What are Altcoins? | Types, Pros & Cons

The world of digital currencies is filled with innovation, and altcoins are at the forefront of this exciting change. Altcoins are basically any cryptocurrency other than Bitcoin.

In this blog, we’ll explore what altcoins are, how they differ from Bitcoin, and the unique features it brings.

What are Altcoins?

Altcoins, short for alternative coins, are all cryptocurrencies other than Bitcoin. Bitcoin, being the first and most well-known cryptocurrency, is considered the originator of them all. Launched in 2011, Altcoins emerged as alternatives to Bitcoin, seeking to address some of the apparent limitations of the original cryptocurrency.

There are thousands of altcoins in existence today, each with its own unique features and functionalities. Some altcoins are designed to be more efficient than Bitcoin, while others focus on providing privacy or faster transaction speeds. 

History of Altcoins 

Altcoins first appeared immediately after Bitcoin was introduced in 2009. Bitcoin was the first cryptocurrency, and it caught the attention of both tech fans and investors. It also made people wonder what else could be done with digital monies. Charlie Lee developed Litecoin in 2011, the first significant cryptocurrency. With a new hashing algorithm called Scrypt and the intention of making it a “lighter” Bitcoin, Litecoin strove to provide quicker transaction speeds. This created the basis for a slew of alternative currencies that would emerge, each attempting to improve on Bitcoin’s architecture or fulfill specific goals.

General Characteristics of Altcoins 

When compared to Bitcoin and other conventional currencies, altcoins stand apart for a number of important reasons:
1. Decentralization: Similar to Bitcoin, altcoins function on decentralized networks, allowing for direct transactions between users without the need for middlemen. This feature improves security and gives users more control over their money.
2. Diverse Consensus Mechanisms: A lot of altcoins have switched to more efficient and scalable consensus techniques like Proof-of-Stake (PoS) or Delegated Proof-of-Stake (DPoS) from Bitcoin’s main consensus algorithm, the energy-intensive Proof-of-Work (PoW).
3. Diverse Use Cases: Altcoins are intended for a wide range of uses beyond only digital currency. Some are utility tokens for particular ecosystems, while others are more concerned with network governance or privacy.
4. Transaction Efficiency: With the goal of offering cheaper and quicker transactions than Bitcoin, several altcoins are becoming more feasible for daily usage.

Why Altcoins Exist? 

The motivation to build upon the concepts laid forth by Bitcoin gave rise to altcoins. Developers responded to Bitcoin’s shortcomings by creating alternative currencies, despite Bitcoin’s groundbreaking status as the first decentralized cryptocurrency.
Altcoins exist for the following reasons: 

Addressing Limitations of Bitcoin

Although revolutionary, Bitcoin has encountered problems with scalability, transaction speed, and energy use. To address these difficulties, other cryptocurrencies were created, such as Litecoin and Ethereum. For example, Litecoin sought to provide quicker transaction confirmations, whereas Ethereum added smart contracts, which allowed for complicated transactions and decentralized applications (DApps). 

Diverse Use Cases 

Beyond facilitating transactions, altcoins have many other uses. Many are tailored to certain uses, such supply chain management, non-fungible tokens (NFTs), or decentralized finance (DeFi). Altcoins are able to serve certain businesses and specialized marketplaces because of their specialization. To better implement smart contracts, Chainlink, for instance, aims to link them to real-world data. 

Experimentation and Innovation 

Ongoing experimentation is advantageous to the cryptocurrency sector. To try out novel ideas and technologies, developers might use altcoins. Innovation has resulted in the creation of distinctive features including governance mechanisms in projects like Tezos and privacy improvements in Monero. An environment that is open to change and experimentation is better able to support development and change. 

Community and Ideological Differences 

An idea or goal for the future of business and technology often gives rise to an altcoin. When it comes to projects, some focus on user-friendliness and decentralization, while others are more concerned with privacy and security. The cryptocurrency environment is evolving at a rapid pace because to this variety of opinion, which gives consumers the freedom to pick projects that correspond with their ideals. 

Types of Altcoins

There are many different types of altcoins, each with its own unique purpose and function. Here are some of the most common types:

Stablecoins: 

Stablecoins are designed to maintain a stable value by linking their price to a collection of assets, such as traditional currencies (like US dollars), precious metals (like gold), or other cryptocurrencies. This makes them less volatile than other altcoins, and they are often used as a medium of exchange for other cryptocurrencies.

Utility Tokens:

Utility tokens are used to access goods or services on a particular blockchain platform. For example, Ethereum (ETH) is the native token of the Ethereum blockchain, and it is used to pay for transaction fees on the network. Other utility tokens can be used to purchase things like storage space on a decentralized cloud storage network or voting rights on a decentralized governance platform.

Staking-based Coins:

Staking-based coins use a process called staking to add more coins to the supply and to verify transactions. Staking involves locking up your coins in a special wallet for a period of time. The longer you stake your coins, the more rewards you will earn. Some popular staking-based coins include Cardano (ADA) and Polkadot (DOT).

Governance Tokens:

Governance tokens give holders voting rights on a particular blockchain platform. These tokens can be used to vote on proposals for changes to the platform’s protocol or to choose representatives to a governance council. Some popular governance tokens include Maker (MKR) and Compound (COMP).

Meme Coins:

Meme coins are cryptocurrencies that are inspired by internet memes. They are often seen as risky investments, but they can also be very profitable. Dogecoin (DOGE) is the most famous meme coin.

Security Tokens:

Security tokens represent ownership of an asset, such as a stock or bond. They are a new type of asset class that is still being developed, but they have the potential to revolutionize the way securities are traded.

How to buy Altcoins?

Here’s a step-by-step guide on how to buy altcoins:

1. Choose a Crypto Purchase Method:

• Buy Bitcoin (BTC) first: Most altcoins can’t be directly purchased with fiat currency (USD, EUR, etc.). You’ll need to buy Bitcoin or another major cryptocurrency first and then exchange it for your desired altcoin.

2. Open an Account on a Reputable Exchange:

• Research and choose a secure cryptocurrency exchange that supports the altcoin you want. Popular options include Coinbase, Binance, Kraken, etc.
• Sign up for an account on the exchange and go through the verification process. 

3. Deposit Money into Your Exchange Account:

• Once verified, deposit funds into your exchange account using the available methods. This may include bank transfer, credit card (fees may apply), or another cryptocurrency transfer.

4. Search for Your Desired Altcoin:

• Use the exchange’s search function to find the altcoin you want to buy.

5. Place a Trade and Validate Purchase:

• Select the “buy” option for your chosen altcoin. Enter the amount you want to buy or the amount of fiat currency you want to spend.
• Review the transaction details carefully, including fees, and confirm the purchase.

6. Securely Store Your Altcoins (Claiming Tokens):

• Altcoins are typically stored in cryptocurrency wallets. You may be able to store them directly on the exchange, but for better security, consider transferring them to a private crypto wallet.

List of Top Altcoins

Here are list of some of the top altcoins: 

Altcoins VS Bitcoin

Bitcoin is the original cryptocurrency, but altcoins offer a whole universe of possibilities. Here’s a quick overview of the two:

Pros and Cons of Altcoins

Pros of Altcoins

• Innovation: Altcoins can be designed to address shortcomings of Bitcoin, like scalability and transaction speeds. They can experiment with new features and functionalities.
• High growth potential: Since they are typically not as established as Bitcoin, altcoins have the potential for explosive growth if they gain wider adoption.
• Diversity: There’s a wide range of altcoins with different purposes, allowing investors to choose based on specific interests and investment goals.
• Lower entry price: Compared to Bitcoin’s high price point, many altcoins are more affordable for new investors.

Cons of Altcoins

• High risk: The altcoin market is volatile and many altcoins are scams or have no real-world use case. Investors risk losing their entire investment.
• Lack of established value: Unlike Bitcoin, with its first-mover advantage and widespread recognition, many altcoins haven’t proven their long-term success.
• Less regulation: The altcoin market is less regulated than Bitcoin, which can make it susceptible to manipulation and fraud.
• Limited adoption: Widespread acceptance of altcoins for payments or other purposes is still uncommon.

Why should people consider investing in Altcoins?

There are a couple of reasons why people might consider investing in altcoins:

Potentially higher returns:

Altcoins can be much more volatile than Bitcoin, but that also means they have the potential for much higher returns. If you’re looking for a high-risk, high-reward investment, altcoins could be an option for a small portion of your portfolio.

Diversification: 

Altcoins offer a way to diversify your cryptocurrency holdings. By investing in a variety of crypto altcoins, you can spread out your risk and potentially improve your overall returns.

Specific functionality: 

Some altcoins are designed for specific purposes, such as powering decentralized applications (dApps) or facilitating smart contracts. If you believe in the potential of a particular application or technology, investing in the altcoin that powers it could be a way to get involved.

Future of Altcoins

The future of altcoin development is an exciting but uncertain area. Here are some of the developments that are likely to influence it:

• Focus on scalability and sustainability: Bitcoin is criticized for its slow transaction speeds and high energy consumption. Altcoins are looking at ways to address these issues, with projects like Cardano and Solana offering faster and more sustainable alternatives.
• Rise of DeFi (Decentralized Finance): DeFi applications are built on top of blockchains and allow for things like lending, borrowing, and trading without the need for traditional financial institutions. This is a rapidly growing area, and crypto altcoins that can provide the infrastructure and functionality for DeFi applications are likely to be successful.
• Integration with emerging technologies: Blockchain 3.0, which focuses on Decentralized Autonomous Organizations (DAOs), is another area of potential disruption for altcoins.

FAQs

Conclusion 

The world of altcoins is broad and exciting, offering a wide range of possibilities for investors. Whether you’re looking for potentially higher returns, diversification, or exposure to specific functionalities, altcoins are worth considering. 

However, it’s important to remember that the altcoin market is volatile. Before investing in any altcoin, do your research.