The term Altcoin is formed by combining the words alternative and coin. All cryptocurrencies other than Bitcoin are considered altcoins (or Ethereum, as some consider). Altcoins, in order to differentiate themselves from Bitcoin and Ethereum, either provide different mechanisms for transaction confirmation or provide new or additional features or uses. There are currently thousands of Altcoins on the market.
Altcoins are classified into several types based on their intended use. The majority of altcoins are forks (a blockchain that has been split due to incompatibility with the original chain, either Bitcoin or Ethereum).
Based on market capitalization, the top two Altcoins are USD Coin and Tether (USDT).
The Altcoin’s History
Altcoins will account for nearly 60% of the cryptocurrency market by October 2021.
The first Altcoin was forked from the Bitcoin blockchain in 2011. It was called Litecoin, and it used a memory-hard mining puzzle in order to be GPU-resistant.
Namecoin followed shortly after. Its goal was to decentralise and eventually replace the domain name system.
Altcoin debut rates began to rise rapidly in 2013-2014 and have since continued to rise. In 2017, approximately 600 new Altcoins entered the market, causing the market to become oversaturated.
Altcoins and their classifications
Altcoins are still part of the blockchains for which they were designed. Their use is still valid within them to complete a specific task, such as transaction fee payment.
Altcoins are classified according to their intended use.
Here’s a quick rundown of them, along with their intended use:
- Payment Tokens function similarly to currency.
- Stablecoins are intended to be used for saving or sending money.
- To reduce market volatility, they track the price of another valuable market item.
- Security tokens are similar to investment tools in that they represent the transfer of value or ownership rights of a tokenized asset.
- It is common for utility tokens to be used to provide services within a network.
- Meme coins are coins inspired by a viral joke or meme.
- Governance tokens are only available on private blockchains and provide owners with voting rights to help shape the coin’s future.
- Mining is used in mining-based coins to confirm transactions and increase coin supply.
- Staking-based coins use staking to confirm transactions and increase the supply of coins.
The advantages and disadvantages of altcoins
- Altcoin, like any other investment market or opportunity, has advantages and disadvantages that should be considered before entering the market.
- Pros of altcoins
- They have enhanced aspects of Bitcoin.
- These offer greater potential rewards than Bitcoin.
- Altcoins provide a broader range of options with greater utility.
- Because of their increased utility, they have a higher survivability rate.
Cons of Altcoins
- They cannot compete with Bitcoin’s market share and are less liquid.
- They are risky because many Altcoins are either scams, failures, or lose market interest.
- Many Altcoins are difficult to obtain and purchase because they are only available on a few Altcoin platforms.
- They have a smaller market capitalization (Definition & example of a market cap can be found here).
- Altcoins are even riskier than Bitcoin.
Conclusion
Due to the sheer volume of Altcoins and the higher risk they present, it can be difficult to choose the right ones to invest in. Because crypto has a volatile value, altcoins are a good option for those looking to add crypto to their portfolio. These are also appropriate for those who are willing to put in the time and effort to conduct research before making a decision.
Do you have an interest in cryptocurrencies? More information and examples of crypto options can be found here.
