You must have heard of bitcoin or cryptocurrency, seeing people pushing to obtain these coins is a green sign enough to tell you the importance of why you should also opt for cryptos.
However, several investors have been looking for investment alternatives as a diversification strategy, among them in cryptocurrencies such as altcoin. It is important to know what altcoin is, how altcoins work, types of altcoins, differences between altcoin and bitcoin, and also you need to know whether it’s worth the investment.
What are Altcoins?
Altcoins are alternative cryptocurrencies to Bitcoin. In other words, every digital currency is an Altcoin, except Bitcoin itself.
Altcoins operate on a different mechanism which is being used to form a coin block and also for transaction validation, they have a unique function added to them which differentiates them to Bitcoin, in short, this makes them much better than bitcoin and at the same time more secured and easier to use.
How Do Altcoins Work?
After the emergence of Bitcoin, Namecoin was born, which was the first proposal to substitute Bitcoin. After her, then several other currencies started to appear trying to innovate in the market. In this sense, the purpose of Altcoins is to explore new opportunities in the financial market. In other words, they do not rely on banks or on other financial institutions, also Altcoins draw different objectives from Bitcoin and generate great competition between cryptocurrencies.
The first virtual currencies came along with the emergence of an internet group called Cyberpunks, where the goal was to create an alternative payment method. Then, currency models began to emerge, including Bitcoin.
After Bitcoin took root in the market, some investors were looking to create an alternative virtual currency. Soon after, came Altcoin, whose name comes from “alternative coin”, or “alternative currency”.
The emergence of Altcoins assures investors with low-price volatility. Currently, the idea of Altcoin has boosted the coin market and now we have over 9000 cryptocurrencies with most of them listed on the crypto market.
The altcoin has been moving shoulder to shoulder with bitcoin and this means the future is bright with this new technology.
An altcoin always has a different proposition than Bitcoin, although some use the “trust protocol” known as blockchain which is the same technology used by Bitcoin. Each altcoin has its own way of functioning, and some may use a completely different system than the blockchain, while others use this same technology.
The information about transactions is usually stored in “blocks” which pass through various stages of verification at a faster pace than that of bitcoin.
Also, the fact that blockchains are usually stored in computers and various servers across the web makes it almost difficult to hack.
Types of Altcoins
There are several types of altcoins on the market, some based on mining, others on security tokens, utility tokens, and stable coin.
As the name implies the word mining isn’t a strange word, this simply means this is a type of coin that is being mined by rigorous mathematics through the system (problem-solving). Some good examples of mining-based altcoins are Zcash, Litecoin, etc.
The mining-based altcoin was mostly used in the year 2020 by various coins that got listed in the market, we also have the one called pre-mined coins and an example of such coin is Ripple XRP.
This is another type of Altcoin that became so popular and is always being anticipated. This type of coin is very similar to the ones being traded in the stock markets but the difference is that they are digital. They offer investors Initial Coin Offering (ICO) of which most when listed tend to perform well.
The utility token as its name goes is used for purchasing or to redeem rewards through coins and an example of this type of coin is Filecoin, it is mainly used to buy storage space and they are quite different from other types of coins.
The issue of unpredictable volatility in cryptocurrencies birthed Stablecoins and this was specially launched to bring stability to cryptos, they usually have a pegged value just like the fiat currency with a basket which serves as a pooled reserve so that in case of any unforeseen circumstance it serves as a backup to keep the currency stable. An example of Stablecoins is Facebook’s Diem, MakerDAO, USDC, etc.
Altcoins vs. Bitcoin
Bitcoin was the first cryptocurrency to allow online financial transactions between pairs of people. That is, without the presence of any intermediary, such as a government or regulatory body.
Thus, the most popular Altcoins use the same fundamental building blocks as Bitcoin. Despite this, some of them have different rules, as in embedded monetary policy, with the aim of encouraging different usage and treatment.
That is, some policies such as minimum spending and positive or negative interest on stored coins, for example, can encourage or discourage a purchase.
On the other hand, currency mining policies may also work differently from Bitcoin, and they may diverge from each other as well. As well as the number of coins paid per new block extracted.
These are other differences between Bitcoin and Altcoin:
- They have a different algorithm than Bitcoin;
- The difference in the structure of functioning differs, not all use Blockchain;
- They arose from the idea of bringing more speed to transactions;
- The market price between Altcoins is very different from Bitcoin.
Frequently Asked Question’s
1. How many Altcoins do we have?
It’s very difficult to determine the total number of Altcoins out there. After all, thousands were created, mainly between 2017 and 2020. However, on the CoinMarketCap website, you can see how many Altcoins there are, approximately.
The site is one of the largest aggregators of data on cryptocurrencies. Despite the sheer volume, most of these coins made losses to early investors. Besides, many of these Altcoins end up simply dying or can even be a blow.
As such, it is very difficult to determine which Altcoins have a future or are worth investing in. However, there are research tools to help you avoid falling into scams. They are called Dead Coins, which is nothing more than an aggregator with information about altcoins, such as if they went bankrupt or if they are a financial scam.
On the other hand, many other projects were successful. Even to the point of turning several investors into millionaires. So, it is possible to find altcoins with return on investment in each of the tens of thousands of valuations, for example. Therefore, the most important thing is always to do good research before actually choosing which one to invest in.
2. Main Altcoins
It is estimated that the number of altcoins is greater than 7,000. So, it’s hard to know exactly what the main ones are. However, there are in fact some that, due to their prominence and performance, deserve attention:
- Ethereum: Ethereum is undoubtedly the most important. After all, it’s the biggest altcoin by market capitalization. Besides being one of the most promising projects in this sector. It was also the first blockchain focusing on Smart Contracts and Decentralized Applications.
- Litecoin: Litecoin was created as an update of Bitcoin. Thus, it promised more speed for confirming transactions, fewer fees, and more stability. Its aim has always been to be a widely accepted currency. That is, to be used as an efficient bargaining chip.
- Ripple (XRP): Despite having similar goals to Litecoin, XRC came as a tool for large institutions and for banks. For that reason, it was a hit and even the biggest altcoin in the world for a while.
- Bitcoin Cash: One of the most successful versions of Bitcoin, creating a community loyal to the protocol and with a good appreciation from the beginning.
- Tether: Revolutionized the cryptocurrency market, Tether is the most famous stable coin in the world. Furthermore, with dollar backing, this currency has become useful to settle different contracts and transactions more easily and with less friction than the direct use of the dollar.
- Cardano: The Cardano is a blockchain platform that integrates multiple services in one place through smart procurement and decentralized applications running on your network. It also has its own active cryptocurrency.
- Chainlink: This works as an infrastructure for recording data and transactions that take place in various blockchains. Furthermore, its ability to operate and integrate different blockchains draws attention.
- Dogecoin: Dogecoin is completely different from the others. Its creation is unusual, it was a way to honor an internet meme of a Shiba Inu dog breed. Thus, it had no pretense of actually functioning as a competitive cryptocurrency in the market. However, little by little it managed to conquer its space in the cryptocurrency market because of its community.
- Stellar: The Stellar has as main objective function by secure payment, fast and affordable, focused primarily on remittances and international transactions.
- EOS: This cryptocurrency is capable of creating and keeping smart contracts and decentralized applications running. It is seen in the market as one of Ethereum’s main competitors. After all, both offer similar solutions and are capable of decentralizing other financial services through their blockchains.
3. What are the Advantages and Risks of Altcoins?
Any cryptocurrency that is not a bitcoin is an altcoin. Thus, the proposal to be an alternative to bitcoin, needs that there is some difference between it and BTC.
As stated earlier some types of altcoins are based on technologies other than bitcoins, such as stable coins. Each of them has its own proposals.
The main advantage of altcoin is that it is a substitute for bitcoin and can be traded at a lower price, or offer a greater prospect of future gain.
Some stablecoins even bring the advantage of being paired with a strong currency like the dollar, for example. This is a type of altcoin that brings more security to the investor.
Despite the advantages, it is necessary to pay attention to the risk of this type of investment. After all, the absence of regulation and criteria can compromise the liquidity of the investment.
4. How to Buy Altcoins
Altcoins can be purchased using the p2p model, which is a direct purchase made between two users, or they can be made through an Exchange.
These exchanges have several cryptocurrencies that the investor can buy and sell. That is, they mediate the market.
To make the purchase you need to open an exchange account, so it is important to take some precautions to know if the broker is really trustworthy.
Once the Exchange is chosen, it is necessary to make a deposit and buy the necessary amount of altcoin in the day’s quote.
Should You Invest in Altcoins?
This is a decision you have to make on your own but our tips and guides should give you an insight. For investors, there is always room for risks but let us take a good look at the benefits that come with this.
Cryptocurrencies in general can make investors millionaires overnight and there is always volatility which Altcoin has been able to manage which is why it is a Yes for us.
For starters, the volatility in cryptos might scare you but there is nothing to be afraid of.
Aside from investing in this coin remember you can also use Altcoin as a payment method internationally so, the benefits are numerous.