What are Altcoins? Why are they important?

What are Altcoins? Why are they important?

written by John Murphy | November 12, 2022

The simple answer to the question: what are Altcoins? is all cryptocurrencies other than Bitcoin (BTC). However, many people have broaden this definition and include Ethereum in Altcoin’s description since all other cryptocurrencies somehow generated from these two leading cryptos.

We will limit ourselves in the proverbial wild west of cryptocurrency and keep Bitcoin at the top, while all other coins as “altcoins.”

After Bitcoins’ success, thousands of new Altcoins, or alternative coins, have surfaced into the crypto ecosystem. Ethereum is the most popular Altcoin.

As of February 2022, there are 17,000 different volatile cryptocurrencies available for trade in the crypto-verse. Let us explore what altcoins are and study why experts suggest investors go for altcoins instead of bitcoins.

Understanding Altcoins

The altcoin combines two words: ‘alt’ and ‘coin’ – alt comes from alternative, and coin means cryptocurrency. Together they define any digital currency other than a bitcoin. 

However, it work the same as bitcoins. Therefore, they work peer-to-peer, need mining, and transact through blockchains. Despite these similarities, Altcoin differs from each other in a variety of ways.

Most altcoins are released by their developers with a different vision and try to solve existing coins’ problems. Additionally, most altcoins work within their respective blockchains to accomplish a particular task. For instance, Ether is used in Ethereum to make transactional fees.

Many blockchains split to make their crypto projects and are known as forks. When a group of developers aspires to resign from blockchain and start their crypto, we call them the forks.

A famous example of forks includes the Bananacoin tokens. They split from Ethereum and started this coin to raise funds for the plantation of bananas in Laos.

Types of Altcoins

Altcoins come in multiple flavors. Here is a summary of different types of it based on their utility.

  • Stablecoins

Cryptocurrency and volatility are synonymous. Stablecoins aim to minimize this volatility. They achieve this feat by pegging themselves to valuables such as fiat currency, other cryptocurrencies, and precious metals.

However, the volatility still needs to be entirely avoided, but the goal for stablecoins is to reduce and mitigate the frequent fluctuation.

Notable stablecoins are Tether’s USDT, USD Coin (USDC), and MakerDAO’s DAI. Many new projects intend to enter the stablecoin frame to offer investors a sense of calmness and remove the volatility tag from the cryptocurrency ecosystem.

  • Payment Token

As the name shows, payment tokens are the altcoins used as currency. Since they carry value, thus are used for exchanges between parties. 

  • Utility Tokens

Utility tokens are used to offer services. For instance, you can use them to purchase services, redeem rewards or pay network fees. The best example of a utility token is Filecoin, which is used to buy storage space.

Additionally, Ethereum (ETH) is another famous example of a utility token. It can use for payment of transactions in the Ethereum blockchain. Utility tokens usually are not held and are in circulation as needed to keep the blockchain functioning.

  • Security Tokens

It is a type of tokenized asset that offers on stock markets. Tokenization transfers value from an asset to a token that becomes available to investors.

You can quickly transfer assets to a token, including real estate and stocks. The token’s value only realizes when the backup investment secures and held. Otherwise, the tokens become worthless.

  • Meme Coins

Meme altcoins derived from a joke or a silly take. Investors look out for meme coins as they offer good short-term gains.

  • Governance Tokens

Governance tokens give holders a special right, like voting in protocol changes. These sometimes presented as utility coins, but since they work privately on a blockchain, hence have a separate category.

Why are Altcoins important?

Altcoins have been around for some time and have various utility options. Similarly, they are attracting attractive investments globally; thus, they are becoming indispensable. 

Here are a few reasons indicating its importance:

  • Altcoins are an improved version of bitcoin, as they cover many flaws of the bitcoins.
  • Since altcoins have offered more utility options, thus they have more chances of gaining ground in the future.
  • Investors can choose from thousands of altcoins as per their liking.
  • Altcoins are secure as they are evolving with better options.
  • As altcoins work in a decentralized framework, thus they offer complete control of digital assets to the owner.
  • Altcoins are easy to transact and are accessible worldwide.

Future of Altcoins

There are hundreds of altcoins circulating in the crypto ecosystem. Each one of them serves a particular purpose. The amount of investment already made into it means they are here to stay.

However, it will keep working independently, despite many governments looking to regulate them. Similarly, it seems unlikely that they will merge to form a single coin. Furthermore, we may see certain Altcoin vanishing from the foray; only those with high utility will remain.

Moreover, since it offers investment diversification, we can see an increase in future investment.

Frequently Asked Questions

What are the best Altcoin for investment?

It is unlikely to mention a single name since investment decision depends on the financial situation, risk tolerance, goal, and market circumstances. We recommend seeking professional advice before investing in it.

What are Altcoins?

All cryptocurrencies except bitcoins are Altcoins (alternate coins).

What are examples of Altcoins?

A few notable altcoins are:

  • Ethereum (ETH)
  • Chainlink (LINK)
  • Aave (AAVE)
  • Stellar Lumens (XLM)
  • Uniswap (UNI)

Parting Thoughts

To get it straight, what are altcoins? All are cryptocurrencies other than bitcoins.

After the mega success of bitcoins, many developers started their version of digital coins known as alternate coins or altcoins.

There are thousands of altcoins in the crypto market, each offering different utility options. Its purpose was to mitigate flaws of previously existing crypto coins.

However, only some coins stay alive; many die before recognize. Yet, many attract huge investments, thus making them an instant hit. The crypto market remains volatile despite many new coins entering the market for trade. So, its future remains uncertain.

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