THE EQONEX CRYPTO GUIDE AND LEARN HUB
Crypto Explained

What Are Altcoins?

December 7, 2021

Christina

What Are Altcoins?

“Alt” is short for “alternative,” and altcoins are every cryptocurrency coin and token that are not Bitcoin (BTC). While the term is used in extremely broad strokes, it’s impossible to refer to each of the 11,000+ different coins and tokens in the same way.

Some altcoins cost pennies, while others can run into hundreds or even thousands of dollars per coin. Different altcoins have different token supplies, consensus mechanisms, protocols, and communities. Many have promising technology and solid applications, high adoption, and large communities, while others offer little more than a website and a whitepaper.

It certainly pays to do your research before investing in altcoins to understand what you’re investing in and assess the risk level. Also, keep in mind that they can be volatile—in many cases, even more than BTC. 

Using a reputable institutional trading platform like EQONEX to invest in altcoins can help shield you from some risks. We have an exhaustive token listing process and carry out thorough due diligence before deciding to make a coin or token available to our customers. 

Altcoins represent 60% of the crypto market cap

While the cryptocurrency industry began with just Bitcoin, altcoins have emerged rapidly and now represent around 60% of the entire market cap of crypto (almost $3 trillion in total). So, while many critics shun them, altcoins represent a notable contribution to the cryptocurrency industry. 

No matter the technology the altcoin uses and the use case for which it is intended, it has the same premise as Bitcoin—to use its blockchain as a decentralized, distributed ledger that is immutable, censorship-resistant and only allows transactions to be recorded if there is a consensus that the transaction is legitimate.

While Bitcoin uses a Proof-of-Work (PoW) consensus mechanism to ensure legitimate transactions, many altcoins have opted for the less energy-intensive Proof-of-Stake (PoS). Advocates of PoS argue that this method is more sustainable, scalable, and environmentally friendly. However, it is impossible to find a PoS blockchain as decentralized as Bitcoin. Moreover, many proponents of PoW say that PoS merely recreates the existing financial system on the blockchain as the people who hold the most coins (the biggest stake) control the majority vote.

Whatever your opinion on these different consensus mechanisms, as ShapeShift founder and long-time cryptocurrency advocate Erik Voorhees points out, they both have their trade-offs:

Categories of altcoins

With thousands of altcoins in the cryptocurrency ecosystem, it would be impossible to follow them all. Broadly, they can be split into four different categories: native cryptocurrencies, tokens, stablecoins, and NFTs. Each project will then fit into a subcategory of these, such as decentralized finance (DeFi), meme coins, gaming, privacy coins, IoT, and so on.

Native cryptocurrencies

Native cryptocurrencies are the coins used as the native coin of the blockchain. Ether (ETH), for example, is the native cryptocurrency of the Ethereum blockchain, the second-largest cryptocurrency by market cap. If you want to interact with the Ethereum blockchain either to send a transaction or run an application, you’ll pay fees in ETH. Solana (SOL), Cardano (ADA), and Polkadot (DOT) are further examples of blockchains with native cryptocurrencies. 

Tokens

Tokens represent a unit of value that operates on an existing blockchain for a specific purpose. Many of the thousands of decentralized applications (dApps) were created on the Ethereum blockchain yet use their own tokens inside their apps. Chainlink (LINK) is one such example of this. It’s a project built on the Ethereum blockchain that uses its token LINK to pay for Chainlink’s services. 

Tokens can also be used for more than just payment, and many so-called governance tokens are appearing that allow their owners to vote on matters that affect the project. Tokens can often be exchanged on centralized and decentralized exchanges. If investors believe that the project has promise, can see notable developments, or want to ride a wave of speculation, they will buy tokens and hope to sell at a profit later on.

Stablecoins

Stablecoins provide users with the same advantages of cryptocurrencies and tokens without price volatility. They peg their value to real-world assets, usually fiat currencies like the US dollar or euro. Today’s largest examples of stablecoins are Tether (USDT) and USD Coin (USDC).

Unlike cryptocurrencies and tokens, stablecoins won’t soar or plummet in price. They allow traders to instantly convert their profits to hedge against volatility and offer an extremely efficient and cost-effective means of sending and receiving funds globally. Stablecoins are also increasingly used in DeFi and centralized platforms to allow users to earn high-interest rates for locking them up or borrowing a loan without having to jump through the same hoops as a bank.

NFTs (Nonfungible Tokens)

NFTs differ from cryptocurrencies and other tokens as they are designed to be unique or provably scarce. Unlike other crypto-assets, NFTs cannot be mutually interchanged because each one is different. This adds to their value and makes them extremely attractive for use in digital collectibles, one-off digital artwork, in-game items, and authentication. 

Altcoins can boost your portfolio

Altcoins have come a long way since their beginnings, and most have ceased to try to outcompete Bitcoin as a form of sound money, focusing instead on other areas of innovation. While altcoins can represent an excellent opportunity for making fast profits, the reverse can also be true. So if you do decide to dabble in altcoins, be sure that you maintain a diversified portfolio and never invest more than you can afford to lose.


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