Ethereum, DApps and Altcoins

Pre-requisites for this post

  • Basic mechanism of blockchain
  • Purpose of blockchain
  • Basics of Bitcoin

Bitcoin is not the only application that can make use of blockchain. The famous Alternative Coins (Altcoins) are any cryptocurrencies built with blockchain that is not Bitcoin. To start talking about them, it is important to understand Ethereum revolution that enabled the creation of DApps.


After Bitcoin, Ethereum is the most famous cryptocurrency. It became popular because Ethereum was the pioneer on taking Bitcoin's technology and expanding its application: meanwhile Bitcoin only works as a cryptocurrency for commerce trades, Ethereum made use of blockchain to be able to write codes on the blockchain, calling it Smart Contracts. The idea behind that is since money is digital, why not automate contracts? These Smart Contracts are written in the blockchain and the goal is to execute actions automatically. For example, if you agreed through a Smart Contract in “getting $1k in 10 days” it’s not a promise from someone to another person, it is deployed on blockchain and will happen without human intervention.

Some differences between Ethereum and Bitcoin
Some differences between Ethereum and Bitcoin

But why code on a blockchain?

Most enterprise class applications rely on expensive and redundant architecture. Everything from identity management to storage must be provided and supported. In addition, several layers of code to ensure security, scalability, and logic create cost and performance overhead. For a developer, Ethereum provides the possibilities of a low-cost, massively scaled, and secure application platform right out of the virtual box.

The magic with Ethereum is that when smart contracts are executed, there is a movement of cryptocurrency, in this case Ether, that acts as a method of payment and authentication. Imagine writing an Ethereum application that enables a person to play a paid training video. The code will be executed upon confirmation of Ether payment and, because Ethereum uses the same cryptocurrency qualities as Bitcoin, it doesn't require any additional authentication methods, payment gateways, account management, credit cards, or complex forms. In the training video example, when the smart contract conditions are met, the seller gets paid, the person sees the video, and the transaction is immutably recorded and distributed to all computers on the Ethereum blockchain.

In short, the benefits of the applications that run code on blockchains, which are called Decentralized Applications (DApps), are:

  • No Owners – Once deployed to Ethereum, DApp code can’t be taken down. And anyone can use the DApp’s features. Even if the team behind the DApp disbanded you could still use it. Once on Ethereum, it stays there.
  • Free of censorship – You can't be blocked from using a DApp or submitting transactions. For example, if Twitter was on Ethereum, no one could block your account or stop you from tweeting.
  • One Anonymous Login – With most DApps, you don't need to share your real-world identity. Your Ethereum account is your login and you just need a wallet.
  • Built-in Payments – Because Ethereum has ETH, payments are native to Ethereum. Developers don't need to spend time integrating with third-party payment providers.
  • Plug and Play – DApp code is often in the open and compatible by default. Teams regularly build using other teams' work. If you want to let users swap tokens in your DApp, you can just plug in another DApp's code.
  • No downtime – Once the DApp is live on Ethereum, it will only go down if Ethereum itself goes down. Networks of Ethereum's size are notoriously difficult to attack.

Now that I understand the value of Ethereum, tell me how it works

Just like Bitcoin, Ethereum is a public blockchain, meaning anyone can download it and run the blockchain processing software and even download a full node which contains all the blocks of the blockchain. In addition to that, the Ethereum Virtual Machine (EVM) is what enables Ethereum to create and process Smart Contracts. Meanwhile Ethereum blockchain is going to store the data (instead of the database), the EVM is the app server that's going to handle processing smart contracts and the programming functionality.

The EVM is co-located with the full Ethereum blockchain so anyone who downloads and runs a node will also by default be running the EVM. This then:

  • Syncs data to maintain consensus of the blockchain and that's how it maintains security and maintains the blockchain.
  • Provides is high fault tolerance.
  • Provides zero downtime because there are so many nodes online at any given moment all over the place.
  • Ensures immutability and will block censorship.

Some additional technical information about EVM:

  • It is the runtime engine that processes smart contracts.
  • There is no inherent network access, file system access, or other processes like you might have in other application environments.
  • You have really only limited access to other contracts such as sending money to them.
  • The contracts in EVM are stored in bytecode so they have been compiled prior to deployment on the blockchain so the EVM doesn't compile them.
  • In most instances, these contracts are written in Solidity, but there are other options available such as Lisk, Bamboo and Viper.
  • One thing to remember is that EVM does have some non-persistent memory so you can run variables and you can have variables that are used during the execution of a function; however, when that function is completed executing they will no longer exist in memory. However, if you do want to maintain data you can create variables which will store that data in key value pairs onto the blockchain.

DApps have their backend code (Smart Contracts) running on a decentralized network and not a centralized server. They use the Ethereum blockchain for data storage and smart contracts for their app logic. Once Smart Contracts are deployed on the network you can't change them. DApps can be decentralized because they are controlled by the logic written into the contract, not an individual or company. This also means you need to design your contracts very carefully and test them thoroughly through Testnets.

In what regards to Smart Contracts, they are pieces of code that live on the blockchain and execute commands exactly how they were told to by a shared logic. The contracts make up what will be the data logic for our distributed applications. They can read other contracts, make decisions, send Ether, and they can execute other contracts as well. Contracts will exist and run as long as the network. They will only stop to run if they run out of transactional funding or if they were programmed to self-destruct.

In order to create a Smart Contract, developers pay to deploy it with units called Ether, but to compute time on the EVM requires units called gas. Gas is like an execution tax due to the computational effort required to run some specific code, so when a user runs the code within a smart contract, they must make sure it has enough gas which is paid for with Ether. The price paid for gas can go up or down depending on the congestion of the network or on the Ether coin price that goes up and down.

Finally, Ethereum miners add blocks to its distributed blockchain ledger, and get paid Ether for winning the hashing problems necessary as proof of work.

Web 3 Application Architecture
Web 3 Application Architecture

Altcoins that are not Ethereum

What are Altcoins?

As said on the beginning, the Altcoins are any coins built with blockchain that is not Bitcoin. They can be created:

  1. In a completely new blockchain - Building a blockchain from the scratch and creating its own cryptocurrency.
  2. In a blockchain created as another layer of an existing blockchain - These are called second layers and there are many methods to deploy this kind of blockchain. An example of second layer is Polygon, which is a L2 from Ethereum.
  3. Using an existing blockchain capabilities - Ethereum technology enabled the creation of Tokens, which are the digital representations of a particular asset or utility in a blockchain. All tokens can be termed altcoins, but they are differentiated by residing on top of another blockchain and not being native to the blockchain on which they reside.

Why Altcoin?

Running on an original blockchain or running in an existing blockchain, there are many reasons why new Altcoins are created every day. Below I show some situations:

  • Coins that solve problems faced by other coins - One of Ethereum's big achievement was having transaction speeds faster than Bitcoins transaction of 10 minutes. It may not seem a lot, but imagine if we started using bitcoin on our day to day life: we would need to wait 10 minutes for the transaction occur in order to buy a simple cup of coffee.

    Another example is Solana, which solved Ethereum's problem of high gas fee. I've given up many times on using simple things on Ethereum due to gas fee of 50 dollars or more. Solana costs cents.

  • Coins that solve problems that don't really exist - There are a lot of coins created that don't solve a good existing problem or that is not really able to compete with other coins with similar purposes. That is why the majority of the coins that don't highlight themselves among others will disappear over time, as you can see on below picture from 2011 to 2016.

118 coins (with more than 250k Market Capitalization) -
118 coins (with more than 250k Market Capitalization) -
  • Coins that were created just as a meme - Dogecoin was created as a meme and 7 years later it still exists, being the 11th coin in the ranking of Market Capitalization (Coin Current Price x Circulating Supply). Shiba Inu is also a meme coin. I don't know their properties well, so I can't say if they really have a special attribute or not.
  • Scams - New inventions are not evil, there is just some people that use it this way. People create fake coin projects with descriptions to make seem real, but on the end is just a scam scheme to disappear with your money.

I cannot talk about each of the Altcoins on this post because each of them have its own particularities and they may change from a moment to another. However I would like to talk a little bit about the Altcoins called Stablecoins.


They are tokens native to blockchains, and “paired” to another asset (usually dollar or other fiat currency), giving the characteristic of less fluctuation in value than other cryptocurrencies. It has over 110 Billion Dollars in market capitalization, with Tether ($USDT) having over 60% market share.

There are three types of Stablecoins

  • Guaranteed by FIAT - Supported by mainstream financial institutions. Each currency has a dollar equivalent in bank reserves. It is the option most adopted by people.
  • Secured by crypto - Coins collateralized by amounts denominated in tokens. These are quite volatile, so the requirement for over-collateralization is common.
  • Non-collateralized - Currencies stabilized by algorithmic mechanisms, of expansion and contraction of supply, or issuance of debt. They have no convertibility. It is the riskiest and very new option.

If you want see understand more differences between other Altcoins, one place to begin with is this video that briefly describes the 50 most popular cryptocurrencies (by the time the video was recorded).

How to identify bad Altcoins?

To understand better Altcoins, below you can find some guidance for creating a method to "do your own research" (DYOR - you may see this expression around). There are no financial advices here, just some tips in what to look for about a cryptocurrency so you do not end up losing money due to the project failure.

First of all, take a look at the cryptocurrency trilemma:

Programmers struggle to create a cryptocurrency that have all three characteristics of the trilemma. They usually are able to achieve two of them. Bitcoin for example is Decentralized and Secure, but it is not so scalable due to transaction time since it only process 7 transactions per second (Visa payment process 2000 transactions per second). The same for Ethereum with the high gas price and only processing 20 transactions per second.

Knowing the cryptocurrency trilemma is the first step to analyze a cryptocurrency. This characteristic is many times highlighted in the cryptocurrency whitepaper, which is the detailed description of the cryptocurrency that the creators share in the internet. However this paper many times may deceive you that everything is perfect because the organization tries to make it as beautiful as possible. Luck you that below I highlight topics that you may directly look at in a whitepaper and decide whether investing in it or not.

Cryptocurrency usage

  1. Does the crypto economic system meet a real need with a large market? In other words: does the token pay for a service that is actually demanded?
  2. If all developers disappeared tomorrow, would it still work?
  3. Is the incentive of the main stakeholders involved aligned with the continuity of the network?
  4. What is the currency dump propensity (how much has not yet been mined and will inflate the currency)?

Economic topics (Tokenomics)

  1. How many % of the Offer In the Hands of the Creators? (More than 30% = Red Flag)

    Information can be found in a block explorer (like Etherscan).

  2. How many % of the Total Offer is already in circulation? (Less than 10% = Red Flag)

    Big MarketCaps with little supply is a marketing tactic to get featured in the rankings.

    Information can be found in a block explorer (like Etherscan).

  3. What is the Annual Inflation Rate in the Early Years? (More than 15% = Red Flag)

    Information can be found in the official currency documentation.

Fundamentalist topics

  1. Is there a demand in the real world for the service provided by the network?

    You can only understand this via critical sense and by understanding the way the network works.

    Who is buying the currency? Are they speculators or people who actually use it for something?

    Information can be found in the official currency documentation.

  2. Is there a supply-side sustainable economic incentive in the network?

    Who is providing the work for the token's existence? What's the incentive for them to be there?

    Information can be found in the official currency documentation.

  3. Has the founding team had any success with communities?

    Information can be found by stalking the creators through LinkedIn, github, twitters, etc.

Regulatory topics

  1. Is the currency not a “disguised” security? (Promise of return dependent on the effort of a team)

    Securities is a legal concept that denotes assets that are under the jurisdiction of the Securities and Exchange Commission (SEC) in the USA.

    Several tokens have already been discontinued for being identified as securities and have suffered huge fines as a result.

    As a rule, if a token is purchased with the expectation of a financial return and this depends on the efforts of a centralized team, this token can be taxed as a security in the future.

    Information must be interpreted personally.


Ethereum was able to adapt Bitcoin's technology and create new way to develop applications. The creation of DApps is leading to what we call WEB 3.0, which I will talk in detail in the next post.

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