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What Are Altcoins?
Altcoins are all cryptocurrencies that are not Bitcoin. The word “Altcoin” comes from “alternative” and “coin” which basically represents alternatives to Bitcoin. The reason behind that was that Bitcoin made up more than 95% of all cryptocurrencies in the early years of crypto. So altcoins were a distinct minority and had no significance compared to the first cryptocurrency ever. Over the years alternative cryptocurrencies developed and grew in value. Today, altcoins make up the majority of the total crypto market capitalization.
Why Do Altcoins Exist? What Is Their Purpose?
It is sometimes misunderstood that altcoins are just copies of Bitcoin. Although some of the first altcoins, such as Namecoin, were very similar to Bitcoin, today things are very different. Altcoins provide services in some of the world’s most important industries. What Bitcoin did to the financial industry, altcoins are doing to several industries including health, entertainment, ownership, etc. Their purpose is to create a better system for us to live in.
Types of Altcoins
Each altcoin has its unique characteristics which differ from others based on its blockchain, consensus mechanism, functionality, and more. Below is a list and explanation of the basic types of altcoins:
Stablecoins
Stablecoins are cryptocurrencies that follow the price of other assets, such as fiat currencies or precious metals. They aim to reduce volatility and act as a reserve or collateral. The biggest stablecoins by market capitalization are Tether (USDT) and USD Coin (USDC).
Mining-based
Mining is a process of verifying transactions that also brings new coins to circulation. Most mining-based altcoins use the Proof of Work (PoW) consensus mechanism which requires lots of computing power. One example of such altcoin would be Litecoin (LTC), whose purpose is to provide fast and low-cost payments.
Utility Tokens
Utility tokens are cryptocurrencies issued to fund the development of the project and that can be used to buy something in the future. A good example would be Filecoin (FIL), a cryptocurrency that people buy in order to purchase storage space on a decentralized network.
Meme Coins
As you can guess, Meme Coins are cryptocurrencies that started as a joke and typically have no purpose other than to create “hype” around them. They depend on the popularity they gain from the crypto influencers. Recently, Squid Game (SQUID) token, named after a popular Netflix series, lost 99% of its value in a matter of minutes due to which many inexperienced investors lost money. That is why crypto education is necessary.
What Are the Top Altcoins?
The number one altcoin by market cap is Ethereum, followed by Binance Coin and Solana, as of November 2021. Ethereum holds a strong second place, however other altcoins compete strongly for other positions so changes in the order can often be seen.
Are Altcoins a Good Investment?
Altcoins usually react more strongly to market changes compared to Bitcoin. Cryptocurrencies with a lower market cap can double their price in a short period of time, but also lose. An experienced investor can take advantage of market fluctuation, but an inexperienced one can lose lots of money. There are many quality projects among altcoins and they can be a quite good investment so be sure to do your research before you jump into the hot crypto market.
