Altcoin is a cryptocurrency alternative to Bitcoin that has risen in popularity. This isn’t the name of a single cryptocurrency but encompasses several Bitcoin alternatives, like Ethereum, Litecoin, and Ripple. Below, we give you more significant insights into altcoins.
What is an Altcoin & What Are Their Types?
As mentioned, altcoins aren’t a distinct cryptocurrency. It is merely a term referring to alternatives to the most well-known type of cryptocurrency, Bitcoin. Below, we provide a quick bullet-point primer to give you the essential information about altcoins at a glance.
● What sort of cryptocurrency are altcoins? Altcoins are cryptocurrencies or virtual currencies, just like Bitcoin. There are thousands of different altcoins, and each one operates according to its guidelines.
● How is it an alternative to Bitcoin? Altcoins use the same decentralized concept as Bitcoin and are likewise based on blockchain technology. However, altcoins have developed the crypto market further, offering more unique features. For example, Ethereum, an altcoin, and the second most popular cryptocurrency initiated “smart contracts,” codes that execute agreements between parties using blockchain technology. This allowed for new applications for crypto.
● Where did the word Altcoin originate from? In case you didn’t yet guess, the term “Altcoin” is simply a combination of the words “alternative” and “Bitcoin.” Simple and straightforward: Altcoin currencies are an alternative to Bitcoin.
● What was the first Altcoin? The earliest altcoin of note was Namecoin. It was based on the Bitcoin code and used the same algorithm. However, it diverged from Bitcoin because it made user domains less visible, allowing users to register their .bit domains to increase anonymity. Namecoin was introduced in 2011.
● What are the different types of Altcoin? There are different types of altcoins. Some of the primary types include stablecoins, utility tokens, mining-based cryptocurrencies, and security tokens.
○ The two most important to know about are stablecoins and digital tokens. Stablecoins are designed to combat cryptocurrency volatility by tying their value to an index, security, or commodity. Digital tokens are altcoins that are supported by an underlying blockchain platform.
Altcoin vs. Bitcoin: The Great Debate
How do altcoin and bitcoin differ? Here are some key similarities between the two:
- Both Bitcoins and altcoins rely on blockchain technology.
- Bitcoins and altcoins share the same decentralized concept.
- Bitcoins and altcoins are popular among individuals looking to trade cryptocurrency, which isn’t controlled by any central authority.
Here are some differences between altcoin and bitcoin:
- Bitcoin is the “king” of the market and remains more valuable than altcoins.
- Altcoins tend to have more advanced features, like the aforementioned smart contracts.
- Altcoins have improved functionality, faster processing transactions, and generally scale to meet expanding demand.
Popular Altcoins & Their Market Cap
As mentioned, there are thousands of altcoins on the market. Below are ten favorites, their market caps, and salient features. This data is pulled from January 2021 and may change, so check current resources for the latest numbers.
- Ethereum has a price of $1,265, a market cap of $145,124,919,707, and a circulating supply of 114,359,503 ETH.
- Tether has a price of $1, a market cap of $24,766,702,659, and a circulating supply of 24,728,695,772 USDT.
- Polkadot has a price of $17, a market cap of $15,998,810,953, and a circulating supply of 903,088,272 DOT.
- XRP has a price of $0.275, a market cap of $12,522,090,658, and a circulating supply of 45,404,028,640 XRP.
- Cardano has a price of $0.354, a market cap of $10,982,002,509, and a circulating supply of 31,112,484,646 ADA.
- Litecoin has a price of $139, a market cap of $9,256,655,972, and a circulating supply of 66,335,829 LTC.
- Chainlink has a price of $22, a market cap of $8,956,496,894, and a circulating supply of 402,009,556 LINK.
- Binance Coin has a price of $41, a market cap of $6,359,328,802, and a circulating supply of 154,532,785 BNB.
- Stellar has a price of $0.276, a market cap of $6,126,396,166, and a circulating supply of 22,095,601,011 XLM.
- USD Coin has a price of $1, a market cap of $5,402,267,440, and a circulating supply of 5,401,170,632 USDC.
How It Works: The Role of Blockchain Technology
So, how do altcoins work? You use a private key to send a payment from your digital “wallet” to another person’s wallet.
New coins are produced or “mined” regularly. While Bitcoin only mines bitcoins every ten minutes, altcoins mine more frequently. Litecoin makes new coins every two-and-a-half minutes, for example. This also means that altcoins can process payments faster. Altcoins also use different rules for mining. Bitcoins use costly hardware for this process, while most altcoins can be mined using standard computer hardware.
All of these cryptocurrencies use blockchain, a technology that ensures secure transactions in a peer-to-peer network. The blockchain serves as a recorded ledger, permanently recording transactions so that the exchanges between users can’t be altered afterward. Mathematical proofs are used to secure and confirm transactions in blocks.
When comparing altcoins and Bitcoin, you can also examine the mining or release rate. For example, while Bitcoin may have a mining rate of 12.5 per block, Litecoin may have a release rate of 25 per block.
How and Where Can You Buy Altcoins?
First, choose a trustworthy fiat-to-crypto exchange. Since Bitcoin and Ethereum are the most prominent names, most altcoin exchanges are paired to one of these. That means you will need to trade these to acquire altcoins.
You can start by registering at a gateway service or fiat-to-crypto platform. This allows you to purchase cryptocurrencies. Options include Crytpo.com exchange, Coinbase, Binance, and eToro. Once you’ve registered with one of these platforms, you buy Bitcoin or Ethereum.
After you’ve determined your chosen altcoin exchange, you withdraw your ETH or BTC crypto assets from your digital gateway exchange wallet to your altcoin exchange wallet. You can then buy the altcoins you want on your chosen altcoin exchange.
Finally, it’s then recommended to transfer your altcoins to a hardware wallet. Why? There have been several exchange hacks on exchange wallets in the past. A hardware wallet is more secure.
How to Choose Altcoin for Investment
There are a few ways you can make money trading and investing altcoins. One option is mining. You use computing power to secure an altcoin network. In exchange, you get a reward. This doesn’t require you to have cryptocurrency holdings.
Some cryptocurrencies are non-mineable, however. These include Ripple, IOTA, and Cardona, among others. They are only bought and not mined, so their numbers don’t increase. These cryptos can be very valuable because of their limited supply, making them appealing to some.
To make money on non-mineable altcoins, you can try staking and lending. Staking means you lock coins in a cryptocurrency wallet and get rewards to validate transactions on a PoS (Proof of Stake) network. The PoS algorithm selects transaction validators based on how many coins they’ve committed to stake.
A similar option is cold staking, in which you essentially allow investors to stake coins while you hold them in an offline wallet for security. You are essentially lending coins to the network in the process.
Pros and Cons of Buying Altcoins: Risk or Reward?
If you’re considering investing in altcoins instead of Bitcoin, it’s essential to weigh the pros and cons. Altcoins have advanced the traditional Bitcoin model significantly, allowing for speedier and more streamlined transactions. They do have their drawbacks, however.
Here are some advantages of altcoin:
- Decentralization: Altcoins aren’t controlled by any regulatory body, allowing anonymity and lack of tracking by government bodies.
- Liquidity: Liquidity is the ability of an asset to convert to cash on demand. Altcoins are generally reasonably liquid.
- Acceptance/Popularity: Altcoins have become increasingly popular and more widely accepted, so they are easier to use than in the past.
Here are some disadvantages of altcoin:
- Volatility: Compared to Bitcoin, altcoins are notoriously more volatile. You can expect market fluctuations.
- Still under development: The altcoin market is continually changing, and many altcoins are still under development, which can contribute to volatility and uncertainty.
- No regulation: One of the pros of altcoins (“decentralization”) can also be a drawback. Since there’s no oversight, it’s challenging to counteract criminal issues like hacks.
The Bottom Line: Altcoin or Bitcoin?
Bitcoin has long been the king of the cryptocurrency market. It isn’t guaranteed to stay that way, however. For example, in early 2021, Bitcoin suddenly dropped more than 10%, while altcoins were rising.
The future for altcoins is looking bright, and, as this article explains, there are thousands of options to choose from and different ways to make money from each one. That said, altcoins are generally considered more volatile than the big name of Bitcoin.
It’s ultimately up to you how much of a risk you want to take. If you do your research and play your cards right, cryptocurrencies, including altcoins, can be a lucrative form of mostly passive income.