Altcoins & Token Standards

3.1 Cryptocurrency Taxonomy

The term "cryptocurrency" encompasses a diverse range of digital assets with fundamentally different architectures and purposes. Understanding this taxonomy is essential for proper legal classification, investment analysis, and technical implementation.

Coins vs Tokens

Classification by Function

Market Dominance

Bitcoin dominance - the percentage of total crypto market cap held by BTC - is a key market indicator:

• High dominance (60%+): "Risk-off" sentiment, flight to quality
• Low dominance (40%-): "Alt season" - speculative interest in altcoins
• Current range: Typically 40-55% in mature market conditions

3.2 ERC-20: The Fungible Token Standard

ERC-20 (Ethereum Request for Comments #20) is the foundational token standard that enabled the ICO boom and powers most of DeFi. It defines a common interface that allows tokens to be traded, transferred, and integrated across the entire Ethereum ecosystem.

ERC-20 Interface

// ERC-20 Standard Interface
interface IERC20 {
    // Returns total token supply
    function totalSupply() external view returns (uint256);

    // Returns balance of account
    function balanceOf(address account) external view returns (uint256);

    // Transfers tokens to recipient
    function transfer(address to, uint256 amount) external returns (bool);

    // Returns remaining allowance for spender
    function allowance(address owner, address spender) external view returns (uint256);

    // Approves spender to spend tokens
    function approve(address spender, uint256 amount) external returns (bool);

    // Transfers tokens from one address to another
    function transferFrom(address from, address to, uint256 amount) external returns (bool);

    // Events
    event Transfer(address indexed from, address indexed to, uint256 value);
    event Approval(address indexed owner, address indexed spender, uint256 value);
}

Key Concepts

Approve/TransferFrom Pattern

The two-step approval pattern enables smart contracts (like DEXes) to spend tokens on your behalf:

1. Approve: User authorizes a contract to spend up to X tokens
2. TransferFrom: Contract moves tokens from user to destination

Decimals

ERC-20 tokens typically use 18 decimals (like ETH), but this varies:

• USDC/USDT: 6 decimals (1 USDC = 1,000,000 units)
• WBTC: 8 decimals (matching Bitcoin)
• Most tokens: 18 decimals

Major ERC-20 Tokens

3.3 NFT Standards: ERC-721 & ERC-1155

Non-Fungible Tokens (NFTs) represent unique digital assets. Unlike ERC-20 tokens where each unit is identical, each NFT has a distinct identity and can represent ownership of art, collectibles, virtual real estate, or any unique digital item.

ERC-721: The Original NFT Standard

// ERC-721 Key Functions
interface IERC721 {
    // Returns owner of tokenId
    function ownerOf(uint256 tokenId) external view returns (address);

    // Transfers NFT from one address to another
    function transferFrom(address from, address to, uint256 tokenId) external;

    // Safe transfer with receiver validation
    function safeTransferFrom(address from, address to, uint256 tokenId) external;

    // Returns token metadata URI
    function tokenURI(uint256 tokenId) external view returns (string memory);
}

ERC-1155: Multi-Token Standard

NFT Metadata

NFT metadata (name, description, image) is stored off-chain due to blockchain storage costs:

3.4 Cross-Chain Token Standards

As the multi-chain ecosystem expanded, token standards emerged on other blockchains - often derived from or compatible with Ethereum's standards. Understanding these standards is essential for operating in today's interconnected blockchain landscape.

BEP-20 (BNB Chain)

• Lower fees: ~$0.10 vs Ethereum's $2-20
• Faster blocks: 3 seconds vs Ethereum's 12
• Less decentralized: Only 21 validators
• Major tokens: BUSD, CAKE, XVS

SPL Tokens (Solana)

Solana uses a different architecture - the Solana Program Library (SPL) for tokens:

• Account model: Tokens are stored in associated token accounts
• Rent: Accounts require minimum balance to exist
• Very low fees: ~$0.00025 per transaction
• Major tokens: USDC-SPL, Raydium (RAY), Marinade (MNDE)

Wrapped Tokens

3.5 Regulatory Classification

Token classification has significant legal implications. The same token may be classified differently in different jurisdictions, creating a complex compliance landscape for issuers and investors.

Security vs Utility Token

Indian Regulatory Position

India treats cryptocurrencies as "Virtual Digital Assets" (VDAs) under the Finance Act 2022:

• Not legal tender: RBI circular (2018) restricting bank services was struck down by Supreme Court (2020)
• Taxable as VDA: 30% flat tax on gains, no deductions except acquisition cost
• 1% TDS: On transfers above threshold (Section 194S)
• No specific token classification: All VDAs treated similarly for tax purposes
• Pending legislation: Comprehensive crypto regulation bill still under discussion

Global Approaches