Bitcoin, Altcoins, Stablecoins und Token

Bitcoin and Altcoins
Bitcoin is made up of bit (unit of measurement for digital data) and coin, i.e. digital coin. The concept of Bitcoin was introduced to the Internet by Satoshi Nakamoto during the financial crisis in 2008. To date, it is not known whether this pseudonym is an individual or a group. Bitcoin is the largest cryptocurrency by market capitalization and the pacesetter in the crypto market.

Altcoin is made up of "alternative coin" and is a catch-all term for all other cryptocurrencies except Bitcoin.

Coin or token?
Coin and token are two terms that come up again and again in connection with cryptocurrencies. A coin is the digital currency that works on its own blockchain. A token uses an existing blockchain and fulfils a specific function (e.g. payment, usage or security token).

Let's take Ethereum as an example. Ether (ETH) operates on the Ethereum blockchain and is therefore a coin. ERC-20 tokens are a technical standard for smart contracts and use the Ethereum Blockchain to perform various functions (e.g. Link, USDC, BAT).

A stablecoin is usually backed by a real asset, such as gold or US dollars, and is intended to be tied to its value. Below is some information on three well-known stablecoins:

Tether is the largest, yet most controversial stablecoin and is issued by Tether Limited. The stablecoin was issued in 2014 under the name RealCoin before becoming Tether in February 2015. Tether is traded 1:1 to the US dollar.

Tether continues to make controversial headlines. For one, the CEO (JL van der Velde) of Tether Limited is also the CEO of iFinex Inc. (company behind Hong Kong crypto exchange Bitfinex). Bitfinex allegedly used USDT to manipulate the bitcoin price and artificially inflate it during the bull markets of 2017 and 2019. In 2017, Bitfinex is even said to have been responsible for half of the price increase. However, this has never been proven. Most serious is the lack of transparency. Doubts keep arising as to whether the token is sufficiently covered by reserves. Only at the beginning of October 2021, a Bloomberg report appeared, which again raised serious allegations. Tether denies them, but no independent audit was ever conducted to remove the doubts.

Tether must be classified as a potential risk to the entire crypto market. If the allegations turn out to be true, the consequences for the crypto market would be fatal.

Despite these concerns, we will use Binance's USDT quotes for our charts due to the high liquidity. /

USDC was created in 2018 from a cooperation between the company Circle and Coinbase (crypto exchange) and is the second largest stablecoin. Unlike USDT, an audit takes place every month. This guarantees that one US dollar is deposited for every USDC issued. VISA is the first major payment company to accept transactions with USDC. The third party risk is small as the companies behind USDC are regulated. One disadvantage is the much smaller trading volume and the resulting larger spreads. If volumes continue to increase, USDC will be the better choice over USDT going forward.

DAI follows a completely different approach than USDT and USDC. DAI is not backed by US dollars like most other stablecoins, but uses cryptocurrencies as collateral. The value of DAI is linked 1:1 to the US dollar by means of smart contracts. The stablecoin is decentralized and there is no third party risk (apart from a systematic risk in the MakerDAO protocol or Ethereum). Transparency is high as DAI is based on the Ethereum blockchain. The token is 100% backed by cryptocurrencies. There is a regulatory risk for DAI but also the liquidity is much smaller than the other two stablecoins. It is an interesting alternative to the traditional stablecoins which created a stablecoin by depositing US dollars. The volume is again significantly lower than USDT and USDC.