatically reducing the chain’s environmental impact and hastening transaction times.

How do altchains and altcoins differ?

altchains how

The native tokens of altchains are altcoins, or alternative coins. For example, BNB, XRP, ADA, DOGE, DOT, and SOL are all altcoins. The term altcoin includes any cryptocurrency that isn’t bitcoin or ethereum. Some bitcoin supporters also disparagingly refer to ethereum as an altcoin.

An altchain refers to a blockchain network, rather than the cryptocurrency that powers it. For example, the ADA cryptocurrency, an altcoin, powers the Cardano blockchain, an altchain.

Not all altcoins have their own altchain. In fact, the vast majority do not. Most altcoins are tokens running on top of a pre-existing cryptocurrency network. For example, one of the largest cryptocurrencies currently in circulation is shiba inu, which originally rose to prominence as a meme coin. SHIB is an ERC-20 token that runs on top of the Ethereum network. When users trade SHIB, they pay gas fees to the Ethereum blockchain to have their transactions processed.

Altcoins can also exist on altchains. Just as users are allowed to trade their own cryptocurrencies and NFTs on top of the Ethereum network, many altchains also allow the same thing. Cardano and Solana, for example, both allow users to create their own crypto tokens and non-fungible tokens (NFTs) to run on top of their blockchains.

Different types of altchains

Types

Layer-1 protocols

The Bitcoin and Ethereum blockchains are both examples of layer-1 blockchain protocols. These are self-sufficient blockchains that can validate and execute transactions, without support from any other crypto network. Layer-1 blockchains function by incentivizing network validators (called miners on Bitcoin and stakers on Ethereum) with the promise of transaction fees and new tokens.

Many of the most popular altchains are also layer-1 blockchain protocols, like Cardano and Solana. Both are original, self-developed and self-sufficient blockchain ecosystems. Some layer-1 altchains originate as forks of a pre-existing major blockchain. For example, the Bitcoin Cash blockchain is a fork of the original Bitcoin blockchain. Ethereum Classic, meanwhile, is a fork of the original, pre-DAO hack, Ethereum blockchain.

Though they share a common ancestry, a forked altchain and its original chain can grow to differ substantially over time. For example, the main Ethereum blockchain recently transitioned to a proof-of-stake consensus mechanism, while the Ethereum Classic blockchain remains on proof-of-work.

Layer-0 protocols

There is also such thing as a layer-0 blockchain protocol. This is a protocol that allows separate layer-1 blockchains to interact as part of the same, broader crypto network.

Essentially, a layer-0 protocol allows multiple interoperable and interacting blockchains to be built simultaneously. Polkadot is currently the best-known example of a layer-0 protocol.

Layer-2 protocols and sidechains

Just as layer-1 blockchains can be built on top of layer-0 protocols, layer-2 blockchain solutions can be built to run parallel to, or on top of, layer-1 blockchain protocols. These layer-2 protocols come in a few different flavors. Some aim to boost the scalability of the underlying layer-1 blockchain, allowing transactions to take place off-chain.

Arbitrum and Polygon are both examples of layer-2 scaling solutions, built on top of the Ethereum network. These types of layer-2 solutions both still rely on the underlying layer-1 protocol’s security and consensus algorithm. An alternative to layer-2 scaling solutions is a sidechain.

A sidechain is an entirely separate blockchain. While connected to the main blockchain, sidechains have their own security and consensus algorithm. They operate by locking up funds on the main chain, in order to deposit them onto the sidechain. These funds can then be freely traded by sidechain users. While this can reduce congestion on the main blockchain, critics point out that using sidechains can be less secure than main chains.

How to use altchains

Crypto Wallets Wallet

Set up a wallet

Using most altchains feels similar to using the Bitcoin or Ethereum blockchains. To interact with an altchain, users first must set up a wallet that allows the storage, transfer, and receipt of tokens, using the altchain.

Exodus Wallet and Coinbase Wallet are two crypto wallets that can interact with a diverse range of different blockchains, including many of the most prominent altchains.

Use altchains to buy crypto

Users looking to buy altchain-based cryptocurrencies (altcoins) have two options. The first is to create an account with a centralized exchange, such as Binance. Users can then deposit fiat currency, and use this to purchase cryptocurrency. In terms of fees, this is likely the least costly option for most users.

Alternatively, most major crypto wallets provide direct fiat-to-cryptocurrency on-ramps. This allows crypto to be purchased in fiat currency and delivered instantly to a wallet, without requiring the use of a centralized exchange.

In most cases, users must still provide some personal information to use a fiat-to-crypto payment service provider. That means Know Your Customer (KYC) requirements are difficult to avoid. Fees associated with buying crypto in this manner are usually higher compared to buying crypto via fiat deposits on a centralized exchange.

Interact with the blockchain ecosystem

Users can now send or receive crypto. They can now also interact with various decentralized applications (DApps).

These might include Decentralized Finance (DeFi) platforms, which allow users to generate yield on their crypto. Alternatively, these DApps might include blockchain-based games, where the user can utilize their crypto to enhance in-game experiences.

Use blockchain explorers to verify transactions

Just like Bitcoin and Ethereum, all major altchains allow users to explore the transactions taking place on their blockchain. For example, Cardano has the Cardano Explorer; Solana has the Solana Explorer. Anyone can utilize these tools to monitor transactions taking place on the altchain networks.

Take measures to secure crypto assets

Users should be aware that lesser-known altchains may not have developed security protocols as effectively as some of the better-known chains.

When interacting with DApps, it’s important to always triple-check the URL of the website. Malicious websites often pose as popular DApps with very similar URLs, in an attempt to snag crypto wallet information.

It is also worth investing in a cold wallet. These wallets keep your private wallet keys separated from the internet and your computer. This makes it practically impossible for crypto hackers to steal this information, and subsequently any crypto.

Are altchains likely to grow in importance?

As crypto adoption grows, it’s likely we will see increasingly dynamic and user-friendly altchains. It is highly plausible that many popular decentralized applications might run on alternative networks in the future.

Take the Flow blockchain for example. It already hosts the NBA’s TopShot NFT trading application, as well as similar NFL and UFC applications. All three have been major successes so far. If users want to interact with these apps, they will need to know their way around the altchain that the app runs on.

We’ve mentioned a few dominant players, but the market is by no means capped. There are now thousands of alternative networks running through the crypto ecosystem. Does every altchain serve a different market and purpose? Likely not. Will alternative networks consolidate into an all-powerful challenger to Ethereum and Bitcoin? Also no. Yet while new altchains continue to challenge existing blockchains, the pool of trusted networks is set to ultimately become stronger.

Frequently asked questions (FAQs)

What are the best altchains?

There is no definitive best altchain. Altchains such as Litecoin and Dogecoin are not smart-contract enabled like Cardano, Solana and the Binance Smart Chain (BSC). This may be considered a downside for users keen to access to an ecosystem of blockchain-based applications. However, preference may be drawn from belief in an underlying project, or the associated community of a particular altchain.

Are altchains safe?

Most major altchains are younger less established than players like Bitcoin and Ethereum. There is some inherent risk in using a protocol that hasn’t had the time to iron out problems. However, users can substantially reduce risk by following simple procedures to ensure that crypto assets are kept safe.

Do altchains support bitcoin?

Tokens that are pegged to the value of bitcoin can be traded on many altchains. For example, wrapped bitcoin or WBTC, can be used within the Ethereum network. Bitcoin is also supported on a number of side-chains, which have been built to scale and expand the possibilities of the Bitcoin network.

What is an altchain?

An altchain simply means an alternative blockchain. All blockchains aside from the Bitcoin and Ethereum chains are referred to as altchains. Most altchains are self-sufficient crypto ecosystems that do not rely on the Bitcoin or Ethereum networks to function. Some altchains, however, are scaling solutions that run on top of Bitcoin or Ethereum, or sidechains that run parallel to them.

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