What is an Altcoin?

✔️ All cryptocurrencies other than Bitcoin, are called altcoins.

✔️ Since Bitcoin's inception, many altcoins have since been added.

✔️ Some altcoins are designed to solve specific problems, while others serve as digital assets for specific uses or as alternatives to traditional money.

Definition Altcoin

Upon hearing the word altcoin, you may think that there are also many regcoins or regular coins. However, this is not the case. You will pick up the reason why in this lesson.

An altcoin is a combination of the two words "alternative" and "coin" and includes any currency other than Bitcoin (BTC). Bitcoin is the first cryptocurrency and all coins that came after Bitcoin are considered altcoins. How many altcoins are there? This is a difficult question, as new altcoins are created every hour. As of 2022, there were about 17,000 cryptocurrencies, Bitcoin being one of them. Many investors are looking for the next emerging altcoin to invest in, hoping for impressive price increases like Bitcoin's.

Many altcoins mirror Bitcoin (BTC) and share much of the same source code due to the fact that it is open source. They all function as a peer-to-peer (user to user) financial network. There are certain coins that mimic Bitcoin but modify some aspects to function better.

In addition, the Bitcoin exchange rate and altcoin prices often correlate. This is mainly because Bitcoin is considered the leading indicator for the entire crypto market. When Bitcoin falls, altcoins fall with it. But when Bitcoin rises, this can give investors a sense of confidence and encourage them to invest in altcoins as well.

Most altcoins want to do something completely different. Some altcoins hide transactions for privacy reasons, while others focus on transaction speed. Some altcoins focus on being a store of value, while others focus on third-party capabilities such as smart contracts. Some examples of these different types of altcoins are:

Mining-based altcoins

Like Bitcoin, these coins are created through mining, and like Bitcoin, most use the Proof of Work consensus algorithm. Proof of Work means that new coins and blocks are created by computing power (solving mathematical problems). An example of such an altcoin is the Litecoin network.

Strike based altcoins

To combat the enormous computing power that mining-based cryptocurrencies need to keep track of blocks, proof-of-stake (PoS) has been brought into the world. PoS networks work with validators to approve blockchain transactions. The validators perform the transactions, for which they receive a reward. This is also known as a "strike-based altcoin. An example of such an altcoin is Cardano and Ethereum.

Meme coins

Meme (picture) coins are created as a "joke version" of Bitcoin. The best-known meme altcoin is Dogecoin, which uses a meme of a dog as its official mascot. Many meme coins are known for their rapid rise in value and subsequent collapse because they are more susceptible to promotion and speculation.

Utility tokens

A utility altcoin usually does not act as a store of value, but instead offer a service on the blockchain. Examples include gaming rewards or payouts. Another example is Basic Attention Token, which gives you rewards for watching targeted ads. Coins such as BNB (Binance Coin) could be thought of as a utility token. If you hold it, you get benefits such as reduced transaction fees and priority IDO.

Stablecoins

Stablecoins are a response to volatility. The best-known example is Tether (USDT). Stablecoins are linked to a "stable" price, in the case of Tether to the U.S. dollar. Price fluctuations and volatility do not normally exceed a certain percentage, making it the perfect solution for trading.

DeFi tokens

DeFi-tokens are cryptocurrencies used specifically within the decentralized finance (DeFi) ecosystem. These tokens play different roles within DeFi protocols and applications and can vary in function and use.

Altcoins have caught the attention of many investors because of the potential for higher returns compared to traditional assets. The world of crypto often offers volatility and rapid price increases, sometimes leaving people feeling overwhelmed by the "Fear of Missing Out" (FOMO). The feeling of missing the train in the rapidly evolving world of altcoins is understandable, given that there are countless new projects and tokens coming to market, and many people want to participate in this exciting and growing market. However, it is important to invest cautiously and well-informed, as the volatility in the crypto market comes with significant risks.

Check our news website if you always want to stay up-to-date with the latest altcoin news and developments in the world of altcoins.