Altcoins are a type of cryptocurrency similar to Bitcoin, but different from it. An altcoin is the combination of the words ‘alternative and ‘coin’, which refers to the alternative of Bitcoin. Both these kinds of coins have P2P (Peer-to-peer) systems like a huge computer that can handle lots of data at the same time.
As altcoins are not very far from the characteristics of bitcoins, their price trends usually follow the trajectory of Bitcoin. However, as the investing ecosystem evolves, this will become independent of Bitcoin’s trading signals over time. In some instances, altcoins aim to become the better Bitcoin by providing an inexpensive way to conduct digital transactions.
Difference between altcoins and bitcoins
An altcoin has different blocks that verify the transactions. Furthermore, they have new features that differentiate them from Bitcoin like price volatility or smart contracts.
As of November 2021, there are over 14,000 cryptocurrencies in total. As per CoinMarketCap, Ether and Bitcoin account for over 60% of the cryptocurrencies in the market. Altcoins account for the rest 40%.
Bitcoin was one of the first coins to enter the crypto market, and the design and philosophy of Bitcoin are the base for other coins that emerged. The setbacks of Bitcoin being the PoW (Proof of Work), which is used to create blocks is very time and energy-consuming. The smart contract of Bitcoin also has some limitations.
Altcoins get an edge in the market by providing a solution for the same. Altcoins use PoS (Proof of stake) instead of PoW, which ensures energy consumption reduction and time that is involved in the creation of the new blocks.
For instance, Ether is the second-largest cryptocurrency as per the market cap. It is used in the form of gas or payment for transaction costs on the Ethereum blockchain, And the launch of its 2.0 version has made it clear that altcoin overcomes the issues of Bitcoin that include sustainability and scalability.
How many types do Altcoins have?
Altcoins are of different types based on the consensus mechanism and functionalities, including:
Stablecoins
The Crypto market is volatile and unpredictable. Stablecoin is aimed at reducing this volatility and giving more surety of the investment by pegging value to a basket of goods, like fiat currencies, metals, etc. Some notable stable coins include Tether’s USDT. In March 2021, it was announced by the Giant Visa (V) that they would be deeming USDC as a mode to settle transactions.
Mining-based
Mining-based coins are coins that are mined and created. Mined Altcoins use PoW, by which new coins are created by solving difficult equations and creating blocks. Mining-based coins include Litecoin, ZCash and Monero. Most Altcoins are mined and even their initial coin offering (ICO) is mined.
Security Tokens
Security tokens have a lot of similar characteristics to the securities that are traded on the stock market. Security tokens resemble traditional stocks that provide equity through ownership and dividends in the profit. The price appreciation feature of this kind of token is what draws investors toward it.
Meme Coin
Meme coins are derived from jokes or silly puns on famous personalities, as you might know, the name of Niyander Cat, or the crypto enthusiast and owner of Tesla talking about leading coins like Dogecoin (DOGEUSD) or Shiba Inu. These gain hype in a short term through the push by the crypto influencers and retail investors and also lead to short-term gains. In April 2021 the surge in meme coins was referred to as the “Meme coin season”.
Utility Tokens
Utility tokens are good for providing services like purchases, paying network fees or redeeming rewards on various channels. For example, Filecoin is used to buy storage space on networks.
