Key takeaways
Altcoins are cryptocurrencies other than Bitcoin (and sometimes Ethereum). There are thousands of altcoins, each serving different purposes. Predicting their future is tricky, but if their blockchain remains active, altcoins will persist.
What is altcoin?
An Altcoin is a different type of digital money compared to Bitcoin. It’s called “Altcoin” because it’s an alternative to Bitcoin. Altcoin includes all cryptocurrencies except Bitcoin.
They are like different versions of Bitcoin. They use blockchain technology, too, but on different systems. This lets them do new things, like faster transactions or even run programs on the blockchain (called smart contracts).
Like Bitcoin, you can buy and sell altcoins on crypto exchanges. They can also be used for payments, but they’re mostly bought and sold as investments. The price of an altcoin depends on how many are available and how many people want them. Some altcoins limit the number that can be created, while others burn existing coins to make them rarer (and hopefully more valuable).
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Types of Altcoins
Altcoins have different types for different uses. Here’s a quick look at some:
1. Payment Tokens:
These are like cash for digital transactions. Bitcoin is a famous example.
2. Stablecoins:
They aim to keep a steady value by tying it to real things like regular money or precious metals. This helps avoid big price swings. Some altcoins, like TerraUSD, can fit into more than one category.
3. Security Tokens:
Security tokens are assets that are turned into digital tokens and traded on stock markets. This process is called tokenization. It works for things like real estate or stocks. But for it to be worth anything, the asset needs to be safe and protected. Because they’re like securities, security tokens follow strict rules set by the Securities and Exchange Commission.
In 2021, Exodus, a Bitcoin wallet company, did something big. They turned $75 million worth of stocks into tokens on the Algorand blockchain, the first time a digital asset was turned into stock in the United States.
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4. Utility Tokens:
Utility tokens are used inside networks to obtain services. They can pay for services, fees, or rewards. Filecoin is one example. It’s used to buy storage space and keep data safe on a network.
Ether (ETH) is another utility token. It’s used on the Ethereum blockchain to pay for transactions. USTerra is a stablecoin that uses utility tokens. They try to keep its value steady by making and destroying these tokens. You can buy utility tokens on exchanges, but they’re made to be used inside the network, not just held onto.
5. Meme Coins:
Meme coins are cryptocurrencies inspired by jokes or funny versions of popular ones. They become popular fast, often because famous people talk about them online, hoping to make quick money.
In April and May 2021, meme coins rose dramatically. Many people call this time “meme coin season.” Many of these coins shot up in value, mostly because people were guessing.
Initial coin offerings (ICOs) are like cryptocurrency’s version of a company going public. A company starts an ICO to get money for a new coin, app, or service.
6. Governance Tokens:
Governance tokens give people rights in a blockchain. They can vote on changes to rules or decisions in a decentralized organization. These tokens are usually for private blockchains but are seen as their own type because of what they do.
Advantages and Disadvantages of Altcoins
1. PROS
- Altcoins can make improvements on Bitcoin.
- They offer the chance for big rewards.
- There are many altcoins, each with its own goals and strengths.
2. CONS
- Altcoins don’t have Bitcoin’s history or popularity.
- There’s a big risk because some altcoins are scams or don’t last.
- Buying some altcoins can be hard since they’re not on every exchange.
by Liminal
