Everything You Need to Know About Altcoins
In recent years, altcoins are frequently being brought up in conversation among investors, online, and within the crypto community. While Bitcoin is still the number one talked about cryptocurrency, altcoins are definitely hitting more people’s radar.
But what are they? How many are there? Are they good investments? These are just some of the questions we’re going to be covering in this article.
Read on to find out everything you need to know about altcoins.
What Are Altcoins?
Altcoins are any cryptocurrency that isn’t Bitcoin. They have some of the same characteristics as BTC but occasionally have a couple of differences as well.
For example, some coins have additional capabilities to Bitcoin such as having a low price volatility or smart contracts. Some altcoins even use a consensus mechanism that is different to Bitcoin to validate transactions or create blocks.
However, since Bitcoin was the original crypto, generally, all other cryptos are measured against it, using BTC as a benchmark.
There are currently more than 10,000 cryptocurrencies as of November 2021. But despite this huge number, Ethereum and Bitcoin account for nearly 60% of the total crypto market as of the same time period. With the other coins making up the rest.
Since altcoins are gleaned from BTC, the price of these other cryptocurrencies usually imitate the same trajectory as BTC.
However, this won’t always be the case. Crypto analysts believe that in the future, once the markets have evolved and altcoins have had more time to mature, their price on the market will become independent from Bitcoin’s trading movements.
Important Points to Take Away
- Altcoins is the term used to describe any cryptocurrency that isn’t Bitcoin
- There are more than 10,000 cryptocurrencies currently in existence but Bitcoin and Ethereum account for almost 60% of the market share
- A few of the main kinds of altcoins include security tokens, utility tokens, stablecoins, and mining based cryptos.
- Binance Coin and Solana are two of the largest current altcoins available as per market share
Altcoins In-Depth
The term altcoin is simply made up of the words ‘alternative’ and ‘coin’ to clearly denote any crypto that is alternative to Bitcoin. However, the foundation of BTC and altcoins are very similar. They all share functions and code, peer-to-peer systems, and can all process enormous amounts of data simultaneously.
Due to Bitcoin’s popularity and dare we say, success, many altcoins want to mimic BTC as much as possible to try and generate the same kind of interest.
However, despite the similarities, there are differences. As we previously mentioned, Bitcoin has been used as a benchmark for altcoins in terms of both design and principle. But there are a couple of areas where it falls short, these are:
- Bitcoin’s PoW (proof of work) is time-consuming and requires a lot of energy
- Bitcoin’s smart contract abilities are limited
Therefore, altcoins are working to improve upon these “flaws” and become better than BTC to gain an advantage.
Some of the ways in which these coins are making improvements are by using a PoS (proof of stake) consensus method instead of PoW. Thus requiring less energy and time to validate new transactions or create blocks.
By making these changes and setting themselves apart from BTC, while still copying the positive aspects of Bitcoin, altcoins have managed to create a viable market themselves. This viability has, in turn, garnered a lot of attention and investors who see the potential.
Once altcoins have more time under their belts, the market could see Bitcoin and Entereum occupy less space on the market.
Types of Altcoins
Unsurprisingly, with more than 10,000 altcoins available, they aren’t all the same. Rather, there are a variety of types depending on their consensus mechanism and functionality. The most important types of altcoins are detailed below.
Stablecoins
It’s well known that there is a lot of volatility in cryptocurrency trading. It has been this way from the beginning. However, stablecoins are here to try and reduce this volatility. They do this by attaching their value to a type of goods such as precious metals, fiat currency, or even other cryptos.
By attaching themselves to a type of goods, they can ensure their investors have a reserve to fall back on if the crypto fails or has any major problems. For example, if you have invested $10,000 into a stablecoin but have gold as the attached value, then if the coin fails, you haven’t lost your investment because it was tied to gold.
If you're interested in looking into stablecoins more, some of the most prominent options include Tether's USDT, the USD Coin (USDC), and MakerDAO's DAI.
Mining-Based Coins
Mining-based coins are self-explanatory. Just like with BTC, mining-based coins are released into the system via mining. These altcoins use PoW to solve complex mathematical problems, validate blocks, and release new coins.
Some of the most popular mining-based coins right now are ZCash, Litecoin, and Monero. Currently, the majority of the altcoin market is taken up by mining-based coins.
Premined coins also exist in the altcoin world, These pre-mined coins are usually part of the ICO (initial coin offering). These coins aren’t created by the algorithm but instead, are distributed before they are listed on crypto markets. Ripple’s XRP is a good example of a pre-mined altcoin.
Security Tokens
If you’re familiar with securities traded in the stock market, then you'll understand security tokens better as the only difference between the two is that security tokens have a digital source.
Security tokens are just like your traditional stock and you can expect to receive your payout in the form of dividends or ownership.
There is a huge prospect for price increase with security tokens which is one of the main reasons that these altcoins are gaining fast popularity.
Meme Coins
We’re sure that ten years ago, no one could ever have guessed that meme coins would ever become a real thing. The concept of creating a cryptocurrency based on a meme or silly joke seems, well, silly. And yet, here we are.
Meme coins have had their fair share of success. Although it should be noted that meme coins tend to be a short-term gain that very quickly hits its peak and then falls just as quickly.
The reason why meme coins shoot up so fast is usually due to a well-known investor or crypto influencer drawing attention to the coin and hyping it up, therefore, increasing its value instantly.
A well-known example of this is Elon Musk. The Tesla Inc. CEO and infamous crypto lover frequently posts vague tweets about meme coins Shiba Inu and Dogecoin. These tweets have a huge effect on the coins’ prices every time.
Last month (October 2021), Elon Musk tweeted out a picture of his dog, a Shiba Inu puppy called Floki. In the next 24-hours, the price of Shiba Inu stock rose by 91% based on this picture alone.
The price then dropped, however, another tweet could easily send the value skyrocketing again. The speculation of meme coins is far more flimsy than other cryptos causing many to be wary about investing in this type of altcoin.
Utility Tokens
Utility tokens are the most unique of all the altcoins in the sense that they can only be used to buy services, redeem rewards, or pay network charges. Utility tokens don’t pay out dividends, and you don’t receive ownership. Filecoin is a well-known utility token and can be used to buy storage space on a network.
Are Altcoins Good Investments?
This is one of the most frequently asked questions. And let’s be honest, no one can ever know the answer. Even investments in the past that have seemed guaranteed have failed. And ones that very few people initially had faith in turned out to be fantastic calls.
Therefore, all anyone can do is use the information we have and make a decision based on what risks you’re willing to take. After all, markets for cryptocurrencies, and especially altcoins, are young.
They are still developing, still fixing flaws, still trying to fill gaps in the market and create stability. Investing in a popular coin is no guarantee for success, plenty of altcoins that no longer exist were once the hot topic. When a market is known to be volatile, it’s hard to know what the best thing to do is.
Particularly when the volatility and flash crashes create a sense of stress and anxiety among even the most experienced investors. Let’s break it down into the pros and cons to give you a better picture and help answer if altcoins are good investments for you.
Pros of Altcoin Investing
- While altcoins use BTC as a benchmark, they are generally considered “better” because they work towards not having the same shortcomings that Bitcoin has
- Despite Bitcoin having the majority market share, altcoins like Ethereum and Cardano have gained a huge amount of traction and in turn, have a high value.
- Stablecoins are called such because they aim to bring stability to a volatile market which is excellent news for the market and its investors
- With so many options of altcoins to choose from, investors can have a diverse portfolio and decrease their risk
Cons of Altcoin Investing
- Bitcoin accounts for an estimated 42% of the market as of this month (November 2021). With one crypto taking up so much space, it can be daunting to “go against the “grain”
- The altcoin market is more volatile than BTC, meaning price fluctuations happen more frequently and are usually more dramatic
- With more than 10,000 altcoins available covering several different types, it can be hard for investors to distinguish the differences and clearly understand which are good options. Making solid, confident choices in investing is already difficult without someone giving you thousands of options and making the choice confusing
- There are plenty of examples of altcoins dying a sudden death with investors losing a lot of money whereas BTC has, so far, been a great investment for anyone who has been playing the long game
What Does the Future Hold for Altcoins?
Initially, Bitcoin was laughed at by many. Very few people had confidence in a digital and unregulated currency. However, fast forward 12 years, and some countries are accepting BTC as legal tender.
The landscape of crypto is vastly different from what it used to be and as crypto becomes more accepted and more investors get involved, the stronger the market becomes.
Currently, the future of several altcoins looks bright. And there will undoubtedly be more altcoins that will make waves in the years to come. However, no matter what happens, one thing’s for sure - altcoins and Bitcoin will be part of our future.
The Most Frequently Asked Questions
Before we wrap the article up, let’s look at a few of the most frequently asked questions about altcoin so you can go away from here with a great understanding of the topic.
What Is An Altcoin?
Altcoin is the term used to describe any cryptocurrency that isn’t Bitcoin. Quite literally “alternative coin”, these cryptos use BTC as a benchmark. However, they have a few differences which revolve around “fixing” Bitcoin’s flaws, i.e, making it more energy and time efficient to mine altcoins.
What Are the Top 10 Altcoins?
As of November 2021, the top ten coins are:
- Ethereum
- Binance Coin (BNB)
- Tether (USDT)
- Solana
- Cardano
- XRP, Polkadot
- Dogecoin
- USD Coin
- Shiba Inu
Of course, this list could change at any time due to the more volatile nature of altcoins, especially given that two of the top ten are meme coins.
How Much Do Altcoins Cost?
The better question is how much do you want to spend? Given how many altcoins there are to choose from, you can find one to suit your budget. If you’re willing to invest tens of thousands or just a few hundred, there’s a coin for you.
For example, as of now, Ethereum is trading at roughly $4,500 whereas Ripple XRP is barely hitting a grand.
One of the positives of having so many altcoins to choose from is that you can invest while having a relatively small budget.
Which Altcoin Is the Best One for Investment?
We cannot offer investment advice nor would we want to even if we could. Therefore, this isn’t a question with a simple answer.
Currently, Ethereum is the biggest altcoin in terms of market share which reflects well on its investment prospects, but that still doesn’t guarantee a good ROI.
Your research into altcoins should be thorough before making any investments and you should only spend what you can afford to lose.
Are Altcoins Good Investments?
The altcoin market is still in its early stages. It has many positive aspects but still needs more time to mature and establish itself.
However, a few coins have been seen to be the current rivals of BTC and may well be a big part of the crypto future.
Final Thoughts
Altcoins are alternatives to BTC meaning that you can diversify your portfolio and reduce your risk. Some altcoins have become more recognizable than others such as Ethereum and dogecoin but the majority of the altcoins available are still awaiting their turn in the spotlight.
Bitcoin is currently seen generally as a more safe investment but this is in part due to the younger nature of altcoins. Altcoins certainly have potential for the future, the question is, however, which ones are going to change your life for the better?
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