Everything You Need to Know About Altcoins

A common abbreviation for the term “alternative coins”, altcoins include any cryptocurrencies that are not Bitcoin. They’re normally based on the same underlying technology used by Bitcoin, that is, Blockchain technology, but they have different features. Some of these features include things like faster transaction times, different governance structures or even different mining algorithms.

But before we dive into the nitty gritty of altcoins, let’s have a look at a few important concepts first.

What Exactly is a Cryptocurrency?

A cryptocurrency is a virtual or a digital type of currency, separate to any kind of recognised national currency. It uses cryptography, the art of writing and solving codes, as a security measure.

Generally, cryptocurrencies are decentralised systems that allow for the creation, transfer and verification of digital assets by means of blockchain technology. As trends in online investment are constantly changing and spiking up and down, the value of these digital currencies changes too. Thus, the stability of cryptocurrencies is often in question.

The idea of cryptocurrency emerged in about 2009 when Bitcoin was developed. Since then, hundreds of other types of cryptocurrencies have emerged all over the world, based on similar technology and ideas.

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Why is Bitcoin the Cryptocurrency That All the Others Are Compared To?

Bitcoin, quite simply, was the first cryptocurrency. The circumstances under which it was created are pretty mysterious, and nobody really knows who’s responsible – if it’s an individual or a group of people. Regardless, the inventor, or inventors, went about their business under the pseudonym Satoshi Nakamoto, and their true identity still isn’t known to this day.

Since Bitcoin was the first of its kind and remains the leader of the cryptocurrency industry, it’s been highly revered in the tech world. Bitcoin is generally viewed as the pinnacle of cryptocurrency, with all other types that have been invented since then being referred to as, simply, altcoins.

Altcoins are considered to be slightly more affordable than Bitcoin, understandably, and it’s generally agreed that they have been built in the wake of and upon the success of Bitcoin. Indeed, altcoins now occupy roughly 40% of the total crypto currency web.

So, without further ado, let’s jump into this altcoins guide that’ll teach you everything you need to know and more.

Different Types of Altcoins

The way in which people tend to differentiate between types of altcoins is normally based on how they function but more importantly, what their intended use is. We’re going to break it down into six different categories:

1. Payment Tokens

Starting with the most common and recognisable form of cryptocurrency, payment tokens are designed to be used as ordinary currency. That is, to be used to make payments for goods or services in the traditional way that we’re all used to using money. This allows for an exchange of value between different parties.

Since this is presumed to have been where the idea for cryptocurrency started, it makes sense that Bitcoin is the prime example of a payment token type cryptocurrency.

Example: Bitcoin.

2. Stablecoins

Now, if you have an understanding of how cryptocurrency works, you’ll know that one of the fundamental aspects of it is that it tends to be inherently unstable. In an effort to combat this volatility, the value of stablecoins is pegged to a basket of goods, so to speak. The basket, whatever it may be, is intended to act as a kind of reserve just in case the crypto fails or encounters any major, unforeseen issues. Thus, naturally, because the point of stablecoins is to decreasevolatility, the price fluctuations of stablecoins isn’t particularly dramatic.

Examples: Tether’s USDT, MakerDAO’s DAI, USD Coin.

3. Security Tokens

The term “tokenisation” refers to the process whereby value is transferred from an asset to a token – for instance, in the case of stocks or real estate. Security tokens, however, are tokenised assets that are offered on stock markets. For them to maintain their value, the asset must be secured and held – if this doesn’t happen, the token would immediately lose all its value. Therefore, security tokens, and this process general, are protected by the Securities and Exchange Commission. Unsurprisingly, when this process and concept was developed, it seemed enormously risky to transfer the value of assets to tokens – however, today, it has the potential to act as a really effective security measure, and has done so in many cases already.

Example: Exodus.

4. Meme Coins

Meme coins are another form of cryptocurrency that many people have probably heard of, however, they only make up for a small portion of all cryptocurrency. Indeed, meme coins are Altcoins – new and unknown versions of cryptocurrencies – that gain a significant amount of popularity over a very short period of time. Often, this occurs as a result of it being backed by somebody famous, like an influencer.

When it comes to cryptocurrency, popularity is directly linked to value – in basic economic terms, it’s all about demand and supply. If the demand for something, in this case, the cryptocurrency, is higher than the available supply, then the value of the thing in question will increase. Thus, if a new cryptocurrency is suddenly made famous all over the internet by an influencer and gains a massive following overnight, it’s most likely that the demand for the crypto will exceed its supply.

For this reason, meme coins are incredibly volatile and are generally used and exploited by people looking to capitalise off short term gains.

Examples: Doge Coin and Shiba Inu.

5. Utility Tokens

Used within networks, utility tokens provide a service – they may be used to pay for a service, pay network fees or redeem rewards.

Utility tokens are supposed to be used as part of the blockchain network in an effort to keep it functioning, but they can also be bought on exchanges and held.

Example: Ether.

6. Governance Tokens

Governance tokens were actually originally developed as and considered a type of utility token, but over time, they’ve come to be their very own type of altcoin. They allow their holders to have specific rights within a blockchain – this may include things like being able to vote for changes in protocol or, in some cases, even having a say in the decisions of a decentralised autonomous organisation (DAO).

Example: Compound (COMP).

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How to Be Safe When Using Altcoins

Experimenting with something new that is still in the process of development is also a risky business, especially when it involves exchanging assets for currency and converting different forms of value. Today, more than ten years on from the initial establishment of the first cryptocurrency, there’s a lot that we do know, but there’s also a lot that we don’t know.

Here are some ways that you can protect yourself when it comes to safety in the world of Altcoins:

  1. Make sure that you only ever using exchanges that are reputable, as well as reliable wallets to store and trade whichever altcoin it is that you’re using. Do your research – don’t choose at random.
  2. Never ever share your private keys and seed phrases with anyone– it’s essential that these are kept secure and secret.
  3. Always make use of two-factor-authentication (2FA) or multi-factor authentication. This will allow you to add an additional level of security to your account and provide you with a little bit more peace of mind.
  4. As always, the threat of phishing in the world of altcoins is very real, so keep an eye out and be aware.
  5. Keep your computer software and antivirus up to date at all times.
  6. When you’re making investments, always make sure that you’re diversifying your portfolio. This is a basic rule of investment, but it still applies to cryptocurrency. This allows you to spread the risk – that is, not putting all your eggs in one basket.
  7. Keep updated with the latest news and trends regarding altcoins and cryptocurrencies in general. It’s a fast-paced, ever-changing market, so you don’t want to be asleep at the wheel.
  8. If you can, store your altcoins in a hardware wallet – they’ve been shown to be far more secure than software wallets.
  9. If you’re considering borrowing or lending out altcoins, be very, very careful. Only use reputable platforms and be cautious of who you’re dealing with and what you’re doing.
  10. Finally, investing in altcoins can be an incredibly successful venture, both in terms of business as well as in a financial sense. However, the potential of high reward comes with a lot of risk, so make sure that you know what’s at stake before you start the process.

Pros of Using Altcoins

Here are some of the top pros for using altcoins:

  • Privacy: Many altcoins offer more privacy features than Bitcoin does.
  • Cheaper: Altcoins tend to charge lower transaction fees than Bitcoin.
  • Innovation: As opposed to Bitcoin, they’re able to experiment with new features and technology, such as smart contracts.
  • Diversification: You can investment in several different versions of altcoins in order to have a diverse investment portfolio.
  • Faster transactions: Often, transactions can be processed more quickly than with Bitcoin.
  • Potential for higher returns: They may be more risky, but they have the potential to offer higher returns.

Cons of Using Altcoins

Now, on the flipside, what about the negative? Here are some of the cons of using altcoins rather than Bitcoin:

  • Riskier: As a result of lower market capitalisation and liquidity, altcoins are generally considered to be higher risk than Bitcoin.
  • Volatility: They’re far more volatile than Bitcoin, so it’s very difficult to predict their value.
  • Less popular: Altcoins are adopted and accepted far less.
  • Lack of security: Certain altcoins are vulnerable to hacking and theft because they make use of weaker security systems.
  • Limited use cases: Many of them haven’t been used much which is what makes it more difficult to achieve widespread adoption.
  • Scams: There are several fake altcoins that have been created in an effort to take advantage of people.

How To Choose the Best Altcoins

Choosing the best option can be difficult. Here are some key factors to include when you’re making the decision:

  1. Development team: The experience and quality of the development team can seriously influence the success of the altcoin.
  2. Technology: Make sure you check up on the technology being used – it ought to be innovative, scalable and secure.
  3. Market demand: If there’s a lot of demand for it, that’s a good sign that there’s a strong community as well as potential for growth.
  4. Adoption: Make sure you consider the adoption and real-world usage of the altcoin, because this can impact its success and long-term viability.
  5. Competition: The amount and type of competition within the market should be considered before you choose an altcoin. In fact, it can help make the decision easier.

Final Thoughts on Altcoins

There you have it – the ultimate altcoin guide to help you better understand the concept before investing in one of them. Altcoins have real potential to ear you a significant amount of money and be really successful. However, along with this potential comes risk as well. Thus, in order to be able to get the best out of altcoins, whether it’s one or a few, it’s best to make sure you really understand how they work from every aspect.

But, that being said, the potential rewards far outweigh the risks. So as long you do your research and know what it is you’re doing, you ought to be successful while using altcoins.

Altcoin FAQs

What is an Altcoin?

An alt coin or alternative coin is any crypto coin that isn’t Bitcoin.

Why is Bitcoin Not an Altcoin?

Bitcoin was the pioneer of cryptocurrency, all crypto coins that came after are alternatives to it.

How Many Altcoins are on the Market?

New altcoins are added all the time and there are well over 17,000 in the market.

Are Altcoins a Good Investment?

This depends on numerous factors, including the popularity of the coins and the developers behind them.

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