Whenever you ask anyone about cryptocurrency, the first thing that comes to mind is Bitcoin. This is for a good reason, Bitcoin opened the door to digital currencies. It made the world sit up, pay attention. It was the first cryptocurrency to gain widespread attention and adoption.
But in the big, wide world of cryptocurrency, Bitcoin is just the tip of the iceberg. Hiding is Bitcoin’s shadow is a rich, busy eco-system of alternative cryptocurrencies known as “altcoins”.
Altcoins make up the majority of the crypto market today, offering a wide range of functionality and use cases that go far beyond being just another digital currency option.
In todays blog we are going to look at what altcoins are, the different types of altcoins and the long list of real-world problems they are attempting to solve.
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What are altcoins?
Altcoins are pretty much any cryptocurrency that isn’t Bitcoin. Originally, they were developed as an alternate to Bitcoin, often attempting to improve upon the limitations that Bitcoin suffers from.
There are thousands of different altcoins on the market today. Many of these altcoins are copycats of other major cryptocurrencies, or are short-lived projects created to generate a quick income for the creator. That being said, there are also plenty of altcoins out there that are genuinely exciting projects, picking real-world problems and offering a solution.
A growing number of these altcoins have carved out a legitimate space to grow themselves, offering valuable niches in the digital economy.
What are the different types of altcoins and their uses?
- Stablecoins – Bridging the gap between cryptocurrencies and traditional currencies.
- Examples of stablecoins: Tether (USDT), USD Coin (USDC) and Dai (DAI).
Stablecoins are “pegged” to traditional currency values, such as the Great British Pound or the US Dollar. This provides price stability in the volatile crypto markets. Their make use case is to facilitate crypto trading and payments without the worry of having to keep an eye on the rollercoaster price fluctuations of other cryptocurrencies.
An investor or trader may make use of stablecoins by converting profits gained from the crypto markets into a stablecoin such as Tether (USDT) to protect the profits gained without having to move money back and forwards between their exchange/wallet and their bank account. Another example of their uses would be for international business to accept payments from customers in different countries without having to worry about exchange rates or having to allow for processing times associated with traditional bank transfers.
- Utility tokens – The power behind decentralised applications.
- Examples of utility tokens: Ethereum (ETH), Solana (SOL) and Chainlink (LINK).
Utility tokens give users access to products or services within a blockchain’s eco-system. They are often used to pay for transaction fees, power smart contracts or act as collateral for decentralised finance (DeFi) protocols.
Users within the crypto space will often use Ethereum’s token ETH to pay for “gas” when deploying a new smart contract. Gas is the fee charged for every transaction on the Ethereum blockchain. A further example of this would be Chainlink’s token, LINK being used as a rewqard for “oracles” that provide real-world data to the Chainlink blockchain.
- Governance tokens – Voting rights for decentralised platforms.
- Examples of governance tokens: Uniswap (UNI), Aave (AAVE) and Maker (MKR).
Governance tokens have one purpose, to give the holders the power to propose and vote on changes to a projects protocol, the projects funding or the projects general direction. These tokens have proved to be essential to all decentralised autonomous organisations (DAOs), whose main aim is to run and function without the need for a central leadership team.
Aave holders are able to vote on risk parameters or for the addition of new features into the Aave lending protocol. This helps all the holders of AAVE to shape its future in an open, democratic way. This stops users feeling like they are not being heard and keeps the token developing with ideas from within the whole community, rather than just a handful of developers.
- Privacy coins – Keeping crypto anonymity.
- Examples of privacy coins: Monero (XMR), Zcash (ZEC) and Dash (DASH).
Unlike Bitcoin, which is traceable, privacy coins are designed to obscure and hide transaction details from users. These hidden details include the sender of the crypto, the recipient of the crypto and the amount of crypto that has been sent.
Monero is by far the most popular of the privacy coins. It is often used by people or organisations that prioritise financial privacy. This can be for a number of reasons, such as avoiding surveillance or for more controversial reasons. For this reason alone, privacy coins have come under fire recently, with various people claiming they are being used as a way to move illegal money.
- Meme coins – The most viral and volatile of altcoins.
- Examples of meme coins: DogeCoin (DOGE), Shiba Inu (SHIB) and Pepe (PEPE).
Most meme coins often start from an internet joke or trend, but are able to gain massive traction in the markets due to the support given to them from their respective communities and viral marketing. While these coins often don’t have much purpose, as with the other altcoin types above they can often have surprising power in the markets and stick around for a lot longer than people predict.
Recently, meme coins have become a popular way to fund tipping of digital content creators as a way of accepting donations. In more recent times, some online retailers have started accepting DogeCoin as a payment method, along with some of the other major meme coins. An example of this would be Tesla accepting payment for its vehicles with DogeCoin.
Are altcoins a good investment?
Altcoins can often offer a faster, larger return than investing in other cryptocurrencies such as Bitcoin, but they also come with a much higher risk factor. Many altcoins have failed when entering the crypto market due to poor development, lack of adoption by its userbase or security concerns. When looking to invest in altcoins, it is a must to do your own research on the project and make sure you have an understanding of the technology behind it and whether there is a real-world demand for such a use case and a token.
When adding altcoins to your portfolio, it is always best to keep a good mix of different altcoins, with different real-world uses. This can help reduce the risk associated with investing in altcoins.
Crypto Analyst‘s Final Thoughts.
Altcoins are a much larger part of an ever-evolving crypto landscape. They offer higher profit potential than Bitcoin, but with this also comes a much higher risk when investing in them.
From helping develop the decentralised finance landscape to re-inventing digital ownership, altcoins are becoming a real driving force in the crypto space, extending far beyond what Bitcoin was designed, or is capable of doing itself. While a lot of the altcoins on the market today may not survive the test of time, there are plenty that are laying the foundations for more to come and build on a decentralised future.
Whether you are looking to invest or trade in the crypto markets, altcoins are not something that you can, or should ignore.