Altcoins and the Cryptocurrency Ecosystem

By Rich Apodaca | Updated

This unit is Part 10 of the Annotated Princeton Bitcoin Video Course.

Introduction (1 minute)

To get a feel for the vastness of altcoin space, have a look at Map of Coins.

A Short History of Altcoins (21 minutes)

Testnet, created by Gavin Andresen in 2010, was the first altocoin, not Namecoin. Anyone paying attention to Testnet could have gleaned that altcoins were going to be a big deal. The first version of Tesnet was shut down because users began trading tokens for cash. In 2013, Bitcoin user crazy_rabbit offered to buy Testnet coins at a TBTC:BTC exchange rate of 100K:1.

Interactions between Bitcoin and Altcoins (15 minutes)

Merged mining is difficult to understand because it seems impossible. A node can compute hashes on two block headers while expending the resources for hashing on a single chain.

The key is that the block header hash value for the merge-mined coin (e.g., Namecoin) is inserted into the coinbase transaction of a new Bitcoin block.

A node supporting merged mining follows these steps:

  1. assemble a valid Namecoin block, including header and transaction Merkle root
  2. assemble a valid Bitcoin block
  3. calculate the hash value of the Namecoin block’s header
  4. insert this Namecoin block hash into the input script of the Bitcoin block’s coinbase transaction

Namecoin nodes accept a valid Bitcoin block, provided that it:

  • meets the difficulty target for Namecoin
  • contains a coinbase transaction into which the hash value of a valid Namecoin block has been inserted

Bitcoin nodes simply ignore the hash value included within the coinbase transaction’s input script.

Lifecycle of an Altcoin (15 minutes)

Bitcoin-Backed Altcoins, “Side Chains” (11 minutes)

More recent incarnations of the sidechain idea include:

Next Up: The Future of Bitcoin?