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    What Are Altcoins?

    Pathik Bhattacharya
    Pathik Bhattacharya

    Updated on February 07, 2023 07:35 AM

    Published on February 04, 2023 01:29 PM

    The term "altcoin" is an abbreviation for "alternative coins," which simply refers to cryptocurrencies other than Bitcoin that acquired its status at the top before any other types of coins were produced on the blockchain. Let's look a little further at Altcoin.

    Shiba Altcoin
    Source: Unsplash

    Altcoins are all about alternatives. All cryptocurrencies other than Bitcoin (BTC) are included in this category. Some people believe altcoins to be all cryptocurrencies other than Bitcoin and Ethereum (ETH) because the majority of cryptocurrencies are forked from one of the two.

    Some altcoins utilize unique consensus mechanisms to validate transactions and open new blocks. In contrast, others try to differentiate themselves from Bitcoin and Ethereum by offering new or enhanced capabilities or objectives.

    Altcoins include Ethereum, Tether, Dogecoin, Shiba Inu, and any other cryptocurrency you can think of except Bitcoin. This raises several concerns, such as the different types of altcoins, the pros and cons of altcoins, examples of altcoins, and the best altcoins to invest in 2023.

    Don't worry, we've got your back. Let's get started and learn more about altcoins.

    What is an Alternative Coin?

    The term "altcoin" is derived from the keywords "alternative" and "coin”. Many altcoins are utilized to accomplish something within their individual blockchains, such as ether, which is needed in Ethereum to pay transaction fees.

    Some developers, such as Bitcoin Cash, have developed forks of Bitcoin and re-emerged in an attempt to compete with Bitcoin as a payment method. Others fork and promote themselves in order to raise funding for certain purposes. 

    Bananacoin, for example, branched from Ethereum in 2017 as a way to generate funding for a banana farm in Laos that promised to grow organic bananas.

    Dogecoin, the popular meme coin, was reportedly conceived as a prank. It diverged from Litecoin, which diverged from Bitcoin in 2011. Whatever the motivation for its development, it was still intended to be a digital payment method.

    Altcoins seek to improve on the perceived limits of the cryptocurrency and blockchain from which they are forked or compete.

    Litecoin was the first altcoin, forked from the Bitcoin blockchain in 211. Scrypt (pronounced es-crypt) is a proof-of-work (PoW) consensus technique used by Litecoin that is less energy-intensive and faster than Bitcoin's SHA-256 PoW consensus process.

    Ether is another altcoin. However, it did not separate from Bitcoin. It was created to support Ethereum, the world's largest blockchain-based scalable virtual machine, by Vitalik Buterin, Dr. Gavin Wood, and a few others. Ether (ETH) is used to compensate network participants for the transaction validation work performed by their equipment.

    Altcoins working and Market Capitalization

    Now that you know what are altcoins, you can probably assume that they work quite similarly to the major cryptocurrency Bitcoin. Cryptocurrencies are built on blockchain technology and operate on the basis of a distributed ledger, which gives them their essential value of decentralization.

    Global computer network nodes are in charge of verifying and uploading new transaction records to the system. Once these data are added, it becomes nearly impossible to tamper with; 51% of all computer networks must be interfered with in order to confirm the false data. And that is a significant challenge!

    However, this is also one of the system's downsides, as once data is submitted, it is permanent and difficult to change.

    Do you know that there are over 20,000 altcoins accessible in the crypto market, and the number is growing all the time? While Bitcoin accounts for over half of the cryptocurrency market capitalization, the remainder is made up of several altcoins. The relevance of altcoin is determined by its usability and functionality. 

    What Are the Various Types of Altcoins?

    In the market, there are several types of altcoins, such as stable altcoins, governance altcoins, staking-based altcoins, and others.

    Here are a few examples of altcoins:

    • Ethereum

    • Tether

    • Dogecoin

    • Cardano

    • Solana

    • USD coin

    • Binance Coin

    • Binance USD

    The cryptocurrency market is divided into six types of altcoins based on their function,

    1. Stable Altcoins

    The value of stable altcoins is derived from their underlying assets. USD Coin, for example, gets its value from the US Dollar. The majority of stable cryptocurrencies are linked to or connected to the USD and track their price changes.

    The goal of stable altcoins, as the name implies, is to keep the price stable. They accomplish this by keeping a reserve of the underlying asset. Because the majority of stable cryptocurrencies are tethered to the US dollar, their value remains close to one dollar. 

    Furthermore, because of their consistent rates, stable cryptocurrencies are utilized for transferring and receiving money rather than as an investment alternative.

    1. Security Tokens

    Security tokens are tokenized assets that are traded on stock exchanges. Tokenization is the process through which value is transferred from an asset to a token, which is then made available to investors. Any asset, like real estate or equities, can be tokenized.

    The asset must be secured and held for this to operate. Otherwise, the tokens have no value because they represent nothing. Because security tokens are designed to function like securities, they are governed by the Securities and Exchange Commission.

    Exodus, a Bitcoin wallet company, executed a Securities and Exchange Commission-qualified Reg A+ token offering in 2021, converting $75 million shares of common stock into tokens on the Algorand blockchain.

    1. Utility Tokens

    Utility tokens are used to deliver network services. They could be used to buy services, pay network costs, or redeem prizes, for example. A utility token is something like Filecoin, which is used to acquire network storage space and safeguard the data.

    Ether (ETH) is a utility token as well. It is intended to be used to pay for transactions on the Ethereum blockchain and virtual machine. USTerra, a stablecoin, attempts to keep its peg to the dollar, which it lost on May 11, 2022, by minting and burning two utility tokens to produce downward or upward pressure on its price.

    Utility tokens can be purchased and retained on exchanges, but they are intended to be used on the blockchain network to keep it running.

    1.  Meme Coins

    Meme coins, as the name implies, are inspired by a joke or a humorous take on other well-known cryptocurrencies. They often gain popularity quickly and are frequently pushed online by renowned influencers or investors looking to capitalize on short-term gains.

    Many refer to the huge rise in these altcoins around April and May 2021 as "meme coin season," with hundreds of these cryptocurrencies achieving massive percentage increases based only on a supposition.

    1. Governance Tokens

    Governance tokens grant holders specific rights within a blockchain, such as voting on protocol modifications or having a role in decisions made by a decentralized autonomous organization (DAO). 

    They are utility tokens because they are often native to a private blockchain and used for blockchain functions, but they have come to be recognized as a separate type due to their purpose.

    1. Staking-based altcoins

    Staking-based altcoins exist in the same way that mining-based altcoins do. To verify transactions and add them to the blockchain, they use the proof-of-stake (PoS) consensus process. 

    In this case, a person bets as many coins as possible in the network in order to be chosen as a validator. There is no complex puzzle-solving or competitiveness. An algorithm chooses one individual at random from among those who have staked their cryptos to validate a transaction. A successful validator receives a portion of the transaction costs.

    Peercoin was the first staking-based altcoin, and it was followed by a slew of additional cryptos that used a similar process, including Cosmos, Polkadot, and others.

     Altcoins: Pros and Cons

    Pros

    Cons

    Improve upon another cryptocurrency's weaknesses

    Lower popularity and smaller market cap

    Higher survivability

    Less liquid than Bitcoin

    Thousands to choose from

    Difficult to determine use cases

    Pros of Altcoins explained

    1. Altcoins are "better versions" of the cryptocurrency from which they draw because they seek to address perceived flaws.

    2. Altcoins with greater utility, such as Ethereum's ether, have a stronger chance of survival.

    3. Investors can select from a large range of altcoins that serve various tasks in the crypto economy.

    Cons of Altcoin explained

    1. When compared to Bitcoin, altcoins have a smaller investment market. Since May of 2021, Bitcoin has generally held roughly 40% of the worldwide cryptocurrency market.

    2. Fewer investors and less activity characterize the altcoin market, resulting in weak liquidity.

    3. It is not always possible to distinguish between different altcoins and their specific use cases, which complicates and confuses investing decisions.

    4. There are some "dead" cryptocurrencies that have sunk investor funds.

    Top 10 Altcoins to Invest in 2023

    The cryptocurrency market has been growing rapidly in recent years, with more and more investors looking to diversify their portfolios with alternative coins (altcoins) beyond Bitcoin. As a result, the market is now home to thousands of different altcoins, each with its own unique features and potential for growth.

    It is important to note that cryptocurrency investment is highly speculative and volatile, and past performance is not a guarantee of future results. With that being said, here are ten altcoins that have been generating attention and could potentially be worth considering for investment in 2023:

    1. Ethereum (ETH)

    2. Binance Coin (BNB)

    3. Polkadot (DOT)

    4. Cardano (ADA)

    5. Chainlink (LINK)

    6. Dogecoin (DOGE)

    7. Solana (SOL)

    8. Aave (AAVE)

    9. Uniswap (UNI)

    10. Bitcoin Cash (BCH)

    It's important to do your own research and understand the risks involved before investing in any cryptocurrency. It's also recommended to consult with a financial advisor to see if it aligns with your investment goals and risk tolerance.

    we will explore the top 10 altcoins to invest in 2023, based on factors such as market capitalization, adoption, technology, and overall potential for growth.

    1. Ethereum (ETH)

    Ethereum is a decentralized platform for building decentralized applications (dapps) and smart contracts. It is the second-largest cryptocurrency by market capitalization and has a strong developer community working on its ecosystem. In 2023, the launch of Ethereum 2.0 is expected, which will bring significant upgrades to the network, including faster transaction times and improved scalability. This makes Ethereum a strong contender for investment in 2023.

    1. Binance Coin (BNB)

    Binance Coin is the native token of the Binance exchange, one of the largest cryptocurrency exchanges in the world. Binance has been expanding rapidly, acquiring new companies and launching new services, which is expected to drive the demand for Binance Coin. Additionally, Binance has implemented a token burn mechanism, reducing the total supply of Binance Coin over time, which could lead to price appreciation.

    1. Polkadot (DOT)

    Polkadot is a next-generation blockchain platform that aims to offer interoperability between different blockchain networks. This means that dapps built on one blockchain network can be easily transferred to another network, making Polkadot a highly versatile platform for developers. The Polkadot ecosystem is growing rapidly, with a number of exciting projects in development, making it a strong contender for investment in 2023.

    1. Cardano (ADA)

    Cardano is a blockchain platform designed to provide a more secure and scalable infrastructure for the development of dapps and smart contracts. It is built on a proof-of-stake consensus mechanism, which is more energy-efficient than Bitcoin's proof-of-work mechanism. Cardano is also highly focused on research and development, making it an attractive investment option for those looking for a long-term investment.

    1. Chainlink (LINK)

    Chainlink is a decentralized oracle network that enables smart contracts to securely access off-chain data, such as stock prices, weather data, and more. This makes Chainlink a critical component for the growth and adoption of decentralized finance (DeFi) and other decentralized applications. As the DeFi ecosystem continues to grow, the demand for Chainlink is expected to increase, making it a strong investment opportunity for 2023.

    1. Dogecoin (DOGE)

    Dogecoin was created as a joke in 2013 but has since become a popular altcoin, with a strong community of supporters. Although it was created as a joke, Dogecoin has seen its fair share of success, with a number of high-profile partnerships and collaborations. It is also gaining traction as a form of payment, with some online retailers now accepting Dogecoin as a form of payment.

    1. Solana (SOL)

    Solana is a high-performance blockchain platform that aims to provide fast and secure transactions for decentralized applications. It uses a proof-of-stake consensus mechanism and a custom consensus algorithm, which allows for faster and cheaper transactions. Solana has been gaining popularity among developers, with a number of exciting projects in development, making it a strong investment opportunity for 2023.

    1. Aave (AAVE)

    Aave is a decentralized finance (DeFi) platform that allows users to earn interest on their cryptocurrency deposits and borrow digital assets using their deposits as collateral. Aave's innovative approach to DeFi has made it one of the most popular platforms in the space, and its growing ecosystem of developers and users could make it a key player in the future of DeFi.

    1. Uniswap (UNI)

    Uniswap (UNI) - Uniswap is a decentralized exchange (DEX) that allows users to trade cryptocurrencies without the need for an intermediary. Uniswap uses a unique liquidity pool system to provide users with fast and efficient trades, and its growing popularity has made it one of the largest DEXs in the world. As DeFi continues to grow and more users flock to decentralized exchanges, Uniswap could play a big role in the future of cryptocurrency trading.

    1. Bitcoin Cash (BCH)

    Bitcoin Cash (BCH) - Bitcoin Cash is a hard fork of the original Bitcoin (BTC) cryptocurrency that was created to address some of the scalability and transaction speed issues that the original Bitcoin faced. Bitcoin Cash has since established itself as one of the largest cryptocurrencies in the world, and its fast and low-cost transactions could make it a popular choice for merchants and consumers in the future.

    Is it a Good Idea to Invest in Altcoins?

    If you are confident in investing in altcoins, ask yourself how much risk you are willing to take and what % return you expect from your investment.

    Altcoins, as previously said, are dangerous. However, this does not imply that it is a terrible investment. Before investing your money, you must keep up with these cryptocurrencies and understand how they work. Before you invest, research the altcoin's history, website, founders, team, whitepaper, and what the community has to say.

    If you are certain that you want to diversify your portfolio with other cryptocurrencies and have done your homework on which ones to invest in, then investing in altcoins is a fantastic option.

    What to Consider About Before Investing in Altcoins

    Once you understand what altcoins are and plan to invest in them, you must first understand their intricacies, also known as their benefits and drawbacks. After all, when it comes to money, making an informed decision is essential.

    Advantages

    1. The advantages of investing in new technology: Altcoins were created following Bitcoin, which propelled blockchain technology to the forefront. Altcoins are based on the same technology as Bitcoin, but with more improvements and innovations.

    2. Rewards are a plus: By keeping altcoins, users might earn specific benefits. Users can, for example, receive rewards for mining currencies or staking-based currency. They only need to validate transactions (which might not be as easy as it sounds). There are also various perks depending on the coins, such as price discounts, early access to products and services, and more.

    3. A diverse selection: There are thousands of altcoins to choose from and invest in based on their functionality and your personal preferences, which is a significant advantage of altcoins.

    Disadvantages

    1. A smaller market share: Altcoins, without a doubt, have a great number of varieties; nonetheless, when it comes to market share, Bitcoin still controls half of the market value.

    2. Higher risk: Because many of these currencies are new, there are some dangers associated with investing in them. Some lack trustworthiness, and if the underlying project fails, a coin's value may decline. Altcoins, like Bitcoin, have inherited increased volatility.

    3. While Bitcoin is practically available on every cryptocurrency market, the same cannot be said for altcoins. While Ethereum and Tether are available on all exchanges, younger altcoins lack that scalability.

    Future of Altcoins

    The conditions that led to the creation of a federally printed dollar in the nineteenth century provide a precedent for discussions concerning the future of altcoins and cryptocurrencies. In the United States, various forms of local currency were in use. Each had its own distinct personality and was accompanied by a different instrument.

    Local banks were also printing money, which was sometimes backed by fictional reserves. This range of currencies and financial instruments mirrors the current state of altcoin marketplaces. There are thousands of altcoins on the market now, each claiming to fulfil a certain function and market.

    The current state of affairs in the altcoin markets suggests that a single cryptocurrency is unlikely to emerge. However, it is also likely that the vast majority of the hundreds of altcoins listed on cryptocurrency exchanges will fail. The altcoin market will most likely be dominated by a handful of altcoins with great usefulness, use cases, and a solid blockchain purpose.

    If you want to diversify your cryptocurrency portfolio, altcoins can be less expensive than Bitcoin. However, regardless of the type of coin, the cryptocurrency market is immature and volatile. Because cryptocurrency is still figuring out its place in the global economy, it's advisable to approach all cryptocurrencies with caution.

    Altcoin FAQs

    What are altcoins?

    An altcoin is any cryptocurrency that is not Bitcoin. The term 'altcoin' is derived from two words: alternative and cryptocurrency. The name was coined because several cryptos emerged after Bitcoin attempted to outperform it. Later, though, significant innovation occurred, and various cryptocurrencies went on to solve various challenges.

    What's the difference between Bitcoin and altcoins?

    Bitcoin is the first cryptocurrency and accounts for half of the market capitalization. Altcoins are cryptocurrencies that emerged after Bitcoin and are so seen as alternatives. Altcoins are more advanced than Bitcoin, but they also pose greater hazards.

    Should I invest in Bitcoin or an altcoin?

    Where you invest your money is determined by your tastes, risk tolerance, and research. Bitcoin is always a secure investment; nevertheless, if you want to invest in an altcoin, you must first learn about its history, website, founders, and other details. Bitcoin and altcoins are both fantastic investment choices if you do your study.

    How many altcoins will exist in 2023?

    According to Coinmarketcap, there are over 20,000 cryptocurrencies in circulation as of July 2023. Almost 80 have a market cap of more than $1 billion, while nearly 100 new altcoins are minted every day.

    What are the top 10 altcoins to invest in 2023?

    1. Ethereum (ETH)

    2. Binance Coin (BNB)

    3. Polkadot (DOT)

    4. Cardano (ADA)

    5. Chainlink (LINK)

    6. Dogecoin (DOGE)

    7. Solana (SOL)

    8. Aave (AAVE)

    9. Uniswap (UNI)

    10. Bitcoin Cash (BCH)

    Is Solana an altcoin?

    Solana is a popular altcoin that is part of a group of cryptos known as "Ethereum killers." The Solana (SOL) blockchain, like Ethereum, allows a variety of decentralized finance (DeFi) projects like NFTs, smart contracts, and decentralized app development (dApps).

    Is Ethereum an Altcoin?

    Yes, Ethereum is among the top 10 Altcoins. Ethereum is a decentralized platform for building decentralized applications (dapps) and smart contracts. It is the second-largest cryptocurrency by market capitalization and has a strong developer community working on its ecosystem.