Altcoins Explained: What Are Altcoins? Types, Pros & Cons

Altcoins are broadly defined as any cryptocurrencies that are not Bitcoin (BTC). However, some people consider altcoins to be all cryptocurrencies aside from Bitcoin and Ethereum (ETH), as many digital currencies are forked from one of these two. Altcoins often use alternative consensus mechanisms to validate transactions, create new blocks, or offer distinctive capabilities that differentiate them from Bitcoin and Ethereum.

Many altcoins are developed and released by teams with unique visions or specific use cases for their tokens. Discover more about altcoins and what sets them apart from Bitcoin.

• Altcoins refer to all cryptocurrencies that aren’t Bitcoin and Ethereum.
• There are thousands of altcoins available in the market.
• They serve different purposes based on their design.
• The future of altcoins is uncertain, but as long as the underlying blockchain continues to be developed, the altcoins linked to them will endure.

The term altcoin is a fusion of alternative and coin, encompassing all cryptocurrencies and tokens apart from Bitcoin. Altcoins exist on blockchains tailored to their creation. Many of these altcoins are forks—spin-offs from Bitcoin or Ethereum blockchains—typically the result of disagreements among developers, who branch off to establish their own cryptocurrency.

Altcoins serve specific roles within their blockchains, such as Ether (ETH) in the Ethereum network, where it is used to pay transaction fees. Some altcoins, like Bitcoin Cash, are forks of Bitcoin and seek to rival it as a payment system. Others, such as Ripple’s XRP, are tailored for specific industries, offering solutions like faster payments for the banking sector.

Dogecoin, a famous meme coin, originated as a humorous take on cryptocurrency but was also designed as a digital payment method, having forked from Litecoin, which itself was a fork of Bitcoin in 2011.

Altcoins often strive to enhance perceived shortcomings of the cryptocurrencies they are derived from. The first altcoin, Litecoin, emerged from Bitcoin’s blockchain in 2011, using the Scrypt consensus mechanism, which is quicker and less energy-intensive than Bitcoin’s SHA-256.

Ether is another prominent altcoin. It was not forked from Bitcoin but was developed for Ethereum, the world’s largest blockchain-based virtual machine. Ether (ETH) facilitates transaction fees and serves as collateral (staking) for validators and block proposers in the Ethereum network.

Altcoins come in different forms and serve various purposes. Below is a brief overview of some of the main types:

• Payment Tokens: Designed to function as currency, payment tokens facilitate value exchanges between parties. Bitcoin is the most famous example.

• Stablecoins: Designed to minimize volatility, stablecoins peg their value to assets like fiat currency, precious metals, or other investments. Notable stablecoins include Tether’s USDT, MakerDAO’s DAI, and USD Coin (USDC). Visa even processes some transactions in USDC on the Ethereum blockchain.

• Security Tokens: These represent ownership or fundraising efforts and can be backed by real-world assets, such as real estate or stocks. For example, Bitcoin wallet company Exodus completed a $75 million SEC-qualified token offering in 2021, converting stock to tokens on the Algorand blockchain.

• Utility Tokens: These are used to access services or functions within a blockchain network. For example, Ether (ETH) is used for transaction fees in Ethereum, and Filecoin allows users to buy network storage.

• Meme Coins: Created as a joke or parody of other cryptocurrencies, meme coins gain popularity due to online hype and influencer promotion. Dogecoin is one such example, with many meme coins experiencing massive gains during speculative “meme coin season.”

• Governance Tokens: These grant holders the ability to vote on protocol changes or take part in decision-making within a decentralized autonomous organization (DAO). Governance tokens serve specific roles within blockchains but are often considered a separate category due to their function.

• Altcoins often improve upon the shortcomings of the cryptocurrencies they are derived from.
• Those with high utility, like Ethereum’s ether, have a greater chance of longevity.
• Investors have a wide range of options across different functions in the crypto economy.

• Altcoins have smaller markets than Bitcoin, leading to lower liquidity.
• The sheer variety of altcoins makes it difficult to discern between use cases, making investment decisions challenging.
• Many altcoins lose momentum, leaving investors with “dead” coins.

Much like the myriad local currencies of the 19th century in the U.S., altcoins today reflect a diversity of digital assets, each with unique features and purposes. While it is unlikely that the altcoin market will consolidate into a single cryptocurrency, most altcoins will likely fade away, with only those offering substantial utility and purpose remaining dominant.

Altcoins can offer a more affordable alternative to Bitcoin for diversification, but given the nascent and volatile nature of the cryptocurrency market, caution is advised when considering any investment.

In conclusion, altcoins refer to any cryptocurrency other than Bitcoin (or Ethereum). With thousands of altcoins on the market, distinguishing between legitimate and untrustworthy options can be challenging. Always review a cryptocurrency’s documentation thoroughly and, if in doubt, consult a financial advisor familiar with the crypto landscape.

What is Considered an Altcoin?

An altcoin is any cryptocurrency besides Bitcoin (and, for some, Ethereum).

What Are the Top 5 Altcoins?

The top five altcoins by market cap are ETH, USDT, BNB, SOL, and USDC.

What Altcoin Will Explode in 2024?

It’s impossible to predict which altcoin will experience exponential growth in 2024, as the market is subject to rapid and unpredictable changes.