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Bitcoin has been the oldest and the most established as well as the popular cryptocurrency out there. However, it is not alone in the market and there are other cryptocurrencies that have been ruling the crypto space going by the term “Altcoins”. The term has commonly been derived from the group of words alternative cryptocurrencies. In this article, we will take a look at what these altcoins are and provide you a brief introduction of everything you would ever need to know about them.
What Are Altcoins?
The term “Altcoin” is actually an acronym for the terms “alternative cryptocurrency” or “alternative coin”. This refers to all the digital currencies apart from Bitcoin. They primarily focus on being the alternative digital asset to Bitcoin (BTC) or to provide something different from what the traditional crypto Bitcoin fails to offer. It is a fact that every altcoin in its own way possesses at least one characteristic that is common to the Bitcoin technology. Some altcoins bring in new consensus algorithms while the others target at improving the transaction processing, speed, scalability, token distribution methods and much more.
Although the history of the cryptocurrency industry is much shorter at the moment, tens and thousands of the cryptocurrencies or altcoins have already been discovered. At the time of writing, the renowned data aggregator, CoinMarketCap shows that there are 8,200 cryptocurrencies listed on their platform.
This is also followed by simultaneous delisting of the cryptocurrencies that are no longer in use. These cryptos are often termed “dead”. However, it is needless to say that not many of these crypto coins possess actual real-world application or any innate value. It has been seen that most of such digital currencies have a relatively short life cycle.
A Gist On The Altcoin History
The Bitcoin network came into existence in 2009 after which, the very first altcoin had been named as Namecoin (NMC) that went live in 2011. The main objective of Namecoin had been to assist the decentralization of the virtual identities with a focus on making the censorship harder to implement and enforce. You might be wondering where this virtual currency has been these days. At the time of writing, the cryptocurrency is being traded on some other very unpopular cryptocurrency exchanges. Currently, the value of the crypto is minimal and the trading value of the coin is also insignificant.
Whatsoever, the altcoin landscape has substantially altered throughout the past decade. Let us have a view on two of the past years of altcoins 2014 and 2017 and how it is in 2021.
- 2014: All those who had not been in the crypto market back in 2014 would be surprised to see how the top cryptocurrencies had looked like. The very first in the list was Bitcoin (BTC) which was followed by the native token of Ripple named XRP and then was the Litecoin, commonly known by LTC. Litecoin had been a project that Charlie Lee had created and that it was commonly termed as “the silver to Bitcoin’s when referred to as gold.”
This is where things started to get complicated dramatically. Following these coins, there had been other coins as well that had inherited the list such as Peercoin, Dogecoin (a meme coin), Mastercoin, Namecoin, ProtoShares, Primecoin and much more. Not all of these cryptocurrencies exist today. Hardly a couple of them are still traded and talked about while the others have been demolished.
- 2017: The best thing in the world of altcoins that has occurred in this year was the advent of Ethereum (ETH). Alongside this, the landscape of the altcoins have also massively changed by this year. There were almost no coins that were present in 2014 that were successful in preserving their value for the next consecutive three years till 2017. 2017 has been a very significant year in the history of altcoins. This is owing to the December peak of the Bitcoin that went to nearly $20K.
What happened instead was that there had been the entry of several new altcoins that overtook the previous coins substantially. Ethereum has already entered the crypto market and Bitcoin Cash (BCH) has been created via a fork of the original Bitcoin Network. In addition to these, privacy coins such as Monero (XMR) and DASH had been on the rise. The cryptocurrency landscape was completely different from that of 2014.
- 2021: With the advent of 2021, the cryptocurrency market seems to get more matured. At least for once it had managed to surpass the $1 trillion total market value making a major milestone and letting everyone know that cryptocurrencies are a thing that will continue to stay and dominate. In the same year, the top cryptocurrencies had included some of the digital coins from 2017, although things have altered subsequently.
Till date, Ethereum continues to be ruling the second position but it has been followed by the tremendous growth of a stablecoin, Tether (USDT), in the past couple of years. Additionally, the other cryptocurrencies that have joined the top 10 list of altcoins are – (i) Polkadot or DOT, which is a network competing with Ethereum for the development of the dApps (ii) Stellar or XLM (iii) Chainlink’s LINK, which is an Oracle provider.
As already mentioned before, the most important things that need to be considered as the cryptocurrencies had been invented and tracked, there had been a sole constant crypto, Bitcoin. Throughout the tenure, it has always been the primary cryptocurrency in terms of the market capitalization. There has not been any other cryptocurrency at any point having the highest share relative to that of the entire market other than Bitcoin.
However, in June 2017, Ethereum really came a lot closer to it and this is what might have triggered a “flippening”. This is stated as the market event where another crypto flips BTC as the predominant coin. On the 19th of June 2017, BTC had accounted for 37.8% of the total market while Ethereum came to 31.17%. This was the peak of Ethereum’s dominance in terms of the relative share and since then, it has not come this close.
What Are The Types Of The Altcoins?
There are various types of altcoins That include the mining-based coins, stablecoins, staking based coins and the governance tokens. The category of the altcoins depend on its modus operandi and the purpose of its utilization.Here we have provided the main altcoin types that you will mostly find in the real world while scraping through the internet.
Stablecoins
The stablecoins can be described as the cryptocurrencies that are designed to follow the price of another asset or crypto coin. Mostly the biggest stablecoins are pegged to the U.S. dollars and they continuously attempt to mimic its value. In case the altcoin price fluctuates, the coin issuer will take the right steps to correct it.
As the stablecoins are intended to maintain the same value, they are usually not chosen as an investment to the cryptocurrencies. Instead, people utilize the stablecoins to send money or for the savings purposes. The stablecoins also makes it possible to earn interest on them by lending them out via specific savings protocol.
Mining-Based Altcoins
This type of the cryptocurrencies makes use of a process known as the mining for verifying the transactions and thereby adding more coins to the supply. The miners utilize the devices for solving the mathematical problems. Usually, the first miner that solves the equation gets to verify a block of transactions and in return, the miners who verifies the blocks get the crypto rewards. As Bitcoin is a mining-based crypto coin, mining becomes the very first method to process the cryptocurrency transactions. However, one of the disadvantages of mining is that it requires significant energy.
Staking-Based Coins
These are the cryptocurrencies that make use of a process commonly termed as “staking” that verifies the transactions and thereby adds more coins to the supply. The staking based cryptocurrency holders can choose to stake their held cryptocurrencies. This means that they are pledging those coins to be used for processing the transaction. The blockchain protocol of the cryptocurrencies selects a participant for verifying a block of transactions. In return the participants enjoy their rewarded cryptocurrencies.
One of the earliest cryptocurrencies is the Peercoin (PPC) that was the very first in the crypto space to introduce the concept of staking. It is a fact that the peercoin has not become a very common name in the world of cryptocurrencies and altcoins, staking has been a common procedure as it is more energy-efficient than that of the mining.
Governance Tokens
The governance tokens are those cryptocurrencies that offer the holders their voting rights for shaping the future of the project. In majority of the cases, these governance tokens permit its users to create and vote on the proposals that are related to the cryptocurrency. Furthermore, this helps the cryptocurrency a decentralized project as all the holders have a scope to put forward their opinion. The best part is that the decisions are not made by one central authority.
What Are The Pros & Cons Of The Altcoins?
There are a couple of pros and cons of the altcoins that are available in the cryptocurrency market.
Pros
- Improvement on the aspects of Bitcoin (BTC).
- Offers high potential rewards.
- There exists a large selection of the altcoins bearing their own unique purposes and the competitive advantages.
Cons
- The altcoins do not possess the first mover advantage of the Bitcoin or the market share.
- These coins possess specific risks as many of the altcoins are scams or some of them end up getting discontinued.
- Several altcoins are hard to purchase as they are only available on specific crypto exchanges or the altcoin exchanges.
Bitcoin vs. Altcoin: The Reason of Bitcoin’s Prevalence
There exists a couple of things that distinguish Bitcoin from the altcoins. Below are all the reasons that have been carefully listed:
- Bitcoin is an older cryptocurrency and it was launched in 2009. The first altcoin was introduced in the year 2011. The latest altcoins are regularly released in the market.
- Keeping aside the stablecoins, the altcoins tend to provide a higher risk and reward as the investment towards cryptocurrency. It is a fact that Bitcoin is highly volatile, nevertheless, it is the market leader and has already gained a substantial value. The altcoins possess more room towards growth although they possess a heavy chance of failure.
- The altcoins are more advanced than Bitcoin. As the altcoins are introduced after Bitcoin, the technology used in the altcoins is also improved. In terms of the costs and the transaction speeds, many altcoins are far superior than the old school Bitcoin.
What Is The Altcoin Index?
An index can be termed as a mathematical expression of the ration of the two objects. The altcoin index describes the size of the capitalization of all the cryptocurrencies with any of the fiat currencies. The most common and renowned pair is the ALT/USD.
This instrument had appeared in 2017 in response to the growing public interest in the crypto market. As the Bitcoin pump occurred in the same period, the Altcoin Index had started the movement at 5000 points. However, the subsequent fall had collapsed the quotes to 1700 following which the situation had gradually begun to even out. This data depicts that the complete cryptocurrency capitalization had decreased to nearly 3x.
The main objective of the instrument is that the traders require it for the monitoring purpose of the current cryptocurrency market state and then predict the trend. However, many of the cryptocurrency exchanges have made the altcoin index available for trading via options. It is also an interesting fact for the traders that the altcoin index is not related to the speculative prices and thus it reflects the real situation of the market. This information is highly useful for the cryptocurrency forecasts that are for the long-term purpose.
For instance, in the month of January 2019, the altcoin index had begun to move up, which indicated an increase in the capitalization and thus caused a high demand for the cryptocurrency. However, in the same period, the exchange rate for Bitcoin and the other alternative crypto coins did not alter much on the cryptocurrency exchanges. By the month of May 2019, the index had groveled down and soon the market responded with an instant jump in the prices for all the altcoins. In no time the artificial pump has exhausted itself resulting in all the cryptocurrencies to visit for a correction.
What Are The Most Popular Altcoins & What They Do?
We have picked up some of the most popular altcoins that have stood prominent in the test of time and have massive communities behind them. However, we have skipped USDT of Tether, which is technically an altcoin but that is pegged to the USD in a 1:1 manner and does not function like the other altcoins. As most people have a common question “is Ethereum an altcoin?”, we are starting with the Ethereum altcoin.
Ethereum (ETH)
Ethereum is a platform unlike Bitcoin (BTC) that has been designed to permit the developers to create the decentralized applications or dApps utilizing the smart contracts. A smart contract can be termed as a protocol between two or more parties bearing predefined conditions that automatically executes when the predefined conditions are fulfilled. If the requirements fail to be met, the contract will not come into effect.
This discards the risk of the failure that has been presented in the traditional contracts and that it permits for the creation of the dApps governed by a protocol in place of a central authority making them both theoretically more transparent and secure.
ETH is the native token of the Ethereum blockchain and it is one of the best altcoins. It is worth noting that like Bitcoin, Ethereum also uses the Proof-of-Work (PoW) consensus algorithm. However, the Ethereum team is dedicated to shift from the PoW to the Proof-of-Stake (PoS) via the launch of the Ethereum 2.0. With this, we have already seen Phase 0 of ETH 2.0 or the Beacon Chain to go live.
Ripple (XRP)
The XRP cryptocurrency had been introduced by the Ripple Labs company. It is one of the oldest and one of the most consistent digital currencies by the market cap. The idea behind the introduction of the XRP coins was to use them in the financial and the banking sectors for quicker and more secure settlement of the transactions. The fact is that the XRP can be sent in just a couple of seconds.
However, in 2020, the company had been slammed with a lawsuit from the United States Securities and Exchange Commission (SEC). The watchdog has alleged that XRP is a security and that Ripple Labs has conducted unregistered securities worth $1.3 billion. Furthermore, the market value of the cryptocurrency had also shrunken by 70% soon after and that its future is currently pretty uncertain.
Litecoin (LTC)
Superficially, Bitcoin and Litecoin have a lot of things in common. Litecoin had been introduced back in 2011 by Charlie Lee, who had announced the debut of LTC as the “lite version of Bitcoin”. Both the digital currencies utilizes the Proof of Work consensus algorithm. Nevertheless, Bitcoin has been created in such a manner where there will exist 21 million BTC. On the other hand, Litecoin has increased this cap to 84 million. It is also to be noted that BTC uses the long-standing SHA-256 hashing algorithm while Litecoin uses a comparatively newer version of the hashing algorithm called the “Scrypt”.
TRON (TRX)
TRON Foundation had launched the TRON crypto that had been founded by the Chinese entrepreneur named Justin Sun. The project focuses to deliver a blockchain based decentralized platform that aims to create a free, global and digital content entertainment system and also comprises the distributed storage technology that is cost-efficient and offers easy sharing of the digital content.
The native cryptocurrency of TRON is TRX. It is nice to see that the Chinese developer has done way more than he can do for promoting TRON as the competitor to Ethereum by boasting the higher transaction capabilities and even more. However, at this moment, the platform has to go a long way in terms of the usage and the development before even coming close to the size of Ethereum in any aspect.
Polkadot (DOT)
It is a relatively latest blockchain based platform that also competes with Ethereum. Usually, it enables the cross blockchain transfers for the assets and the data beyond just tokens. Also, it is highly scalable and it permits the users to create the custom blockchains utilizing their substrate framework. Additionally, it possesses a sophisticated governance system where al, the stakeholders can have their own opinion put forward.
Polkadot has also seen a massive growth in the past couple of years and also became quite familiar. The DOT token is the native crypto of the Polkadot platform. This token is one of the top 10 cryptos by means of the market capitalization. There are a lot of projects that are being built on top of the Polkadot blockchain.
Chainlink (LINK)
Chainlink can be termed as the most reputed and largest oracle provider. If the blockchain seeks to acquire the third-party information outside of their ecosystem, they have to be dependent on the oracles. These are the secure and decentralized data feeds enabling the blockchains to be dependable on the accurate data. The native token of Chainlink is LINK which is responsible for the aforesaid.
In the past couple of years, the project has managed to establish itself as one of the top in the cryptocurrency space by popularity amongst the cryptocurrency community. LINK is continuously growing aiding more and more blockchain to keep faith in the oracles of Chainlink for gathering the data.
Binance Coin (BNB)
The Binance coin is the representative of the relatively latest asset class in the cryptocurrency community, which is the exchange owned cryptocurrencies. This is the native crypto of the world’s largest exchange known as Binance. Initially, the main idea behind the introduction of BNB was to permit the users to use it and thereby reduce their trading fees. However, as Binance exchange continues to grow and further develop, it brings in more advancements and the same is occurring with the use cases of BNB.
The users can now take the advantage of the BNB holdings for staking it and then receive the passive income from them.They can also use that to farm the various DeFi coins, participate in the IEOs through the Binance launchpad, use it as a part of the own blockchain of Binance called the Binance Chain. As of now, it is the biggest exchange owned crypto coin in terms of the market cap.
This is not just the end as it is worth noting that there exists a couple of more reputable projects out there. Compiling a list consisting of all of them is just next to impossible. However, we will try to include the striking projects with time.
The Risks And Opportunities of Investing In Altcoins
Most of the newcomers might think that investing in altcoins might be a great deal. However, the main stimulus is that the altcoin investment is generally a lot cheaper than the BItcoins. Additionally, they might seem to be more interesting as they possess more room towards its growth. With this, there are a lot of reasons that make them cheaper than Bitcoin or it is best to define them as having less market cap than Bitcoin.
On the contrary, Bitcoin is leading for many reasons as well. It is the most secure one in terms of extension. Everyone is looking forward to Bitcoin and this includes the major institutional investors. It is relatively unlikely that you would hear a major hedge fund for investing a cryptocurrency except Bitcoin.
It can be stated that altcoins can come and go. Although there are some of the established ones, the risks with them are much higher. This does not mean that they do not provide opportunities. So now, let us talk about the risks and opportunities separately.
Risks
Below are the risks of investing in Altcoins:
- The altcoin investments are incredibly risky, especially if you are looking forward to long term investments. This is owing to the fact that most altcoins will lose their value in course of time.
- The altcoins possess a smaller market cap as compared to the leading cryptocurrencies like Bitcoin. They also have lower trading volumes making them more susceptible to the pump and dump scams.
- These coins are easily manipulated by the whale of the large investors and the bag holders.
- The technology of these coins might become obsolete as soon as something better comes up.
- The bitcoin price and momentum largely has an impact on the altcoins.
Opportunities
Below mentioned are some of the most common opportunities with the altcoins:
- If you are indulging in the higher risks, this could also mean that you are open to higher rewards. However, there remains a big “if” with this.
- If you are planning to invest in altcoins, then you might get into the reputable projects early that might grow immensely in the near future. It is not difficult to find out the altcoins with the ROI’s of 100x in just a matter of months.
To conclude this segment, this can be said that although investing in the altoin might seem to be riskier, it can also be profitable at the same time. However, before you put some of your investments in crypto holdings that are just random, then this seeks for in depth research on the crypto coin and then treat it as a serious investment.
You must never randomly choose any cryptocurrency for investment even if the investment amount is just petty. There are thousands of the altcoins that are no longer active as they do not offer any real-world value.
Where Can I Buy Altcoins?
There are few ways in which you can buy altcoins. The general rule of the thumb is to never store your cryptocurrency holdings on a crypto exchange. It is recommended that as soon as you purchase your preferred crypto coins, you need to transfer them to a cold wallet or a hardware wallet. This is not just it. You will also have to maintain proper security tips for the cold wallets so that you do not lose your held cryptos. Unfortunately, when it comes to the purchase of the cryptocurrencies, you will have to depend on the cryptocurrency exchange unless you possess an over-the-counter (OTC) opportunity.
In general, the most established and the trusted exchange out there in the crypto space is Binance. It is a matter of luck that they currently support hundreds of various crypto coins having huge amounts of trading liquidity and volume. Of the other well-known cryptocurrency exchanges, there are Bitfinex, Coinbase, OKEx, Huobi, to name some. In another article we might also let you know how to choose altcoins.
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