Everything you need to know about alternative cryptocurrencies. Their most relevant features, the most known variants and their advantages. In addition, what makes them different from Bitcoin?
What are Altcoins?
Altcoins are alternative digital currencies to the main virtual currency, Bitcoin. In this sense, the term is an acronym of “alternative” and “coin”, “coin” in English.
Keep in mind that there is not a single “altcoin”, but many. Variants are counted in thousands and the list grows periodically.
For some people, these types of assets also differ from Ether, another one of the mainstream currencies.
In summary, Altcoins are all those cryptocurrencies that are not Bitcoins (and for some, not Ether either). In turn, the concept explicitly expresses the versatility of this market.
Main Features of Altcoins
When we review the main features of Altcoins we find a relevant aspect: the concept was coined by the user community and not by a particular entity.
This is a core attitude in these markets, defined by decentralization.
As mentioned, Altcoins are those virtual currencies that are not Bitcoins, the variant that inaugurated this scene in 2009. The following extrapolation can help to understand what we are talking about here. Look.
It is known that the iPhone is the emblem among smartphones, a pioneer among its kind when it appeared in 2007. Thus, an acronym like “Alt-iPhone” could be used to group all smartphones that are not manufactured by Apple.
Something similar happens with Altcoins, whose most relevant characteristics we indicate below.
- They are not Bitcoins, but they are cryptocurrencies.
- The operation of these assets is based on the logics of the blockchain.
- Many variants are produced with the Bitcoin source code and their basic functions are essentially the same, although others use the PoW (Proof of Work) or PoS (Proof of Stake) mining algorithm.
- In line with the general operation of cryptocurrencies, Altcoins are managed through wallets and traded on specialized platforms.
- The development of alternative digital currencies is relatively simple because the Bitcoin network is open source. No need to create a new blockchain and it is easy to make the changes necessary to create the new variant.
It is relevant to note that Altcoins try to improve the limitations of any cryptocurrency and blockchain from which they bifurcate or compete with.
How many Altcoins exist?
The total number of Altcoins is difficult to know, as the number grows continuously.
The list is counted in thousands: some sources refer to about 5,000 varieties, and others speak of 10,000 or 20,000, adding various tokens.
How versatile and broad is the field of Altcoins? The Investopedia site includes in its review a case that serves as an example of the specificity of some initiatives, mentioning Bananacoin, a project that split from the Ethereum network to raise funds to finance a banana plantation in Laos.
Otherwise, the data on how many Altcoins exist is changing because, as we have said, the amount grows periodically.
What types of Altcoins exist?
When talking about alternative digital currencies, various categories or species emerge. These are the most important.
- Payment tokens: They are used as currencies, a class in which Bitcoin also falls.
- Security tokens: They are tokenized assets (e.g. company shares) offered to investors in the stock market. They are regulated by stock exchanges.
- Stablecoins: Their purpose is to reduce the volatility of crypto, linking to assets such as fiat currencies or certain metals. Price fluctuations have a limited range.
- Utility tokens: They offer services within a network, for example for payment of services or exchange of discounts. The emblem in this field is Ether.
- “Meme coins”: The most satirical facet of the crypto world. They are jokes or ironic reversals of other cryptocurrencies. Typically, they have a short journey.
- Governance tokens: They are a variant of utility tokens, in this case providing holders with certain rights within a blockchain. For example, voting within a decentralized organization (DAO).
In summary, the types of Altcoins are also the various variants that exist in the universe of cryptocurrencies and tokens.
What are the most important Altcoins?
Among the most important Altcoins is Litecoin, which was the first fork of the Bitcoin blockchain, performed in 2011.
Another of the most relevant alternative cryptocurrencies is Ether. This variant was not forked from Bitcoin, but was designed with its own network (Ethereum). As noted above, some consider this currency mainstream, due to its wide reach, and therefore do not include it among the Altcoins.
Among other well-known alternatives are Tether’s USDT, MarketDAO’s DAI, and USD Coin, which since early 2021 is part of the operations of a payments giant like Visa.
The list of Altcoins also includes Ripple and Bitcoin Cash. To add a case among the meme coins, we mention Dogecoin, which arose from an internet joke and was supported by celebrities like Elon Musk.
According to Investopedia, the top three Altcoins by market cap are Ether, USD Coin, and Tether.
Advantages and disadvantages of Altcoins Alternative cryptocurrencies are positioned as improved versions, although their market is smaller in relation to the Bitcoin paradigm in the sector.
These are the main advantages of Altcoins:
- They are improved variants that solve perceived deficiencies in other instruments.
- At least, that’s the promise. In this sense, these alternatives aim for innovation.
- Their development is relatively simple, usually based on existing architectures.
- Their survival capacity is high when they offer alternative and profitable uses.
- In the crypto economy, they are synonymous with versatility because they facilitate various uses.
- Otherwise, Altcoins have incentives that we also find in Bitcoin, with transparency and decentralization standing out.
Disadvantages of Altcoins:
- The margins of maneuver are narrower in relation to Bitcoin, which accounts for around 40% of the market according to CoinMarketCap.
- In that sense, activity is lower and there are fewer investors.
- That translates into less liquidity.
- Variety can sometimes be confusing: you don’t always know for sure what the utility of different types of Altcoins is.
- In addition, the breadth of offerings makes it sometimes difficult to make informed investment decisions.
- Being an area with many options, several Altcoins have ended up disappearing and causing losses to investors.
- Many Altcoins have been created with speculative intent, so it is crucial to check that the project is supported by solid teams.
Finally, although it is not a disadvantage per se, it is important to keep in mind that in a broad field that involves investment of money, attempts at fraud are also frequent.
That is why it is important that investors check the information of the assets, studying the development teams, previous movements, history, roadmap, etc.
What is the difference between Altcoins and Bitcoins?
The relationship between Altcoins and Bitcoins is similar to that of a disciple who learned from their teacher and then took their own path.
Alternative cryptocurrencies don’t present themselves as the nemesis of Bitcoin, but as branches.
So, they differ from Bitcoin by being a group of cryptocurrencies that promote more uses and that are not always based on the same blockchain.
Ultimately, Altcoins bring good news because competition leads to innovation and because the existence of many options generates positive feedback.