What Is Altcoin?
All cryptocurrencies except Bitcoin are referred to together as altcoins (BTC). However, some people consider altcoins to be all cryptocurrencies other than Bitcoin and Ethereum (ETH) because most cryptocurrencies are forked from one of the two. Some alternative currencies aim to set themselves apart from Bitcoin and Ethereum by offering new or extra features or objectives, while others employ alternative consensus processes to validate transactions and open new blocks.
The majority of altcoins are created and published by programmers who have distinct goals or purposes in mind for their currencies or tokens. Find out more about other cryptocurrencies and how they vary from Bitcoin.
Understanding Altcoins
The term “Altcoin” combines the two words “alternative” and “coin.” It is frequently used to refer to all digital currencies and tokens other than Bitcoin. Altcoins are a part of the blockchains that they were specifically created for. Many are forks from Bitcoin and Ethereum, which is the splitting of a blockchain that is incompatible with the primary chain. Usually, there are several causes for these forks. Most frequently, a group of developers that disagree with one another quit to start their own businesses.
Types of Altcoins
Altcoins come in a variety of types and varieties. Here is a quick description of some of the many sorts of alternative coins and the applications they are designed for.
Payment Token
Payment tokens are intended to be used as currency – to exchange value between parties – as their name suggests. The best illustration of payment tokens is PAYN and FMC which can be used in the FMCPAY ecosystem.
Stablecoins
Since the beginning, volatility has characterized cryptocurrency trading and usage. The value of stablecoins is linked to a basket of products, such as fiat money, precious metals, or other cryptocurrencies, in an effort to lower the overall volatility of the market. If the cryptocurrency falters or has issues, the basket is intended to function as a reserve to redeem holders. Stablecoin price fluctuations shouldn’t go above a specific range.
Security Tokens
Tokenized assets provided on stock exchanges include security tokens. Tokenization is the conversion of an asset’s value into a token, which is subsequently distributed to investors. Any asset, including stocks and real estate, may be tokenized. The asset has to be kept and secured for this to operate. If not, the tokens wouldn’t have any value because they wouldn’t stand for anything. Because they are intended to function like securities, security tokens are subject to Securities and Exchange Commission regulation.
Utility Tokens
Within a network, utility tokens are employed to deliver services. They might be used, for instance, to pay for services, cover network costs, or get incentives. A utility token is something like Filecoin, which is used to pay for network storage space and safeguard data.
Meme Coins
Meme coins, as their name indicates, are parodies or humorous interpretations of other well-known cryptocurrencies. They usually become well-known quickly and are frequently promoted online by well-known influencers or investors looking to make quick money.
Governance Tokens
Governance tokens allow holders certain rights within a blockchain, such as voting for changes to protocols or having a say in the decisions of a decentralized autonomous organization (DAO). They are utility tokens because they are often native to a private blockchain and utilized for blockchain functions, but because of their use, they have become recognized as a distinct category.
Pros and Cons of Altcoins
Pros
- Improve upon another cryptocurrency’s weaknesses
- Higher survivability
- Thousands to choose from
Cons
- Lower popularity and smaller market cap
- Less liquid than Bitcoin
- Difficult to determine use cases
- Many altcoins are scams or lost developer and community interest
Closing thoughts
Besides Bitcoin, there are many Altcoins for us to invest in. If you want to invest in some Altcoins, you should check your financial status, investment objectives, risk tolerance, and market conditions will all affect which cryptocurrency is the best choice for you. The best way to determine which is ideal for you is to consult with a financial expert.