Beyond the seemingly omnipresent Bitcoin (BTC), crypto wallets
support the purchase and sale of many different types cryptocurrencies. The alternative cryptocurrencies have features in common with Bitcoin, but altcoins are also unique in specific ways.
Some altcoins, for example, use a distinct
consensus algorithm to generate blocks or authenticate transactions. Others set
themselves apart from Bitcoin by providing additional or new functions, for
instance, low-price or smart contracts volatility.
As of October 2021, over 12,000
cryptocurrencies exist. Altcoins accounted for almost 60% of the overall
cryptocurrency market in October 2021. Because they are based on Bitcoin,
altcoin price changes tend to follow Bitcoin’s trend.
On the other hand, analysts predict that the
maturity of cryptocurrency investing ecosystems and the creation of new
marketplaces for these cryptocurrencies will reduce price fluctuations linked
with Bitcoin’s trading signals.
The History Of Altcoins
We can see that the first Altcoin originated
only after two years, in 2009, when we look back at Bitcoin’s birth. Then the
rate of Altcoin debuting began to rise from 2013, 2014. It continued to grow
until now. In 2017 over 600 new cryptocurrencies were introduced, making it
impossible to examine and study them all.
Market capitalization (also known as the market
cap or just “cap”) is another crucial indicator of Altcoin value.
This metric compares the unitary cost multiplied by the number of coins in
circulation to the current market cap. Bitcoin is still well-thought to be the
first cryptocurrency, followed by Ripple and Ethereum (ETH).
Altcoins, Simplified
The Altcoin is a portmanteau of the words
“alternative” and “coin.” It refers to all alternatives to
Bitcoin. The fundamental architecture of Bitcoin and altcoins is comparable. As
a result, they share source code and perform as peer-to-peer systems or as
large computers capable of processing large quantities of transactions and data
simultaneously. In other situations, altcoins attempt to become the next
Bitcoin by providing a cheaper electronic commerce method.
After its debut in 2009, Bitcoin became the
first widely used Proof of Work (PoW) app. PoW is the fundamental mechanism
behind many other cryptocurrencies, allowing for verifiable, decentralized
agreement.
Different Types of Altcoins
Altcoins are a type of cryptocurrency that use
various algorithms and protocols to solve particular problems. Altcoin
technologies range from simple to advanced, as well as several functionalities
and consensus methods. A quick rundown of some of the more important ones is
here:
An altcoin can also be classified into more than one
type.
1.
Mining-Based
Mining-based cryptocurrencies are formed using
a process known as “mining.” Most mining-based currencies rely on
Proof-of-Work, which creates new money by solving complex problems. Zcash
(ZEC), Monero (XMR), and Litecoin (LTC) are examples of mining-based
currencies.
2.
Stablecoins
Since the inception of Bitcoin, cryptocurrency
trading and usage have been plagued with volatility. Stablecoins aim to reduce
overall volatility by tethering their value to a basket of commodities,
including precious metals, fiat currencies, or other cryptocurrencies. The
basket serves as a backup if the currency fails or encounters difficulties.
Price swings for stablecoins are limited to a specific range.
3. Security
Tokens
Security tokens are digitally recorded assets
that function similarly to equities traded on stock exchanges. Security tokens
resemble regular stocks and, in many cases, provide equity or a dividend payout
to investors. The prospect of price appreciation for these tokens is a crucial
incentive for investors to invest in them. Security tokens are usually
accessible through initial coin offerings (ICOs), known as token sales in the
cryptocurrency community.
4. Meme
Coins
Meme coins are designed to mimic other
cryptocurrencies and are named because they depend on a joke or a ridiculous
interpretation of well-known digital currencies. They generally rise quickly,
often fueled by prominent retail investors and cryptocurrency influencers
looking for quick profits.
5. Utility
Tokens
Utility tokens are a type of cryptocurrency
that exist within a network. They may be used to pay for services, pay network
costs, or redeem rewards, among other things. Utility tokens, unlike security
tokens, do not distribute dividends or give up ownership interest. Filecoin is
an example of a utility token used to purchase storage space on a network.
What Does the Future Hold for Altcoins?
We’ll then move on to the future of
cryptocurrencies and altcoins, which has a history in the circumstances that
created a federally controlled dollar in the 19th century. There were several
varieties of local currencies in operation in the United States at that time.
Each had its features and was secured by a different instrument. For instance,
gold certificates backed by deposits of gold with the Treasury. The
government-backed U.S. notes were used to finance the civil war.
Many smaller banks were issuing their currency,
with some being backed by phoney reserves. That confusion of financial
instruments and currencies is similar to the present state of altcoin markets.
There are now hundreds of alternative coins for sale in the market, each
claiming to be helpful.
It is quite improbable that the altcoin markets
will consolidate into a single cryptocurrency in their current state. However,
probably, the majority of more than 1,800 altcoins listed on crypto exchanges
will not survive. The altcoin market will concentrate around a few
cryptocurrencies with utility and usage cases, which will dominate the
marketplaces.
Altcoins are an inexpensive and easy way for
investors to broaden their horizons and diversify beyond Bitcoin.
Cryptocurrency markets have produced returns that are many times greater than
those made by Bitcoin. There are dangers to altcoin investment, not the least
of which is a lack of regulation. Cryptocurrency markets will undoubtedly
develop in maturity, leading to more expertise and capital in the sector, which
will aid in the development of rules and reduced volatility.
Altcoins are an excellent way for
cryptocurrency market investors who want to diversify their holdings to do so.
While a few, such as Ethereum’s ether, are well-known, the majority of nearly
9,000 altcoins currently exist primarily unknown. The rise of altcoins and the
possibility of cryptocurrencies revolutionizing modern finance are two sides of
the same coin. However, before investing in them, investors should do their
homework. The dangers linked with Altcoin investing are comparable to those
faced by Bitcoin investment.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
