Introduction
Altcoins are short term for alternative coins which refers to any cryptocurrencies other than Bitcoin, the king of cryptocurrencies. While the word cryptocurrency may directly connect with Bitcoin, there are actually thousands of other digital coins that offer unique features, purposes, and use cases. Some are even designed to fill what is limited or what is not offered by Bitcoin.
In this guide, we will break down what altcoins really are and what different functions they are designed for. We will also take a closer look at their different types along with each of their pros and cons to help you assess if it's the best investment for you.
What Exactly Is an Altcoin?
As mentioned, an altcoin is any cryptocurrency that is not Bitcoin (BTC). This includes Ethereum, one of the most important platforms second to Bitcoin. Generally, altcoins are digital currencies that serve as alternatives to Bitcoin which may offer the similar function but are embedded with new features, different mechanisms, and an enhanced transaction speed. Each of these coins built on their own blockchains, although some may have DNAs of either Bitcoin or Ethereum.
Most developers of altcoin have one goal - to address specific problems or issues that are evident in Bitcoin which are commonly raised by their users and investors. Concerns typically involve transaction speed, scalability, and energy consumption. However, this isn't how all altcoins are designed, some serve a purpose of their own, such as providing faster payment or even being used for non-financial purposes like decentralized applications.
Key Facts About Altcoins
Here's a quick break down of essential informations you need to know about bitcoins:
-
Again, these are all cryptocurrencies that are not Bitcoin and sometimes, Ethereum.
-
Currently, there are thousands of altcoins surfacing in the market. Some are popular and some are still working on their way to make the cut.
-
Altcoins are designed to serve different purposes to enhance the user's experience. This could be in line with payments, investments, and platform usage.
-
Altcoins will continue to exist as long as their blockchain remains active.
Types of Altcoins
There are six types of altcoins, here's a breakdown of all six alongside their purposes:
-
Payment Tokens - As their name suggests, these are altcoins that solely focus on serving the purpose to be used as a currency for various transactions. While it can be similar with Bitcoin, it holds a key difference which involves offering faster speed and lower speed. Among the popular altcoins in this aspect is Litecoin.
-
Stablecoins - These are coins that aren't affected with cryptocurrencies volatile nature. The value of stablecoins depends on a stable asset, a national currency or gold as best examples. Through this their value remains relatively stable which is best used as a store of value or for trading between different cryptocurrencies, including alternative ones like altcoins. Why gamblers are turning to these alternative cryptocurrencies is an interesting read. The best stablecoins include Tether, DAI, and USDC.
-
Security Tokens - These are digital assets that represent ownership, could either a share in a company or real estate. Its unique characteristic is that it is regulated by central authorities like the Exchange Commission or U.S Securities since they're generally similar to stocks. A prominent example of such altcoin is Exodus.
-
Utility Tokens - These are specifically designed to only be used in particular platforms or networks to either access several services or perform various tasks. A great example of this is Ether or ETH because it's used to pay for computational services on the Ethereum network. Second is Filecoin, a token which allows users to buy storage space on its network.
-
Meme Coins - Memes have been an internet trend for years and developers have adopted it to be embedded in a cryptocurrency. While these were supposed to be created as jokes, developers were actually able to capitalize on this trend. These coins often attract attention when used through viral marketing or social media campaigns. However, despite its fun element, these altcoins are highly speculative and volatile. The most famous meme coin is Dogecoin, originally launched as a parody of Bitcoin.
-
Governance Tokens - These are altcoins that give their token holders the authority to vote in regards with potential changes to be applied in the blockchain or the platform rules. These tokens are commonly used in Decentralized Autonomous Organizations (DAOs). An example of this is MakerDAO, a governance token that allows users to vote on important decisions regarding stability of the Maker protocol. To learn more about the potential of such tokens, check out our article on Top Altcoins in 2024.
Conclusion
While it's evident that altcoins are associated with promising benefits including new features, crypto investment opportunities, and increased utility, it's also important to consider that it has its share of cons too. Before investing, you should be aware that some coins can be lower in popularity, associated with uncertainty and volatility, and some may be a scam or don't have enough transparency. Thus, if you're on the verge of making an investment, always do extensive research and understand the variety of purposes they serve.
