What are Altcoins? A Guide for Beginners

Introduction

When talking about cryptocurrencies, people can use many terms such as Bitcoin, altcoin, tokens, etc. To lessen the confusion between various interchangeable terms this article sheds light on altcoin and what they stand for.

What is an Altcoin?

Altcoin is an alternative coin or currency to Bitcoin. All the tokens that have arrived after Bitcoin are known as Altcoins. However, there are some exponents who consider Altcoins to be cryptocurrencies outside of Bitcoin and Ethereum because they are forked forms of these blockchains.

Altcoins can hail from an independent blockchain network or they may hail from decentralized protocols. Altcoin blockchains can introduce unique consensus mechanisms or add some unique features or use cases to them.

Types of Altcoins

Following are some of the most well-known types of altcoins available on the crypto marketplace:

Payment Tokens

Payment tokens are used as medium of exchange. These tokens normally are acceptable by online merchants. They can be used in place of fiat currencies and enable transactions in a P2P or decentralized manner.

In this manner, consumers can make payments with smaller transaction costs and reduced hassle of verification.

Stablecoins

Stablecoins are the tokens that always retain a specific price for them at all times. They can be used as a hedge against inflation and cryptocurrency investors can use them to preserve their profits.

Stablecoins are backed by reserves that are present in the form of fiat currencies, commodities, stocks, or other types of assets. Stablecoins are also redeemable against their pegged fiat currency and they are vulnerable to regulatory compliance in many jurisdictions.

Security Tokens

Security tokens are tokenized form of traditional stock listings. There are many companies and stock exchange markets that are treating stock exchange platforms leverage the blockchain technology to upgrade their existing trading systems.

Therefore, companies can issue their shares on blockchains in a tokenized form.

Utility Tokens

Utility tokens are the type of altcoins that serve particular function. Some utility tokens are utilized for incentivizing users for offering free storage space. Meanwhile, there are other tokens utility which are issued as yield for staking etc.

Meme Coins

Meme coins are inspired by internet memes that have gone viral on the internet and they are often used to satirize the existing cryptocurrency projects. These cryptocurrencies gain popularity much like memes and investors can put their money into these currencies to take advantage of short-term gains.

Governance Tokens

Governance tokens are designed for enabling a democratic administration for a blockchain system. The investors who have governance tokens have rights on the blockchain network such as voting for new proposals, approving updates, or appointing network validators etc.

Advantages of Altcoins

Following are the important benefits of Altcoins given as under:

Added Features

Altcoins can have the same core infrastructure as other Bitcoin. However, these coins usually try to integrate additional features as a way to improve their functionality. It is because developers can introduce new use cases to them or create them for serving a particular function.

Options

Bitcoin market dominance is more than 50%. However, the rest of the market consists of altcoins. There are thousands of altcoin varieties that investors can choose from.

Practical Utility

Altcoins have to offer a practical utility in order to gain traction among investors. There is a lot of competition among altcoin projects to gain popularity in the crypto sector. However, investors only put money on the tokens that have real purpose and have the ability to solve real problems.

Disadvantages of Altcoins

Following are the disadvantages of altcoins:

Altcoins usually have a small market cap and they do not have the market exposure or popularity to convince big investors to acquire them.

Altcoins often suffer from a lack of liquidity in comparison to Bitcoin since they have limited investment exposure.

In many cases, altcoins may not offer practical utility and they are used by investors to create hype and generate short-term returns.

Altcoins have the potential to turn out as a scam and their investors may be left behind if the issuer decides to rug pull.

Conclusion

Altcoin is a big portion of the cryptocurrency market. They bring diversity, innovation, and more investment opportunities for the investors. Altcoins can gain notoriety if they are backed by verified investors and have a discernable utility.