What are Altcoins: Types, Benefits and Examples

What are Altcoins Types, Benefits and Examples

What are the new coins? Altcoins are an alternative. Although Bitcoin was the first cryptocurrency, it led to a revolution in the industry. The result? Thousands of other cryptocurrencies. You will be surprised to find that altcoins are nothing more than these thousands of cryptocurrencies. Some examples of altcoins are Ether, Tether, Dogecoin, Shiba Inu or any other cryptocurrency you can remember.

What are Altcoins?

Did you know that there are more than 20,000 altcoins available on the cryptocurrency market and that this number continues to grow over time? We can call any cryptocurrency other than the original Bitcoin cryptocurrency, altcoin, or alternative currency. While Bitcoin accounts for about half of the market capitalization of cryptocurrencies, the rest of the market is made up of various altcoins.

The importance of altcoin is determined by its utility and functionality. There are different types of altcoins in the market, such as fixed altcoins, governance altcoins, betting-based altcoins, and others. Some examples of altcoins are as follows.

  • Ethereum
  • Tether
  • Dogecoin
  • Cardano
  • Solana
  • USD coin
  • Binance Coin
  • Binance USD

The list is simply endless. Each altcoin has a different function. For example, Ether provides a means to conduct transactions on its network, while Dogecoin serves as a payment token and the USDC currency is a stablecoin.

How Do Altcoins Work?

Now that you know what altcoins are, you can guess that they are very similar to the basic cryptocurrency Bitcoin. Cryptocurrencies are based on blockchain technology and operate on a distributed ledger, providing their core value: decentralization.

A network of computer nodes around the world validates and adds new transaction records to the system. Once these records are added, it is virtually impossible to tamper with them. Fifty-one percent of the computer network must be manipulated to verify false data. And this is a great challenge!

However, this is one of the disadvantages of this system, because once the data is added, it stays there forever and it is very difficult to change it.

What Are the Different Types of Altcoins?

There are mainly four types of altcoins in the crypto market, depending on the purpose they serve.

1. Stable altcoins

Fixed altcoins derive their value from the underlying assets. For example, dollar currencies, which derive their value from the U.S. dollar. Most stable altcoins are pegged or tied to the U.S. dollar and follow its price fluctuations.

As the name suggests, the purpose of stable altcoins is to stabilize prices. They do this by holding shares of the underlying asset. Because most fixed altcoins are pegged to the U.S. dollar, their value remains close to $1. Also, because of their fixed price, fixed altcoins are used to send or receive money rather than as an investment option.

Fun fact: Did you know that the first stablecoin was Tether? It was founded in July 2014 and was known as Realcoin. In November 2014 it was renamed Tether.

2. Mining-based altcoins

The process of verifying transactions and adding coins to the system through proof of work is known as mining.

Proof of Work (PoW) is a consensus mechanism. PoW is used by various cryptosystems in which miners solve complex mathematical or cryptographic puzzles to add new transactions to the blockchain. The system rewards the miner who beats all others and solves the equation first. The reward is usually a new cryptocurrency. It protects users by ensuring that the system is protected from fraudulent activity. Bitcoin was the first cryptocurrency to be mined.

Other cryptocurrencies, such as Dogecoin and Bitcoin cash, are alternative coins based on mining. However, some alternative coins do not need to be mined, such as Nano. When transactions are added to the blockchain, no new Nano is created.

3. Staking-based altcoins

Similar to mining-based altcoins, there are also gambling-based altcoins that use a Proof of Stake (PoS) consensus mechanism to validate transactions and add them to the blockchain. More information on PoS is available here.

In this case, one person nets many coins and is chosen as the verifier. There are no complex solutions and no competition. An algorithm randomly selects a person from those who have entered cryptocurrencies to validate a transaction. The successful validator is rewarded with a portion of the transaction fee.

The first bet-based altcoin was Peercoin, and since then many new cryptocurrencies using this mechanism have emerged, such as Cosmos, Polkadot, and others.

4. Governance altcoins

The sole purpose of governed altcoins is to maintain the overall governance system of the blockchain network. They give their holders the right to vote on all decisions related to the project.

These tokens represent democracy in the cryptocurrency market and build community trust. maKER (MKR) is an example of a governance altcoin.

Altcoin vs. Bitcoin: What’s the Difference?

Although there are no major differences between altcoins and bitcoins, there are some elements that separate them. Bitcoin was the first cryptocurrency to be launched in 2009. It began the era not only of digital assets and currencies, but also of blockchain technology. On the other hand, alternative currencies emerged after Bitcoin and continue to grow over time due to new innovations and technological advances in the field.

In terms of market capitalization, Bitcoin is the largest cryptocurrency, with almost half of the market share, with alternative coins taking the rest. Bitcoin is also an established asset and, while somewhat volatile, has its share of successes. In contrast, altcoins inherit a much higher risk of failure. While altcoins such as Ethereum and Tether are well established, newer coins are risky.

However, this also means they have more room to grow. Bitcoin is the oldest and best known, but some of the altcoins outperform Bitcoin in terms of speed of transaction completion.

Things to Consider Before Investing in Altcoins

Once you know what altcoins are and intend to invest in them, all that remains is to understand their secrets and disadvantages, or rather their advantages and disadvantages. In addition, it is necessary to make an informed decision when it comes to money.

Advantages

1. Benefits of investing in new technology:

Bitcoin has brought blockchain technology to the forefront. Alpha Coin is based on the same technology, but with more improvements and developments than Bitcoin.

2. Rewards are a plus:

Users can receive certain rewards for holding altcoins. For example, users can be rewarded for mining coins or betting on them. All they have to do is validate the transaction (which may not be as easy as it sounds). There are also other coin-based rewards, such as discounts on fees, early access to products and services, etc.

3. A wide range to choose from:

There are thousands of altcoins to select from and invest in based on their functionality and your individual preferences, which is a big advantage of altcoins.

Disadvantages

1. A small share in the market:

There is undoubtedly a wide range of alpha coins, but in terms of market share bitcoin still holds half of the market capitalization.

2. Higher risk:

Investing in altcoins involves some risk, as many of these coins are relatively new. Some lack credibility, and the coins could lose value if the underlying project is not successful. Also, like Bitcoin, altcoins inherit greater volatility.

3. Not available on every exchange:

Bitcoin is available on all cryptocurrency platforms, but this is not the case for alternative coins. Alpha coins such as Ether or Tether may be available on all exchanges, but newer alpha coins do not have this scalability.

Is Investing in Altcoins a Good Idea?

If you have confidence in altcoins and are brave enough to invest, ask yourself: how much risk are you taking and what is the return on investment you expect?

As mentioned above, altcoins are risky. But that does not mean they are a bad investment. The necessary step is to continue to learn about these cryptocurrency systems and know how they work before investing your money. Before investing, check the history of the altcoin you want to invest in, its website, founders, team, whitepapers and community opinions.

If you are sure that you want to share some of the alternative cryptocurrencies in your portfolio and you know which one you want to invest in, then investing in alternative coins is definitely a good idea.

What are Some Examples of  Altcoins?

Some of the popular examples of altcoins are as follows.

1. Ethereum (ETH)

Ether (ETH) is the second largest cryptocurrency after Bitcoin, with a market capitalization of about $20 billion. Launched in 2015, this cryptocurrency is based on the Ether blockchain, which forms the basis of many other cryptocurrencies.

2. USD Coin (USDC)

This altcoin was launched in 2018. It is a stablecoin having its value pegged in the US dollar.

3. Tether (USDT)

Tether is also a stablecoin, also pegged to the U.S. dollar. It is the first stablecoin and the largest on the market. Tether’s launch year is 2014.

4. Ripple (XRP)

XRP is a payment method launched by Ripple, a digital payment network, in 2012. It was launched to take the use of cryptocurrencies to the next level by creating a payments ecosystem among different financial institutions.

How to Invest in Altcoins?

Investing in altcoin is not difficult if the cryptocurrency is well established, such as ethereum. You can register on any cryptocurrency platform and invest through that platform. Alternatively, you can buy these coins using a supported cryptocurrency wallet.

Before investing in altcoins, it is always a good idea to do thorough research. If you are unsure about investing in individual altcoins, you can choose to invest in baskets of coins or coin sets.

We at Mudrex make it easy for you by offering our expertise and creating dedicated cryptocurrency baskets for you to invest in – coin sets. Not only can you choose which type of cryptocurrency or altcoin to invest in (based on market capitalization, sector, etc.), but you can also invest a small amount of money and get amazing returns. All you have to do is take the first step, set your goals and take risks according to your skills and preferences.

FAQs

1. What are altcoins?

Every cryptocurrency other than bitcoin is considered an alternative currency. altcoin” is a term composed of two words: alternative and cryptocurrency. the term came about because the different cryptocurrency systems introduced after bitcoin tried to be the best alternative version. However, many innovations have occurred since then, and different altcoins have begun to solve different problems.

2. What is the difference between Bitcoin and altcoins?

Bitcoin was the first cryptocurrency to be invented and holds half of the market capitalization. Altcoins are cryptocurrencies that arose after Bitcoin and are therefore considered alternatives. Altcoins are more advanced than Bitcoin, but they also carry a higher level of risk.

3. Should I invest in Bitcoin or an altcoin?

Where to invest your money is a matter of preference, risk appetite, and research. Bitcoin is always a safe bet, but if you want to invest in an alternative currency, you need to know its history, website, founders, etc. If you do your homework, bitcoin and altcoin are both good investment options.

4. How many altcoins are there in 2022?

Secondo Coinmarketcap, a luglio 2022 sono presenti sul mercato oltre 20.000 altcoin, di cui circa 80 hanno un market cap superiore a 1 miliardo di dollari, mentre ogni giorno vengono lanciate quasi 100 altcoin.

Similar Posts

Leave a Reply

Your email address will not be published.