Bitcoin, the king of cryptography, maintains its status as the first established cryptocurrency and the highest-priced currency of its kind on the market, becoming synonymous with the term cryptocurrency. However, what are altcoins? “Alternative” cryptocurrencies known as altcoins – of which there are currently more than 5.000 – also bring something interesting to the universe. We'll show you what altcoins are, the different types, which one's right for you, and where to start.
Each altcoin has its own unique offering, from faster payment times to more efficient international transactions, providing a diverse range of benefits that could be more tailored to the needs of individuals than popular Bitcoin - depending on what you do next.
Generally, alternative payment methods outside of traditional currencies, including altcoins, are on the rise. Altcoins (and Bitcoin) combine modern and gold-like properties in a new type of asset that makes it scarce (like gold) but easily transferable (like fiat currencies). They can be stored easily, cannot be removed from their holder without their consent, and are accessible to everyone, anywhere.
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What are altcoins and where to start?
With the number of altcoins growing, it is worth considering more than just Bitcoin when looking for alternative savings, spending or trading options. You understand what altcoins are. So, if what you are looking for is a faster daily payment, Litecoin may be the best currency for you. Alternatively, Ethereum would be better if you were working with decentralized applications and smart contracts.
Ultimately, the differences encompassed by different types of altcoins offer users options on the best way to spend and save. While it may seem overwhelming, a little research helps a lot to find the best altcoin for you.
Main Advantages of Altcoins
- The term altcoins refers to all non-Bitcoin cryptocurrencies.
- As of November 2021, there were more than 14.000 cryptocurrencies. According to the CoinMarketCap, altcoins accounted for nearly 60% of the total cryptocurrency market in November 2021.
- Some of the main types of altcoins include mining-based cryptocurrencies, stablecoins, security tokens, and utility tokens.
- Altcoins may only include cryptocurrencies based on mines other than Bitcoin in the future as usage continues to evolve with the technology.
- Solana and Binance Coin were among the highest altcoins by market capitalization in November 2021.
- Altcoins are "better versions" of Bitcoin because they aim to make up for the shortcomings of cryptocurrency.
- Altcoins, like stablecoins, can fulfill Bitcoin's original promise of a medium for daily transactions.
- Certain altcoins, such as Ethereum's ether and Cardano's ADA, have already gained traction among top institutions, resulting in high ratings.
- Investors can choose from a wide variety of altcoins that play different roles in cryptoeconomics.
- Altcoins have a smaller investment market compared to Bitcoin. As of November 2021, Bitcoin had about 42 percent of the overall cryptocurrency market.
- The absence of regulation and defined criteria for investment means that the altcoin market is characterized by fewer investors and little liquidity. As a result, their prices are more volatile compared to Bitcoin.
- It is not always easy to distinguish between different altcoins and their respective use cases, making investment decisions even more difficult and confusing.
- There are several “dead” altcoins that ended up sinking investors' dollars.
The different categories of altcoins
Once you know what altcoins are, you have to understand that altcoins typically fall into a number of categories, including mining-based cryptocurrencies, stablecoins, security tokens and utility tokens.
Stablecoins are currencies pegged to an existing asset, such as the US dollar or the euro. One of the most popular examples of this can be seen on Facebook's Libra, which is pegged to the dollar. The idea behind pegging a currency to an existing asset is to reduce the price volatility that is commonly seen with names like Bitcoin.
The trading and use of cryptocurrencies has been marked by volatility since its launch. Stablecoins aim to reduce this overall volatility by pegging their value to certain assets such as fiat coins, precious metals or other cryptocurrencies. This should act as a reserve for holders to redeem if the cryptocurrency fails or encounters problems. Price fluctuations for stablecoins cannot exceed a narrow range.
Notable stablecoins include Tether's USDT, MakerDAO's DAI and USD Coin (USDC). In March 2021, payment processing giant Visa announced that it would begin settling some transactions across its USDC network on the Ethereum blockchain, with plans to roll out more stable currency settlement capacity later in 2021.
Although coins can be purchased like the traditional currency, they can also be mined. In short, mining requires the user (or miner) to validate a transaction, guaranteeing its authenticity, and update the blockchain accordingly - the reward for doing so is cryptocurrency. An example of mining-based altcoin is Ethereum - more on that below.
Examples of mining-based altcoins are Litecoin, Monero and ZCash. Most top altcoins in early 2020 fell into the mining-based category. The alternative to mining-based altcoins is pre-made and often part of an initial coin offering (ICO). These coins are not produced using an algorithm, but are distributed before being listed on the cryptocurrency markets. An example of a pre-built currency is Ripple's XRP.
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Security tokens are a form of investment contract, which promises consumer equity in a company, profit sharing or even voting rights, to name a few examples. As such, they are generally linked to a company and are governed by security laws, which means that there are stricter guidelines on the purchase and transfer of security tokens.
Security tokens resemble traditional transactions and often promise capital in the form of ownership or dividend payments to holders. The prospect of an appreciation in the price of these tokens is a great attraction for investors to put money into them.
In 2021, portfolio company Bitcoin Exodus successfully completed a Securities and Exchange Commission-qualified Reg A+ token offering and sold $75 million of common shares to be converted into tokens on the Algorand blockchain. 5 This is a historic event because this is the first digital asset security to offer shares in a US-based issuer.
Utility tokens provide the user with access to a service. For example, owners of a Filecoin token can spend the cryptocurrency to gain access to the Filecoin network, a decentralized peer-to-peer network that stores files online.
Utility tokens are used to provide services over a network. For example, they can be used to purchase services, pay network fees, or redeem rewards. Unlike security tokens, utility tokens do not pay dividends or share equity. Filecoin, which is used to buy storage space on a network, is an example of a utility token.
As the name suggests, meme coins are inspired by a joke or a silly version of other well-known cryptocurrencies. They typically gain popularity in a short period of time, often promoted online by prominent crypto influencers and retail investors trying to exploit short-term gains.
For example, Tesla CEO and cryptocurrency enthusiast Elon Musk regularly posts cryptic tweets about the major meme currencies Dogecoin ( DOGEUSD ) and Shiba Inu, which often substantially change their prices. In October 2021, Shiba was up 91% in a 24-hour period after Musk tweeted a photo of his pet Floki, the Shiba Inu puppy, on a Tesla. Many refer to the particularly sharp rise in these altcoins during April and May 2021 as “meme currency season,” with hundreds of these cryptocurrencies posting huge percentage gains based on pure speculation.
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Which altcoin is right for you?
While exploring all of the more than 5000 existing altcoins is an impossible task, it is worth examining and understanding the defining characteristics of four prominent Bitcoin alternatives, such as: Ethereum, Litecoin, Ripple (XRP) and Bitcoin Cash.
Although the altcoin market has been around for a decade, and Bitcoin came into play in 2009, the only cryptocurrency player mentioned is Ethereum. Ethereum is a public point-to-point network, with its own cryptocurrency called Ether. The biggest difference for Bitcoin is that, while Bitcoin aims to become a globally adopted currency that could replace conventional money, Ethereum is a worldwide computer on which smart contracts (digital contracts that are automatically executed when their terms are met) and decentralized applications can be run.
In 2016, there was an exaggeration around Ethereum, in the sense that people predicted that it could even overtake Bitcoin as the most popular cryptographic asset. Since then, the price of Ethereum has dropped considerably compared to Bitcoin, but it still plays a considerable role as a popular altcoin.
Buy Ethereum at Coinbase.
Also known as “the gold silver of Bitcoin” due to its similar functions, Litecoin was launched in 2011 with the intention of being a global system of digital payments. Much like any online payment system - from PayPal to a bank transfer - users transfer litecoin to each other when making payments.
However, despite the obvious comparisons to Bitcoin, Litecoin is a cheaper and faster alternative, thanks to the fact that it can process payments four times faster. Your goal is to process a block (which contains lots of valid transactions) every two and a half minutes, compared to Bitcoin's 10 minutes.
It is also cheaper, costing just a thousandth of a Litecoin to process a transaction of any size. Compare that to the transaction fees found with services like PayPal - which charges 3% - and it's easy to see why Litecoin is seen as the most viable option for daily transactions and purchases.
Buy Litecoin at Coinbase.
Despite its common association with the American company Ripple, XRP is an independent digital currency, not owned or controlled by any entity or person. It is an open source cryptocurrency, and its main strength is the ability to allow international transactions cheaper and faster than other payment networks. Operating on its own blockchain ledger, XRP transactions can take 3 to 5 seconds to process, with the cryptocurrency acting as a bridge between different currencies.
In simple terms, Bitcoin Cash (BCH) is a cryptocurrency that has branched out from Bitcoin. It is not the same currency and operates on its own blockchain, but they share many of the same properties. The main difference between the two currencies is that Bitcoin Cash came from the desire to improve Bitcoin as a medium of exchange, rather than an investment medium. With that in mind, Bitcoin Cash was created to facilitate daily transactions so that they are cheaper and faster, and aims to become global digital money that would compete with payment giants like PayPal and Visa.
International payments with traditional banks can be slow and expensive. In many cases, it is easier to take physical money on a plane and deliver it to the recipient than to make a bank transfer. Bitcoin Cash offers a secure, instant and inexpensive option for international financial transactions.
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Discussions about the future of altcoins and, indeed, cryptocurrencies have a precedent in the circumstances that led to the issuance of virtually all coins in circulation today. Several different currency systems, with different validations and values, are decentralized and this multiplicity of currencies and financial instruments parallels the current situation in the altcoin markets. There are thousands of altcoins available in markets today, each claiming to serve a different purpose and market.
The current situation in the altcoin markets is unlikely to consolidate into a single cryptocurrency. But it's also likely that most of the 1.800+ altcoins listed in the crypto markets will not survive. The altcoin market will coalesce around a bunch of altcoins – the ones with great uses and use cases – that will dominate the markets.
For investors looking to diversify into the encryption markets, altcoins are an inexpensive way to expand their horizons beyond Bitcoin. The rallies in the cryptocurrency markets produced returns multiple than those produced by Bitcoin. But there are risks involved in investing in altcoin, not least of which is the absence of regulation. The maturation of the cryptocurrency markets will likely bring more sophistication and capital to the sector, paving the way for regulation and less volatility.
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What are the examples of Altcoins?
Examples of mining-based altcoins are Litecoin, Monero and ZCash. Most majors in early 2020 fell into the mining-based category. The alternative to mining-based altcoins is pre-cast and often part of an initial coin offering.
What are Altcoins used for?
They have the same premise as bitcoin: using the blockchain as an incorruptible distributed public ledger, which allows and records a transaction only if there is consensus that the transaction is legitimate.
What is the difference between Bitcoin and Altcoin?
Altcoins can be extracted from any computer, making mining more convenient, unlike bitcoins that use expensive hardware to extract coins. They have attracted investors and created a hectic and competitive market in the cryptocurrency world because of these benefits.
How many altcoins are there for 2021?
How many cryptocurrencies are there? In short, there were almost 6.000+ in 2021 – a huge increase compared to a handful of digital coins in 2013
What are altcoins and Stablecoins?
A cryptocurrency whose price is linked to a cryptocurrency or fiat currency or for trading commodities such as valuable metals is known as stablecoins. All non-bitcoin cryptocurrencies are known as altcoins.
Why are Bitcoins better than Altcoins?
Bitcoin is more affordable, with more exchange possibilities, more merchants that accept it, more software and more hardware that supports it. Bitcoin is much more liquid, with much larger volumes than any altcoin. Bitcoin has the largest developer ecosystem with more software and more implementations than any altcoin.
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