What Are Altcoins?
What Are Altcoins?
Altcoins are coins that are alternatives to Bitcoin. These could be anything from a heavy-hitter like ETH to the more humble stablecoin. Exchange-issued tokens like Binance Coin fit this description. As do millions of others.
You can consider Bitcoin the General leading the charge and altcoins the infantry that follows.
Bitcoin is the behemoth, and nobody will contest that. Altcoins compete with it by offering additional or various features like faster transaction speeds, enhanced privacy measures, user-specific smart contracts, and others.
Namecoin was the first altcoin released after Bitcoin, and it came three years later.
Types Of Altcoins
There are many different altcoins. Too many to list, actually, because each has a specific purpose. Bitcoin is beautiful, and it has a purpose. So do meme coins, stablecoins, and security tokens.
There isn’t “one size fits all” when it comes to altcoins, and that’s what makes them great.
Stablecoins
Stablecoins are altcoins that maintain their value by being “pegged” to a specific asset. Those assets are overwhelmingly fiat currencies like USD and the Euro. Basically, they are meant to provide a 1:1 correlation to the underlying asset. So, if USD is at 1.23 to the Euro, so is USDT. You can lend them out, which is cool. Investors use stablecoins when they want their assets to be, you know, stable.
Popular stablecoins:
- USDT: Tether: Pegged to USD
- USDC: USD Coin: Pegged to USD
- BUSD: Binance USD: Pegged to USD
Other stablecoins can be pegged to baskets of currencies instead of just one. It’s sort of like the $VT of currency pegging.
Payment Token
Payment tokens help facilitate transactions and serve as an exchange medium. In many ways, they function like cash or credit, but in the crypto space.
Ripple and Litecoin are two such tokens. Payment tokens speed up transactions which help both buyer and seller trust the system and the transaction since it instantly appears as confirmed.
Utility Tokens
Utility tokens help users gain access to specific products or services within a specific blockchain. The tokens have intrinsic value as they provide a service.
Utility tokens work similarly to passwords. Someone issuing the token might do so in order for the recipient of the token to access or utilize action items set forth by the issuer. They are traded via supply-and-demand theory, which also determines their value, aka price.
If this seems somewhat confusing, it really isn’t. Utility tokens can be considered tickets that get you into an event or a VIP wristband that gets you in the back door.
Security Tokens
Security tokens function a bit like a stock. If you own a share of Apple, you technically own that corresponding amount of equity in the company. This also explains why you receive so many annoying prospectus emails because you’re considered an owner.
Popular security tokens (STOs) include IMPT, Meta Music Token, Blockstream Mining, and Advanced Robotics.
Security tokens aim to democratize access to investments. There are no preferred shares in the security tokens world. Because security tokens represent ownership, they can sometimes fall under the purview of the SEC.
Governance Tokens
Governance tokens govern things. They grant holders the right to make decisions. Some people call them voting tokens.
Those that hold them can use them to propose, discuss, and vote on changes related to the decentralized ecosystem. They can be found on blockchains like Ethereum and are used in a way that shows you’ve got something to say. Governance tokens allow your voice to be heard.
Meme Coins
Oh, meme coins. These coins are based on memes and, maybe because or in spite of that, see immense trading volumes. People like to mint meme coins and try to P+D them (looking at you, Elon).
Popular meme coins include Dogecoin, Pepe, Floki, and BabyDoge.
Meme coins see a very high concentration of FOMO. Don’t miss out! Or do. Or just buy stablecoins.
Examples Of Altcoins List
Altcoins listed by popularity:
- Ethereum
- Binance Coin
- XRP
- Cardano
- Dogecoin
Each of the coins listed above is important for a different reason. Ethereum for standing up to Bitcoin, Binance Coin due to its importance and link to its exchange, and Dogecoin because of Doge, and it is one of the biggest P+Ds in history and a million other reasons.
A cringe word of warning: don’t go broke because you lost all your cents.
Pros & Cons Of Investing In Altcoins
Pros
- Returns: Altcoins see a lot of price swings, and if you’re on the right side, enjoy it.
- Diversification: Bitcoin is rad, but it’s just one thing. Altcoins allow you to diversify your portfolio. Everyone says that’s a good thing.
- IPO opportunity: Altcoins offer tons of opportunities to enter the ground floor.
Cons
- Volatility: Altcoins see serious price movement, and you have to be willing to deal with that specific brand of anxiety.
- Liquidity risk: Watch out for whales!
- Risk of concept: Not all altcoins are stable like Ethereum in the sense that they continue to exist. Some altcoins never get traction. Some blow up spectacularly.
Where To Buy Altcoins?
It depends.
Gemini, Coinbase, and Binance, there are so, so many options. Chances are, though, that the exchange you already use or plan on using trades the altcoins you want.
So then the difference becomes not “where to buy altcoins” but “which exchange do I like to trade on,” and that question contains many little bits like:
- What are the fees?
- How are the liquidity and the speed of transactions?
- Are you even allowed to trade on it, legally speaking?
Those are pretty standard. How about:
- What about regulation?
- What about security?
- Wallet integration?
- Is staking allowed?
Unless it’s some super obscure altcoin, you should be able to trade it on a major exchange.
Frequently Asked Questions
Yes, Ethereum is an altcoin. It’s also the biggest altcoin at around $200b USD. It wasn’t the first to come after Bitcoin, but it wasn’t super far behind, either.
The answer is: it depends. Altcoins are literally every coin that isn’t Bitcoin, so you have a heck lot of options to choose from. Pick what’s best for you.
Altcoins are considered cryptocurrency, yes. That also means they are governed by the same laws that govern Bitcoin, so do your homework or hire someone who did to ensure you’re tax-compliant.
