Updated on July 23, 2024
Altcoin. Sooner or later, every trader who is a fan of cryptocurrencies will come across this term. Among virtual currencies today, there are other favorites than just Bitcoin. And some of them may interest you even more. So what exactly is an altcoin? In this article, we will explain this term and introduce you to several altcoins that are popular in the cryptocurrency market today.
What is an altcoin?
It probably won’t surprise anyone that the first decentralized cryptocurrency is still the best-known and most popular Bitcoin. For most people, Bitcoin is what comes to mind when they think of cryptocurrency. But in today’s crypto world, everything is not just about Bitcoin. Although we must say that this virtual currency still rules the cryptocurrency market today. There are also other types of cryptocurrencies in the game, which have surpassed Bitcoin with many advantages. For example, the speed of transaction processing or lower fees for its processing.
After all, the Bitcoin network has been in operation since 2009. So the cryptocurrency had a really long time to develop until today. Of course, Bitcoin also struggles with some shortcomings. But the problem is that every new modification must be approved by the majority of his community. And that, of course, does not significantly advance its development. It is therefore not surprising that new alternatives are appearing that try to catch up with its gaps. And many of them succeed.
So how to understand the term altcoin? This word was created by combining the words alternative coins. So in the translation of an alternative currency. All these new cryptocurrencies, which were created as alternatives to the original cryptocurrency, i.e. Bitcoin, are collectively called altcoins. So when someone says they are trading altcoins, it means they have decided to invest in a currency other than Bitcoin. It can be, for example, Ethereum, Solana, Ripple, but also many other virtual currencies.
Bitcoin loopholes
And what specific gaps in Bitcoin are altcoins trying to cover up? First of all, it is about improving the flow of transactions. Newly created cryptocurrencies are trying to make transactions with them faster and at the same time cheaper. An example of such an altcoin is Litecoin, whose transactions are processed four times faster, while paying ten times less in fees.
Another widely discussed problem with Bitcoin is its anonymity. The fact that your transactions with this cryptocurrency would take place completely anonymously is not entirely true. And that is why we talk about so-called pseudo-anonymity. All payments are recorded in the transaction history. And someone who knows your Bitcoin address can easily look up your payment history. Anonymous cryptocurrencies such as Zcoin, Monero or DASH solve this problem.
The first altcoins, which first saw the light of day in 2011, focused on these improvements to Bitcoin’s shortcomings. Now there are thousands of such cryptocurrencies, and new ones are being created every moment. But the newer ones also focus on other goals. So it’s no longer just a matter of improving the properties of current cryptocurrencies. There are other features in the game as well.
Types of altcoins
We distinguish different types of altcoins according to the purpose they are intended to serve. Let’s introduce some of them.
Cryptocurrency as currency
In this case, we are referring to cryptocurrencies that follow the primary purpose of Bitcoin. So create a decentralized payment system. Here we can include those altcoins that were created to improve the existing Bitcoin. We can include the already mentioned Litecoin here.
Stablecoiny
This type of cryptocurrency will appeal to investors who want to preserve the value of their cryptocurrency over time. This is precisely the goal of stablecoins. They link their value to other assets. Classically to one of the fiat currencies. But it can also be a commodity or another cryptocurrency. Therefore, it is not the kind of high-volatility cryptocurrency that intraday traders would typically look for. On the contrary. Rather, stablecoins are intended for those who desire a virtual currency with a fixed value.
Among the most well-known stablecoins is certainly Theter (USDT), which is pegged to the US dollar (USD). We can also name DAI, USD Coin or PAX Gold.
Meme coiny
This type of virtual currency will surely impress you with its design. It is a cryptocurrency that was created on the basis of some Internet meme or other funny basis, many of them were created as a joke. Or even as a parody of the cryptocurrency market. But a lot of these jokes have grown to larger dimensions and today you can make a lot of money trading them. However, the truth is that most of them only have value within the fan base. Examples of well-known meme coins can be, for example, Dogecoin or Shiba Inu.
Utility tokens
In this case, we are talking about a broad group of tokens that are not used for investment. It is developed in order to enable its owner in the future certain services that will be offered by the platform that issues this cryptocurrency. You can get it, for example, by watching a video or advertising. This group of virtual currencies also includes tokens that are issued by individual crypto exchanges, while their owner has certain advantages on this platform. An example is the cryptocurrency exchange Binance or KuCoin .
Governance tokens
This type of token is usually found in decentralized applications, organizations or projects where power needs to be distributed in some way. Tokens therefore represent the possibility to decide on the future direction of the given project. So whoever owns such a token has a certain amount of voting rights.
Security tokens
Security tokens can be seen as a digitized form of classic securities. Like them, they must be regulated. For example, in the USA they even have to comply with the principles of the SEC ( United States Securities and Exchange Commission ).
NFT
This group of cryptocurrencies has seen a big boom in recent years. These are non-fungible tokens that represent the ownership of any product. Perhaps even a work of art. Each token is something unique. And they can also differ in value. So it’s not the same as, for example, Ethereum, where each unit has the same value. However, some NFTs can be very valuable indeed.
Coin or Token?
As you may have noticed based on the previous chapter, altcoins include both groups of coins and tokens. And although the public today doesn’t make much of a distinction between these two types of cryptocurrency, you as a cryptocurrency trader should be familiar with this terminology. So let’s briefly explain the difference between these two groups.
When we talk about coins, we mean a virtual currency that operates on a separate, independent blockchain. An example can be Bitocin, Ethereum or Ripple. Tokens, on the other hand, are cryptocurrencies that do not have their own blockchain and therefore operate on a foreign one. As an example, let’s mention DASH or BNB.
How to invest in altcoins
Are you wondering how such an investment in cryptocurrencies or trading with them actually works? There is nothing complicated about it. All you have to do is decide whether you will invest in classic cryptocurrency or whether you will go the route of financial derivatives.
Buying cryptocurrencies
Investing in altcoins is essentially the same as investing in Bitcoin. So you can visit one of the online crypto exchanges or exchange offices. Popular ones currently include, for example, the previously mentioned platform Binance, Coinmate or KuCoin. Here you can choose from a number of cryptocurrencies and buy them here. You can then transfer your cryptocurrency to your crypto wallet and use it as you please. If you want to use it as currency, then you can leave it in your online wallet, where it will be easiest for you to handle it. But if you prefer to acquire cryptocurrency for the purpose of savings, then consider acquiring a cold wallet.
However, you can also get virtual currency in other ways. For example, you can buy it from another person, or it can be purchased directly in your wallet. So if you choose one that offers this option. And last but not least, there is also the option of exchanging fiat for cryptocurrency in bitcoin machines. However, due to the high fees, we do not recommend this.
CFD trading
The second option is to trade cryptocurrencies through financial derivatives. The most popular are CFD contracts. In that case, you don’t need a crypto wallet. In CFD trading, you will not actually buy or sell virtual currency. You will only speculate on the future development of its price level. If you think the price should go up, you enter a buy position. And if, in your opinion, it should go down, you will enter a selling position.
In this type of trading, you can also use financial leverage. With regulated brokers, as a retail trader, you can close CFD contracts on cryptocurrency with a maximum leverage of 1:2. This means that your final earnings, as well as your earnings, will be multiplied by two. So this is an option where you can earn faster. On the other hand, you can lose even more.
For this purpose of trading, choose one of the online brokers that allow CFD trading in cryptocurrency. There are a huge number of them on the Internet. In addition, trading of cryptocurrency financial derivatives is also offered by some crypto exchanges and exchange offices.
Is it worth investing in an altcoin?
A characteristic feature of all cryptocurrencies is that their price fluctuates significantly. As a result, investing in altcoins can be very profitable. On the other hand, you may also be very disappointed. In general, investing in cryptocurrencies, especially some altcoins, is very risky. But as always, with high risk can come high reward. So investing in altcoins is perfect for those of you who are not afraid of taking risks. Then the question is whether the market will play with you or against you. And if you are lucky, you can expect high earnings.
For those who want to invest in cryptocurrencies, but are not too high risk, there are the aforementioned stablecoins, which aim to preserve their value. On the other hand, we have to take into account the general property of cryptocurrencies. And that is the fluctuation of the price level. So even though stablecoins try to maintain their value, they may not always succeed. Therefore, even when investing in stablecoins, keep in mind that they are not completely risk-free.
Since there are currently thousands of altcoins, it’s a good idea to really consider which one you want to invest in. And it is true that safer investments tend to be in the most well-known ones. Newly issued altcoins are often not taken up. In addition, there are also fraudulent coins (scamcoins) among them, which try to attract investors with talk of a promising future. Therefore, always check the given cryptocurrency first. Alternatively, consider whether you really want to invest in a brand new cryptocurrency.
In conclusion
So, as this text has shown us, cryptocurrency is not like cryptocurrency. And this is one of the essential things you should know as a virtual currency trader. We have shown that not all altcoins are suitable for investment, so you already know that you will not earn on utility tokens, for example. Since then we have other coins and tokens. For example, stablecoins or security tokens.
Let us conclude with a few more tips for trading altcoins. Investing in these assets can pay off really well for you. On the other hand, the cryptocurrency market does not behave very logically, and prices fluctuate a lot. Therefore, always invest only the amount that you can afford to lose at that moment. And if you don’t want to risk too much, be sure to choose among the most traded altcoins.