What is the Difference Between Altcoins and Stablecoins?

The world of cryptocurrency investments is one that is filled with many options and opportunities. Investors will be faced with many different choices when entering into the digital asset marketplace. And when it comes to cryptocurrencies, different investment options offer many different outcomes, solutions, and benefits on a sliding scale.

Altcoins and Stablecoins are both examples of the different types of cryptocurrency investments that you can make. Both of these types of coins are examples of cryptocurrency but they differ in a few key areas. Based on these differences, many experts and veteran online investment gurus tend to diversify their portfolios by investing in a few Stablecoins and investing in a few Altcoins, as both could provide different outcomes over time. This is a typical example of diversifying investments and one that is hugely popular around the globe.

Altcoins and Stablecoins: What are They?

Altcoins have become synonymous with the simple definition that they are simply any other coin that is not Bitcoin. While this is true to an extent, it certainly doesn’t paint the full picture. The term can be more general than that and can be expanded to mean any other coins on the market that don’t fall into the category of a coin like Bitcoin or Ethereum.

Stablecoins are a smaller segment within the category of Altcoins. A Stablecoin has been described by experts as a type of Altcoin that has been given a predetermined, set value. This might make you think that Stablecoins have no investment potential then since they do not rise or fall in value. Where is the money to be made when buying a Stablecoin? Stablecoins find their value in other ways on the digital marketplace and have become especially useful for making transactions because of their fixed value.

Let’s take a look at both Altcoins and Stablecoins in a bit more depth:

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Altcoins

As explained above in our Altcoin guide, the simplest definition for an Altcoin is any type of cryptocurrency coin or token that is not Bitcoin. Ethereum, however, does not fall into this bracket which has tempted experts in the industry to expand the definition to any coin that is not like Bitcoin.

Bitcoin is an example of a coin that is a store of value. In other words, Bitcoin is mainly used as a form of payment – it is a decentralized cryptocurrency in the truest sense of the word. Altcoins are often engineered and created to fulfil a variety of other uses.

Bitcoin is also the cryptocurrency that is completely dominating the digital asset marketplace, with many experts considering it to be worth around $1.2 trillion. This domination makes complete sense when you consider that the entire cryptocurrency market has had its value determined at around $2.6 trillion. This means that Bitcoin alone almost contributes more than half of the entire cryptocurrency market value. This is another reason why Bitcoin is considered to stand alone, while all other cryptocurrencies are considered Altcoins.

This Bitcoin domination has also become almost inseparable from cryptocurrency, especially to those who aren’t regular investors or don’t partake in trading in the cryptocurrency market regularly. For the layman, Bitcoin and cryptocurrency are almost interchangeable terms – which is another reason why the term Altcoin has arisen to such popularity for those who regularly contribute to the digital marketplace. 

So, is Ethereum an Altcoin?

We’ve just discussed the domination and hold that Bitcoin has on the cryptocurrency market, and how this domination led to the coining of the term Altcoin. But what about the second biggest cryptocurrency in circulation right now? Is Ethereum considered an Altcoin? Well, according to the standard definition of an Altcoin, Ethereum would fall into that category simply because it is not Bitcoin.

However, Ethereum is growing at a rapid pace and experts have determined that the currency currently is worth around 20% of the digital marketplace. It’s not worth quite as much as Bitcoin, but nothing else even comes close to Ethereum. Furthermore, Ethereum is also a highly useful and increasingly used transactional currency, which makes it a store value just like Bitcoin. At the time of writing, it could even be said that most of the transactions that take place in the cryptocurrency and blockchain community occur on the Ethereum network, making the token one of the backbones of the cryptocurrency and technology industry.

Because of the rising value of Ethereum, the increasingly popular use that its platform is experiencing, along with the fact that it has many similarities to Bitcoin, many would not say that Ethereum is an Altcoin. However, there are those who still staunchly protect the starting values of the cryptocurrency community by considering any coin other than Bitcoin as an Altcoin.

Stablecoins: What are They?

It cannot be argued that the main reason that cryptocurrencies have exploded into such popularity over the past few years is the fact that many of them provide an alternative investment option that can be kept either long-term or flipped for early profits. The investment potential that exists in a completely decentralized financial system provides many exciting opportunities for investors.

Stablecoins, however, do not contain this same type of investment potential, mainly because they are assigned a fixed value/price when they are engineered. In other words, a Stablecoin is a type of cryptocurrency, and by definition a category of Altcoin, to which each coin has a fixed and predetermined value that will not fluctuate. The value of a Stablecoin can be assigned to any type of asset, which has made these types of coins fantastic for transactional purposes on the blockchain network. Most Stablecoins, depending on where the project originates from, are defined by the US dollar or the Euro.

But what does it mean for a cryptocurrency to have a defined value?

You might be wondering what exactly price fixing means when it comes up in discussions about Stablecoins. Price fixing one asset to another in both general finance and the cryptocurrency industry basically means that the creators and investors make sure that the two values will always keep the same relationship.

Let’s look at an example of how Stablecoins come to be:

  • Developer X releases a digital token which he names ABC coin.
  • X decides to peg the price of one ABC coin to $1 (1 USD) upon release.
  • Developer X has thus decided to intervene in the cryptocurrency marketplace to ensure that the price of their asset is always as close as possible to $1.
  • X, like many other developers in the industry, has decided to price-fix their ABC coin to the US dollar.

This practice of price fixing an asset to the value of another currency like the US dollar is also often used by developing nations in order to measure how their currencies are performing according to inflation.

There are many different avenues through which cryptocurrency developers can fix the price of their provided Stablecoins to ensure value. The most popular method employed to do exactly that is known as a combination of guaranteed buyback and inflation production. What this tactic involves is the developer promising on the release of their coin that they are guaranteed to buy back their coin at the $1 set above. This is known as being “backed” by an asset in the marketplace and it will allow buyers to convert between the assets they own due to a guaranteed buyback price and exchange rate.

This makes Stablecoins an interesting investment option because while there is a chance that you will make nothing, you are almost certainly guaranteed to lose nothing as the coin will be bought back for the exact purchase price. Unless of course the entire project tanks and the Stablecoin that you purchased simply loses all value completely. However, if inflation pushes the actual price of the coin more than the $1 you paid, then you are guaranteed to make some money should you decide to eventually sell.

It must be known that while this sounds a lot like Forex trading, it is not quite as reliable or exact of a science when it comes to cryptocurrency, it also requires real cash reserves on the part of the developers in order for a guaranteed buy-back to be a real opportunity. Stablecoins definitely aren’t as volatile or as risky of an investment as a normal Altcoin or more general coin that is not Bitcoin or Ethereum. But the chances to make big money on a Stablecoin are also much lower.

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Altcoins vs Stablecoins: Major Similarities

So, Stablecoins are a sub-category of the general Altcoin, that much we have determined. According to this logic, you could simply state that a Stablecoin is an Altcoin and that an Altcoin is a Stablecoin. But that would be silly, as the two have some obvious and big differences. Likewise, they also have some major similarities that should be discussed before moving into a comparison of what makes them different investment opportunities.

Both Stablecoins and Altcoins are digital currencies that make use of blockchain technology in order to exist and be traded in. In this way, they both have similar lifeblood and are, foundationally, created and used through the same types of technology. In this way, they can both confidently be referred to as cryptocurrencies.

Some other important similarities include:

  • Transaction Speed: Like with Bitcoin and Ethereum, most Altcoins and Stablecoins provide extremely high speed transactions in accordance with the networks on which they operate. When people trade in cryptocurrencies like these two options they can make payments in an instant without requiring any intermediary sources like a bank.
  • Decentralized: As has been made clear throughout this crypto guide, both Altcoins and Stablecoins are considered as cryptocurrencies, and as such, they both exist within the crypto space. This means that they are decentralized forms of finance that provide many benefits to investors and traders because of their massive market variations.
  • Investment Friendly: The cryptocurrency market has undoubtedly exploded in popularity because of the fact that investing in digital assets and coins is relatively cost-effective and easy to do. Altcoins and Stablecoins both share a friendly investment community and buying, selling, and trading in these assets are rather simple.

These similarities, however, do not mean that Stablecoins and Altcoins can be invested in alternatively. While they are both cryptocurrencies, they differ massively in their uses and investment potential. These important differences should give you a better idea of which is the right option for you to purchase based on your long-term crypto investment goals.

Let’s get right into the comparison.

Altcoins vs Stablecoins: Major Differences

There are a number of key differences that make Stablecoins and Altcoins stand out from one another in the cryptocurrency marketplace. These differences can be broken down into a few different categories, which we will discuss:

  • Mining Options: One of the main things that many interest cryptocurrency parties like to do when it comes to coins, is to mine for extreme profitability. Generally, for most Altcoins, there is not much mining potential and the main Altcoin mining options include Vertcoin, Grin, and ZCash. If you consider Ethereum an Altcoin then that also exists as a mining option. Stablecoins, surprisingly, have many more options for mining. Tokens like Tether, Binance USD, and Dai can all be mined.
  • Buying Options: When we talk about buying options, we are generally talking about whether or not either Altcoins or Stablecoins are held on enough coin trading platforms. It’s not possible to purchase or trade in certain types of coins if they are not stocked on enough crypto exchange platforms. When it comes to Altcoins in general, you will be able to find plenty of options on the biggest trading sites like Coinbase and Gemini. Stablecoins, on the other hand, are not as simple to purchase and you’ll need to have an account with a directly set up digital wallet, in order to make a purchase. There are more covert ways to purchase Altcoins.
  • Volatility: One of the main critiques of the cryptocurrency market is its volatility. Many people believe that buying cryptocurrency is extremely risky, as not many understand what makes the market fluctuate. Altcoins are generally seen as the most volatile cryptocurrency investment that you could make, especially if you don’t research the technology and the project that went into producing a specific type of coin. Stablecoins are designed to provide a little more stability due to the price and value fixing that is done when a coin is produced.
  • Investment Potential: Return on investment is the main metric that many people look to when making an investment into a digital asset. Altcoins, because of their wild volatility, have the potential to provide massive returns and profits if you get your investment timing right and pump money into a project with a lot of potential. But of course, this profit potential is matched by a potential for a big loss, depending on how much you decided to invest. Stablecoins, on the other hand, sacrifice massive returns for stability and often provide around a 5%-10% return on investment.

Altcoin vs Stablecoin: Which is Better?

So, you now understand pretty much everything you need to know about the major similarities and differences between typical Altcoins and Stablecoins. It must be clear by now that the two types of coins both fulfil very different uses. You need to consider what your investment goals are to determine which of these two types of cryptocurrencies best fits your needs.

If you’re looking for a standard cryptocurrency investment – that is, one that comes with volatility that could produce extremely high profitability – then a regular Altcoin will provide you with exactly that type of investment. Investing in an Altcoin is basically investing in Bitcoin as an alternative because you may believe in the future profitability of the project and want to get in early. If you’re looking for the potential to make a massive return on investment then an Altcoin is the way to go.

Here are some advantages of choosing an Altcoin investment:

  • They provide good potential for growth
  • They have extremely fast transaction times
  • They tend to have much lower fees than other coins
  • They offer more anonymity when trading
  • Some Altcoins are much more environmentally friendly than bigger coins like Bitcoin
  • Many Altcoins offer a host of unique and interesting functions

Here are some disadvantages of Altcoins:

  • They tend to be extremely volatile
  • They are a second choice option for many investors, lowering their market cap
  • They have to compete with Bitcoin and Ethereum for market share
  • Altcoins and tokens tend to have limited usage when not properly engineered
  • They can have low liquidity rates
  • There is no guarantee that an Altcoin will survive at all

However, if you’re looking to dip your toes into a cryptocurrency investment but want to avoid some of the volatility and instead opt for a safer more stable investment – then a Stablecoin is what you’re looking for.

A Stablecoin will provide you with a stored value asset which will slowly but surely grow over time. These investments are more like placing money in a savings account or trading stocks – it is likely that you will make a small return on investment and highly unlikely that you will make massive losses.

Here are some advantages of choosing a Stablecoin as an investment option:

  • Stablecoins have very quick processing times
  • They tend to have lower fees as investment options
  • Stablecoins tend to have borderless transactions
  • They are a much safer asset in an otherwise volatile marketplace
  • Many Stablecoin projects are backed by physical, external assets
  • Many Stablecoin creators and projects tend to be highly transparent by offering a guaranteed buyback option

Here are some of the most obvious disadvantages of investing in a Stablecoin:

  • Most Stablecoin purchases may require the intervening of a third party
  • Stablecoins require external auditing due to their ties to a stored currency
  • Stablecoins offer a relatively low return on investment in comparison to a regular Altcoin
  • Stablecoins are locked to the value of an external asset

But what about investing in both?

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Diversifying Your Portfolio

One of the most beautiful things about the cryptocurrency marketplace is the fact that within the industry alone there are many different investment opportunities. Experts who invest regularly in digital assets and cryptocurrencies always explain that in this marketplace, just one good investment could completely skyrocket your portfolio and your digital wealth to new levels – and this is why it’s important to diversify your portfolio.

Most people who get into cryptocurrency investments tend to go for the more well-known options, like Bitcoin and Ethereum. This provides an obvious insight into why these two coins are so strongly dominating the market right now. While there is nothing wrong with looking to these coins as investment opportunities, diversifying your portfolio by adding options like a host of promising Altcoins and a few safer Stablecoins will cover all of your bases and increase your chances of being a successful digital investor.

Final Thoughts

So, this crypto guide has discussed some of the main differences between Altcoins and Stablecoins for all of those who wish to begin diversifying their cryptocurrency investments. If you’re looking for a safer and more stable option when it comes to the cryptocurrency market, then going with a Stablecoin that has a fixed value attached to an external asset might be the investment option for you.

If you, on the other hand, are willing to take a bit more of a risk with your investment and know of some great cryptocurrency and coin projects that you believe provide good potential, then go for an Altcoin investment instead.

Or, simply do as the experts say. Invest heavily in a stream of different crypto avenues. Diversifying your online profile will only improve your chances of success!

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