The word Altcoin is not hard to miss in the crypto community. If you are confused between Bitcoin, crypto and altcoin we have the perfect guide for you.
Bitcoin was the first cryptocurrency and also the world’s largest. It is currently ruling the financial ecosystem breaking its own record every time.
The immense success of Bitcoin pushed developers and crypto miners to create more Bitcoin-like crypto. As of October 2021, there are over 12000 cryptocurrencies.
Altcoins are cryptocurrencies that are not Bitcoin. They were created as an alternative to Bitcoin. The first Altcoin was launched in the year 2011.
Altcoins aim to be better versions of Bitcoin. They offer to resolve the issues that Bitcoin faces. Every Altcoin has its own features and benefits.
In simple language, all the cryptocurrencies that are not Bitcoin are Altcoins.
Here is the detailed guide to Altcoins decoded in simple English for your ease of understanding.
What are altcoins?
Altcoins are not complex to understand. It is not a different concept but a cryptocurrency whose mechanism is similar to Bitcoin.
To sum up, in one line, Altcoins refers to all cryptocurrencies that are not Bitcoin. An altcoin is made out of two words. They mean “alternative” and “coin”.
Altcoins are inspired by Bitcoins. The basic foundation mechanism is the same for both. Both of them facilitates peer-to-peer transactions and work on the same code.
Though the framework is the same but altcoins differs from Bitcoin in many aspects. Altcoins aspire to defeat Bitcoin by presenting better versions of it.
Bitcoin has some flaws like:
- Expensive mining process
- Energy consuming
- Proof of Work is time-consuming
- Smart contracts abilities are limited
Altcoins aims to resolve these issues and present an inexpensive method of digital transactions.
To gain a competitive edge, altcoins build on Bitcoin’s perceived shortcomings. To reduce energy usage and the time it takes to build blocks and validate new transactions, several altcoins use the Proof-of-Stake (PoS) consensus technique.
By overcoming the areas where Bitcoin lack they give us a better option than Bitcoin for transactions.
For example, Litecoin is an altcoin that confirms transactions faster than Bitcoin.
As of now, Ethereum is the largest altcoin. It is the 2nd largest cryptocurrency in the world. According to CoinMarketCap, altcoins accounts for 60% of the total crypto market volume at present.
Types of altcoins
Altcoins are divided into categories based on their working consensus and functions. Here are the most common types of Altcoins.
Stablecoins are also cryptocurrencies but are designed to follow the price of another asset. The majority of the successful stablecoins are pegged to the US dollar. Thus they follow the price trend of US dollars.
Cryptocurrencies are considered risky due to their volatility. Stablecoisn was created to reduce this volatility. They aim to have a stable value without drastic fluctuations.
They peg their value to assets or fiat currencies, other cryptocurrencies or precious metals. This basket of goods acts as a reserve for the investors to redeem in case the crypto fails or the market collapses.
However, stablecoins always focuses on restricting fluctuations. They are designed in a way that the price fluctuations won’t go beyond a limit.
You can choose stablecoins for transactions or lending. It is not a good investment option. some of the most common examples of stablecoins are Diem and USDC.
Meme coin goes after its name. These are altcoins that are inspired by viral memes or jokes on the internet about other cryptos.
The most famous meme token is Dogecoin that was launched as a joke. It was inspired by a viral Japanese canine meme. Dogecoin is the largest meme token in the world.
The funny saga of meme token does not end here. Following the trend, another meme coin Shiba Inu has gained popularity in recent times. It was launched as a “Dogecoin killer”. Shiba Inu derives its name from the same Japanese canine species logo of Dogecoin.
You will witness the prices of these meme tokens surge suddenly. It is because of the social media hype created by big crypto investors and traders for short term gains.
Another type of altcoin is utility tokens. These are used within a specific network to pay for services of the network.
You can use utility tokens to pay for transaction fees, purchase services, redeem rewards or pay network charges.
Filecoin is an example of a utility token that is used to purchase storage space on a network.
Security tokens are similar to stock market securities, with the exception that they have a digital origin.
It is similar to traditional equities in that they offer investors equity in the form of ownership or a dividend payout.
The potential for such tokens to appreciate in value is a big incentive for investors to invest in them. Initial coin offerings (ICOs) are commonly used to sell security tokens to investors (ICOs).
Pros and Cons of Altcoins
Every altcoin has its own set of pros and cons. You should always invest or use altcoins for any purpose after properly researching about it.
Here are some of the pros and cons of altcoins.
|Present better versions of Bitcoin||Don’t have Bitcoin’s first mover advantage or market share.|
|Improves on areas where Bitcoin lacks||Poses significant risk, as many altcoins are scams or end up failing.|
|Altcoins have their own unique purposes and competitive advantages.||Many altcoins are hard to buy because they’re only available on certain altcoin exchanges.|
Which altcoin is best for investment?
You should never turn a blind eye and invest in any altcoin only because it’s hyped. You should always research well about its mechanism and market value before investing or buying altcoins.
Here are some of the ways how you can figure out which altcoin is best to invest in.
- One way is to research its mechanisms, features, functions and qualities.
- Another factor to consider is its market cap.
- Popular and successful altcoins are supported by most crypto wallets and exchanges.
However, do not fall for the pump and dump scheme. Research well before you invest or buy altcoins.
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