What is an Altcoin? Investing for Beginners
In the cryptocurrency space, there are lots of terminologies you will come across, especially as a beginner, and one of them is the word “altcoin”.
After Bitcoin emerged in 2009, it established itself well at the top before other coins were minted on the blockchain. This immediately made it set the pace for other coins to follow. Since that time, thousands of other cryptocurrencies have been created and added to the crypto ecosystem.
The concept of altcoin is not entirely confusing, it is self-explanatory just by the name. We will explain what the term means in this article as we try to make you more conversant with the crypto space.
What is an Altcoin?
The term “altcoin” is a combination of two words, “alternative,” and “coin”. As the name implies, an altcoin is any other coin that is not Bitcoin. In other words, altcoins are every other cryptocurrency other than Bitcoin, and Ethereum is the most popular altcoin.
Though, some people choose not to refer to Ethereum as an altcoin because it is the second most popular cryptocurrency after Bitcoin, and most cryptos are built from one of the two.
So, some people might define an altcoin as every other cryptocurrency other than Bitcoin and Ethereum. According to the crypto price tracking website CoinMarketCap, there is over 17,000 altcoin available as of February 2022.
According to research, altcoins make up roughly 40% of the crypto market cap, and Bitcoin and Ethereum take up the other 60%. This simply means that there are thousands of other cryptocurrencies being traded out there that are not Bitcoin.
Here is a list of the 10 most popular cryptocurrencies after Bitcoin;
- USD Coin
Please be aware that this list is in no particular order and it can be changed at any time.
Is Altcoin a Good Investment For You?
Experts always caution that cryptocurrencies are highly volatile and investment should be done at your own risk after proper research. Ethereum, the most popular altcoin has a market cap of about $205 billion at the time of writing this content.
Since its launch in 2015, Ethereum has grown significantly thanks to its smart contract compatibility and the popularity of NFTs that are built on its ERC-721 blockchain.
Nelson Merchan, CEO of blockchain events firm Light Node Media said “Everyone always looks at other people making money and they’re like, ‘what about me?” “I think that the beauty of what crypto allows us to do is reassess our relationship with money.”
He also advised not to look at cryptocurrency as a get-rich-quick scheme, instead use it to learn about the new asset class and your relationship with money without putting everything on the line.
You should always start by learning how these altcoins work before investing your money and time in them. Experts advise that investors should keep their holdings to under 5% of their portfolio and also stick to the two most popular and established crypto out there – Bitcoin and Ethereum.
There are several ways to invest in crypto if you are not ready to buy and hold it directly. Some passive means to earn cryptocurrencies without actually buying them can be seen in this article.
Before making a decision, sit down and access some things like your risk tolerance, time horizon, and financial goals.
The next thing you should be aware of is that altcoins come in different types and we are going to list them below.
Types of Altcoins
As earlier stated, there are thousands of altcoins available in the crypto market and they all come in categories. Some altcoins however can be grouped in more than one category. These categories are always changing because of how hot the crypto trend is.
Below is a list of the major varieties altcoins fall into and what they are intended to be used for.
- Payment Tokens
- Governance Tokens
- Meme Coin
- Utility Token
- Security Tokens
Since cryptocurrency is known to be very volatile, stablecoins were made to reduce this volatility. A stablecoin is a type of coin whose value is fixed to another less volatile asset like a fiat currency such as the U.S dollar. They can also be pegged to precious metals or even other cryptocurrencies.
Whatever they are pegged to, the main aim is to have a less volatile cryptocurrency with great potential to look like the everyday local currency people use. Some examples of stablecoins include USDT, MakerDAO’s DAI, and USDC (USD Coin).
Just like the name implies, a payment token is meant to be used as currency to exchange value between two parties and also make payments.
Governance tokens have to do with certain privileges. They are a type of utility token that gives holders some rights within a blockchain. Some of these rights and privileges are the ability to participate in blockchain votes and having a say in the decision-making of some DAO (decentralized autonomous organization).
They have come to be accepted as a separate type of altcoin because they are local to a private blockchain and are used for blockchain purposes.
This type of token is inspired by silly ideas, particularly jokes about other well-known cryptocurrencies. It derived its name from popular social media puns and jokes “memes”.
Their value usually comes from a community buy rather than fundamentals such as scarcity and total potential market cap. They also get their values from their online communities. They gain popularity quickly by hypes from popular influencers and investors who are looking to take advantage and exploit short-term gains.
Meme coins have some similarities with the Non Fungible Tokens (NFTs) in terms of getting value from their online communities and also their prices rising and falling, with far shorter track records than other popular crypto like Bitcoin and Ethereum.
Two of the most popular and well-known meme coins are Dogecoin and Shiba Inu. Others include Dogelon Mars, MonaCoin, Shiba Predator, Hoge Finance, etc.
Utility tokens simply put are tokens that are used to provide some specific service within a network or a blockchain. Some of the services a utility token can be used for include but are not limited to paying network fees, redeeming rewards, and purchasing services.
As the potential of the blockchain industry grows, users will need a way to pay for services and transactions, that is what utility tokens are made for. Utility tokens can also be used to publish arts (NFTs) and also mint tokens.
A very good example of a utility token is Ether (ETH). It was designed to be used in the Ethereum blockchain to pay for transactions. Another example of a utility token is Filecoin which is used to pay for space on the Filecoin blockchain network for storing files.
Security tokens are used to record ownership or a stake in something. These tokens are regulated by the SEC (Securities and Exchange Commission). According to Investopedia, “a security token is a digital asset that represents ownership or other rights and transfers value from an asset or bundle of assets to a token.”
It is a digital contract that represents some fractions of real assets with value, for example, a business or real estate.
Pros & Cons of Altcoins
- There are thousands of them to choose from
- Improves upon the weakness of other cryptocurrencies
- High survivability rate
- It might be difficult to understand its use
- They are less liquid than the most popular crypto Bitcoin
- They are less popular and have a lower market cap
- Many of these coins are scams
Disclaimer: The views and opinions expressed in this article are solely of the writer and independent of the general view of 36crypto. You are always advised to do your research before investing in anything crypto.