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Altcoins

Updated on :  

08 min read.

As of February 2022, there are more than 17,000 types of cryptos, according to CoinMarketCap. Bitcoin is responsible for roughly half of the total cryptocurrency market cap, while Ethereum makes up approximately a quarter. Altcoins take up the rest of the market share of around 40%. Also, it’s worth noting that the cryptocurrency ecosystem has seen the creation and addition of several thousands of new altcoins.

All these details indicate that altcoins are a substantial part of the market, and every crypto enthusiast should be aware of them. 

Go through the following sections to learn about altcoins.

What are altcoins?

The term “altcoins” refers to the short for “alternative coins”. First launched in 2011, altcoins describe all cryptos apart from Bitcoin. The idea behind most of these coins is to have a BTC alternative or to offer something the primary crypto cannot provide.

The early altcoins aimed to improve certain aspects of BTC, like energy efficiency or transaction speeds. And the more recent ones serve various purposes depending on the developers’ goals.

Types of altcoins

There are several types of altcoins – stablecoins, governance tokens, staking-based coins, and mining-based coins. The kind of altcoin depends on its purpose and how it works. Illustrated below are some of the major types of cryptos:

  • Stablecoins

Stablecoins refer to cryptos engineered to follow another asset’s price. Most of the biggest stablecoins are pegged to the U.S. dollar, aiming to mimic its value. USD Coin (USDC) and Tether (USDT) are two of the most prominent stablecoins.

  • Governance tokens

These cryptos provide voting rights to holders to help shape the project’s future. In most cases, governance tokens allow you to develop and vote on crypto-related proposals. This helps make crypto a decentralised project as one central authority does not make decisions, and all holders have a say.

Maker (MKR) is a popular governance token.

  • Staking-based

Staking-based coins are cryptos that use a process called staking to add more coins to the supply and verify transactions. Holders of these cryptos can opt to stake their coins. This implies that they are pledging those cryptos to be used for processing transactions. The blockchain protocol selects a participant to verify a block of transactions. In return for verifying, participants get cryptocurrency rewards.

  • Mining-based coins

These coins are a type of crypto that uses a process called mining for transaction verification and adding more coins to the supply. Miners solve mathematical equations using devices. The first one to solve the equation can verify a block of transactions. In return for verifying blocks, miners receive cryptocurrency rewards.

Altcoins: Pros and cons


Pros

Cons

A huge selection of altcoins is available with their own unique competitive advantages and purposes.

It isn’t easy to buy many altcoins as they are only available on some specific altcoin exchanges.

Altcoins improve on Bitcoin’s aspects.

They don’t have the market share or first-mover advantage of Bitcoin.

These provide high potential rewards.

They come with significant risk, as several altcoins fail or are just scams.

List of some major altcoins

Given below are some of the most popular altcoins:

Ethereum (ETH)

Unlike BTC, Ethereum is a platform engineered to enable developers to build DApps using smart contracts. However, like BTC, Ethereum uses the PoW consensus algorithm even though the team is looking forward to shifting to PoS via the launch of ETH 2.0. Phase 0 of Ethereum 2.0 (Beacon Chain) has already gone live.

The native token of the Ethereum network is ETH.

Ripple (XRP)

Ripple Labs is the organisation behind the XRP crypto, one of the oldest and most consistent players in this space in terms of market cap.

The idea behind XRP is that financial and banking institutions will use it for a quicker and more secure transaction settlement. Unlike traditional transactions, sending XRP takes place in a few seconds.

Polkadot (DOT)

Essentially, Polkadot allows cross-blockchain transfers for assets and data beyond tokens. It is highly scalable and enables users to develop custom blockchains using their Substrate framework.

The native token of Polkadot is DOT.

Binance Coin (BNB)

Binance Coin represents exchange-owned coins, a relatively new asset class in cryptos. BNB is the native crypto of Binance, the world’s largest exchange.

You can now stake your BNB holdings and earn passive income. Also, you can use these to participate in IEOs through the Binance Launchpad, farm different DeFi coins, or use it as a part of Binance Chain, Binance’s very own blockchain.

A step-by-step guide to buying altcoins

Step 1: Determine the percentage of portfolio allocation for altcoin investment.

Step 2: Research to pick the best altcoin.

Step 3: Exchange fiat currency for crypto.

Step 4: Choose the right exchange.

Step 5: Find a currency pair.

Step 6: Execute the trade.Step 7: Move the altcoins into a wallet.

Final word

Cryptocurrencies are here to stay, particularly now that the Biden administration has declared its willingness to regulate them and blockchain technology continues holding potential across various industries.

Altcoins are worth looking at for hands-on crypto investors. Some of these coins are ambitious projects which provide more use cases than BTC. Also, altcoins can see greater price hikes if they catch on, as they aren’t quite well-known.