Introduction to Altcoins

The term “altcoin” is shorthand for “alternative coins” and simply means cryptocurrencies other than Bitcoin. After Bitcoin, the nine most popular cryptocurrencies are as follows:

There are a few different ways to categorize altcoins. Some can even be included in more than one category. Due to how new cryptocurrency is in general, the categories are ever-evolving.

Here are some of the current major buckets altcoins can fall into:

A stablecoin is a type of cryptocurrency with a value that’s pegged to another less volatile asset.  Most commonly, people refer to stablecoins as linked to a fiat currency, such as the U.S. dollar. Stablecoins can also have value linked to precious metals or other cryptocurrencies. Whatever stablecoins are linked to, the effect is a less volatile cryptocurrency with greater potential to resemble the types of currencies people already use everyday.

Tether is known as the first stablecoin. It is also a popular altcoin used by advanced crypto traders when trading crypto on an exchange, since it offers a way to cut down on fees compared to exchanging U.S. dollars for each transaction. It’s possible that stablecoins will become instrumental in making it easier for everyday consumers to buy things with crypto — a possibility government officials have clearly taken notice of, most recently with a proposal by the Biden administration to more strictly regulate stablecoins.

Named after social media jokes and puns, memecoins are a type of popular altcoin whose value comes from community buy-in more than anything else. Unlike Bitcoin, whose value is more directly connected to fundamentals such as scarcity and total potential market cap, memecoins often hit the crypto ecosystem in mass quantities and get bought up by eager trend-followers and influencers.

Similar to NFTs, crypto insiders say memecoins bring value in the form of online community. And just like the value of NFTs, memcoins commonly rise and fall, with far shorter track records than bigger cryptos like Bitcoin or Ethereum.

“Memecoins and NFTs have a lot of similarities in my opinion,” says Light Node Media president Alexis Johnson. “[The value] is really all about the strength of the community.”

The hype may be why some Gen Z investors get into crypto at all, says 18-year-old crypto influencer Randi Hipper, known as Miss Teen Crypto on social media. When Dogecoin, or “doge” — a popular satire coin based on a viral meme of a Shiba Inu dog — hit the scene in 2013, it was a joke. But this joke was its appeal, and Dogecoin has since risen to a nearly $30 billion market cap. High-profile celebrities like Elon Musk and Snoop Dogg even reportedly own Dogecoin.

“People want to surround themselves with other people that support the same thing,” Hipper says about the psychology behind memecoins.

However popular memecoins are, they are all about timing and having 15 minutes of fame, making them even riskier investments than Bitcoin and other cryptos. Some crypto investors aim to guess which memecoins will stand the test of time, looking for factors other than popularity that could give them lasting value — but it’s mostly speculation. Even the co-creator of Dogecoin has become a critic, noting the potentially harmful influence of social media “get rich quick” trends.

Experts from many different industries have pointed to the big potential of Blockchain technology — the platform upon which all cryptos are coded. Industry professionals inside the crypto world and beyond say blockchain could one day be as ubiquitous as the internet currently is, with some even referring to it as “Web 3.”

With all this new functionality, users need a way to pay for transactions, including fees to publish art, mint tokens, trade services, and receive certain access within any particular blockchain network. Enter utility tokens: a category of altcoin developed for just this kind of functionality.

Ether is perhaps the most versatile utility token, as it lets users pay to mint currencies, digital art, and more on the Ethereum blockchain. Ethereum is known for charging a service fee known as a “gas fee” which covers the cost of the data processing. Another utility token is Filecoin, which is used to purchase space on the Filecoin blockchain network for file storage. Some consider blockchain file storage a new, decentralized version of popular cloud storage platforms like Google Drive.

Governance tokens are a type of utility token that purchases certain voting privileges, such as the ability to participate in blockchain-wide polls. Like the name suggests, governance tokens allow users to vote on decisions that influence blockchain ecosystems. In the world of decentralized finance (DeFi) in which crypto holders perform complex transactions that leverage coins for advanced yields — similar to lending and trading — governance tokens exist because of the democratic ideals of crypto coders, developers, and community members.

However, the complexity of DeFi can be a barrier to most people and contributes to the volatility of crypto in general. Most engage with governance tokens after thoroughly dipping their toe in the more beginner-friendly aspects of crypto.

Much like a regular financial security, a security token is a digital liquid contract representing fractions of a real asset with value, like real estate or a business. Because blockchain records are immutable (they can’t be erased or altered), security tokens are a way to record ownership stake in something.

A fork results in a kind of altcoin that comes from coders making a significant change in a blockchain’s protocol that alters how cryptocurrencies are recorded, traded, and received. There are “soft forks” and “hard forks.” Forks can either tweak the currency slightly, branch off into a new type, or upgrade the blockchain system enough to render old forms of transactions invalid. Forks can happen on any blockchain and may require upgrades across all computer systems (nodes) that keep it running.

Bitcoin Cash is an example of a fork, or a spin-off, of Bitcoin. It was created when a large enough number of Bitcoin stakeholders sought to create a different version of Bitcoin that would be better suited for everyday payments. Though that aim largely failed (Bitcoin Cash is similarly too volatile to make sense for such payments), it currently has a market cap of more than $9 billion.

https://time.com/nextadvisor/investing/cryptocurrency/altcoins/

https://www.bankrate.com/investing/what-are-altcoins/