What are Altcoins?

Altcoins are the alternative digital cryptocurrency to Bitcoins. It refers to the group of cryptocurrencies and ultimately all cryptocurrencies other than Bitcoin. 

What are Altcoins?

The term “Altcoins” is a combination of the words “Alternate” and “Coins” and refers to any cryptocurrency other than Bitcoin. Altcoins are considered to be alternatives to Bitcoin, which was the first cryptocurrency to be created and is still dominant in the market. Bitcoin has gained the trust of investors and institutions and is often called “digital gold.” However, altcoins cannot be ignored as they make up a significant portion of the crypto market. 

• Altcoins were developed to address the perceived shortcomings of Bitcoin and offer better use cases. 
• There are various types of altcoins, including utility tokens, security tokens, and meme coins.
• According to Coin Market Cap, there are over 17,000 altcoins in use, and they make up 62.1% of the total cryptocurrency market capitalization, while Bitcoin’s market share is 37.93%.

Blockchain technology’s decentralization and token-based economics provide room for innovation, leading to the development of various cryptocurrencies. Examples of alternative currencies that are now trading in the market include Ethereum, BNB, and Matic.

Types of Altcoins

There are various types of altcoins, such as stablecoins, mining-based coins, staking-based coins, and governance tokens, each with its own unique functionality and purpose. Understanding the type of altcoin is crucial to comprehend how it operates. Below are the primary categories of cryptocurrencies that one can encounter when researching altcoins.

1. Stablecoins

Stablecoins are digital currencies that are intended to maintain the same value as another asset. Most stablecoins, such as the significant ones, are tied to the value of the US dollar and aim to replicate its price fluctuations. The issuer of the coin usually takes measures to fix any changes in value. Stablecoins are primarily used for saving or sending money, and people typically don’t consider them as cryptocurrency investments. Some stablecoins can also generate interest when loaned out or used in certain savings protocols.

2. Mining-based

This form of cryptocurrency uses a process called mining to authenticate transactions and introduce more coins into circulation. Miners utilize equipment to solve mathematical equations, and the first miner to solve the equation verifies a block of transactions, earning crypto rewards. Mining was the first method employed to process crypto transactions since Bitcoin is a mining-based cryptocurrency. Nonetheless, mining has a significant downside, as it requires a significant amount of energy.

3. Staking-based

These cryptocurrencies use a process called staking to validate transactions and add more coins to the supply. Users of a staking-based cryptocurrency may stake their coins, indicating that they are committing their coins to be utilized for transaction processing. The blockchain protocol of the cryptocurrency selects a participant to verify a block of transactions, and they receive crypto rewards in exchange. Staking has become more popular due to its energy efficiency, as it was initially introduced by an early altcoin named Peercoin (CRYPTO: PPC).

4. Governance

Governance tokens are digital currencies that offer voting rights to holders, allowing them to shape the cryptocurrency project’s future. Typically, these tokens enable you to create and vote on proposals relating to the cryptocurrency, ensuring that all holders have a say and that decisions aren’t made by a single central authority. This helps decentralize the project.

5. Meme Coins

Meme coins, as their name implies, are digital currencies that derive their inspiration from humorous or satirical takes on established cryptocurrencies. They tend to gain widespread popularity quickly, often due to influential figures or investors promoting them online in an attempt to profit from short-term gains.

Benefits of Altcoins

• Innovation: Altcoins can bring innovation to the cryptocurrency space with new features and functionalities that Bitcoin may not have. For example, Ethereum introduced smart contracts, which has led to the development of decentralized applications (dApps).
• Diversification: Altcoins provide diversification options for investors, which can help to mitigate risk by spreading investments across multiple cryptocurrencies.
• Potential for high returns: Some altcoins have the potential to provide higher returns than Bitcoin or other traditional investments due to their lower market caps and higher volatility.
• Community-driven: Altcoins often have a dedicated community of developers and supporters who are passionate about the project, which can lead to faster development and adoption. 

Limitations of Altcoins

• High volatility: Altcoins can be highly volatile, with prices fluctuating widely in short periods of time. This can lead to high risk for investors.
• Lower liquidity: Altcoins often have lower trading volumes and liquidity than Bitcoin, which can make it more difficult to buy or sell them quickly.
• Lack of adoption: Many altcoins struggle to gain widespread adoption and acceptance, which can limit their usefulness and value.
• Higher risk of scams: Altcoins can be vulnerable to scams and fraudulent projects, as there are many unregulated projects in the space.

What is the Future of Altcoins?

The future of alternative cryptocurrencies, or altcoins, is a topic of discussion similar to the events that led to the establishment of a federal currency in the 19th century in the United States. During that time, there were various local currencies with distinct features and different forms of backing. Similarly, today’s altcoin markets exhibit diversity with thousands of coins available, each claiming to serve a unique purpose. While it is unlikely that a single cryptocurrency will dominate the market, many of the thousands of altcoins available are unlikely to survive. 

• The altcoin market is expected to converge around a few strong cryptocurrencies that offer robust utility, have solid use cases, and possess a reliable blockchain purpose. 
• Investing in altcoins can be an affordable way to diversify within the cryptocurrency market, but it’s important to note that the overall cryptocurrency market is still young and volatile. 
• Therefore, it is best to approach all cryptocurrencies with caution as the role of cryptocurrencies in the global economy continues to evolve.

Altcoins vs Bitcoin

Distinguishing factors between Bitcoin and altcoins include:

Parameters	Altcoin	Bitcoin
Origin	Altcoins emerged in 2011 and continue to be developed.	Bitcoin was introduced in 2009.
Risk	Altcoins, aside from stablecoins, typically offer higher risk and reward potential compared to Bitcoin.	Although Bitcoin is volatile, it has already gained significant value and dominates the market. Altcoins have more room for growth, but their failure rate is also higher.
Technological Advancement	Altcoins are more technologically advanced than bitcoin.	Bitcoins were created before Altcoins and lack some technological features which many Altcoins have.

Some of the Popular Altcoins

1. Ethereum

This decentralized blockchain platform allows for smart contracts and dApps to be hosted and uses a public peer-to-peer network for transactions. Its native cryptocurrency, Ether (ETH), is used to pay gas fees for transactions on the network. Ethereum is popular and valuable, with over 12,000 dApps built on it and a market valuation of over 148 billion dollars.

2. Chainlink

This decentralized oracle provides smart contracts with off-chain data through a peer-to-peer network. Its native cryptocurrency, LINK, is used to compensate Chainlink Node operators for gathering external data. Chainlink has gained community trust and has a market cap of around 2.8 billion dollars.

3. Binance (BNB)

This blockchain ecosystem and cryptocurrency trading platform support decentralized applications and smart contracts, similar to Ethereum. Its native cryptocurrency, BNB, is used to pay gas fees on the Binance blockchain and to receive discounts on trading fees on the Centralized Exchange. BNB has a market cap of approximately 39 billion dollars and a high daily trading volume.

4. Uniswap

This decentralized exchange enables users to trade cryptocurrencies through their non-custodial wallet using Automated Market Maker smart contracts, ensuring security and decentralization. It is also a protocol DAO that allows the community to make governance decisions for the platform. Its native token, UNI, has a market cap of 4.01 billion dollars.

5. Dogecoin

This meme-inspired altcoin has become popular due to its creative community and has a market cap of 9.3 billion dollars.

6. Polygon

This EVM-compatible blockchain provides a Layer-2 scaling solution for Ethereum, addressing scalability and congestion issues. Its native cryptocurrency, MATIC, is used to pay gas fees on polygons and has a market cap of 6.8 billion dollars.

7. Cardano (ADA)

This is a blockchain platform that aims to provide a more sustainable and efficient network for smart contracts and dApps. It uses a proof-of-stake consensus mechanism to secure the network, and its native cryptocurrency, ADA, is used for transactions and to participate in the consensus process. Cardano has a market cap of over 46 billion dollars.

8. Polkadot (DOT)

This is a next-generation blockchain platform that allows for interoperability between different blockchains. It uses a unique sharding mechanism to improve scalability and its native cryptocurrency, DOT, is used for staking, governance, and transactions. Polkadot has a market cap of around 31 billion dollars.

9. Solana (SOL)

This is a high-performance blockchain platform designed to support high-throughput applications and decentralized finance (DeFi) protocols. It uses a proof-of-stake consensus mechanism and its native cryptocurrency, SOL, is used for transactions and to participate in the consensus process. Solana has a market cap of over 18 billion dollars.

10. Avalanche (AVAX)

This is a blockchain platform that aims to provide fast and efficient transactions with low fees. It uses a consensus mechanism called Avalanche, which enables near-instant finality and high throughput. Its native cryptocurrency, AVAX, is used for transactions and to participate in staking and governance. Avalanche has a market cap of around 8 billion dollars.

11. Terra (LUNA)

This is a blockchain platform designed for stablecoins and decentralized finance (DeFi) applications. It uses a stablecoin called UST, which is pegged to the US dollar, and its native cryptocurrency, LUNA, is used to stabilize the UST and participate in governance. Terra has a market cap of around 6 billion dollars.

What to Consider Before Buying Altcoin

Investing in altcoins can be exciting and potentially profitable, but it’s important to approach it with caution and do your research beforehand. Here are some key considerations to keep in mind before buying an altcoin:

• Purpose and Use Case: Understanding the purpose and use case of an altcoin can help you determine its potential long-term viability. Consider whether the altcoin solves a real-world problem or offers a unique feature that sets it apart from other cryptocurrencies.
• Market Cap and Liquidity: Market cap and liquidity are important factors to consider when investing in altcoins. Higher market caps and trading volumes typically indicate greater liquidity and more established projects, making it easier to buy and sell the altcoin.
• Development Team: The development team behind the altcoin is critical to its success. Research the team’s experience, reputation, and track record. Look for a strong development team with a clear roadmap, as this can inspire confidence in the altcoin’s future prospects.
• Community and Adoption: The level of community support and adoption of an altcoin can also impact its success. Look for active communities and partnerships that can help drive the adoption and usage of the altcoin.
• Risk Factors: It’s important to understand the risks involved with investing in altcoins. Factors such as regulation, competition, and market volatility can all impact the value of the altcoin. Be aware of these risks and consider them when making investment decisions.
• Technical Considerations: Finally, it’s important to understand the technical aspects of the altcoin, such as its mining algorithm and consensus mechanism. This can help you determine the level of security and decentralization of the network.

Taking the time to carefully consider these factors can help you make an informed decision when investing in altcoins. Keep in mind that investing in altcoins carries inherent risks, so it’s important to only invest what you can afford to lose and to diversify your investments across multiple assets.