What are Altcoins?
Definition
‘Altcoin’ is a broad term that refers to all cryptocurrencies besides Bitcoin.
Understanding Altcoins
As you may have noticed, cryptocurrency is much more than just Bitcoin. In fact, ‘digital money’ like Bitcoin is just the tip of the iceberg when it comes to what crypto has to offer.
As of March 2021, there were around 9,000 cryptocurrencies, or ‘altcoins’, on the market, each designed with a specific purpose in mind. The success of an altcoin/cryptocurrency comes down to whether it can improve on an existing technology or solve a real problem in the market. However, with thousands of altcoins out there, only a small percentage of all altcoins will actually achieve what they set out to do.
Bitcoin & Altcoins
Generally, altcoins, or ‘alts’, offer new features & possibilities that Bitcoin doesn’t. Many altcoins have real world use-cases & applications beyond the realm of finance and digital money.
Still, as Bitcoin was the original cryptocurrency to begin the crypto revolution, altcoins do share many traits with Bitcoin. For instance, both alts and Bitcoin use Blockchain technology and are ‘decentralised’, offering many of the same benefits, including:
- Faster & more efficient transactions
- A transparent, public record of all transactions
- Less dependence on banks & financial institutions
- True ownership & privacy of your assets
- A secure & trustworthy way to do business with one another directly (without the need for a bank or third party)
Use-cases of Altcoins
Understanding that each cryptocurrency has its own unique purpose & reason for existing is the first step to understanding the true potential of the crypto revolution. For instance:
Ripple seeks to replace the SWIFT interbank payment system with an instant and less expensive international payment system.
Ethereum provides a platform for smart contracts and dApps (decentralised applications) to be built, creating a space for a range of innovative and decentralised financial services (DeFi) to evolve.
Theta offers next-level video streaming, allowing users to earn rewards for sharing their bandwidth and relaying video to other users on the Blockchain.
Enjin Coin leads the way in Blockchain Gaming, offering a digital currency that gamers and in-game economies can utilise.
Audius connects fans directly with musicians, giving anyone the freedom to distribute, monetise, and stream music & audio.
Monero aims to address privacy concerns, leading the way in anonymous and private digital money.
As you can see, altcoins have uses that span a variety of sectors. Certain altcoins, such as Ethereum’s Ether and Ripple’s XRP, have already begun gaining traction among mainstream institutions, resulting in a dramatic price increase of these projects over the past few years.
Altcoins as investments
Given the potential for crypto to revolutionise society beyond the world of finance, many investors are looking to expand their portfolios past just Bitcoin. If you’re interested in investing in cryptocurrencies besides Bitcoin, here are a few things to know:
- Altcoins are a VERY broad term that describes a whole range of small, mid, large-cap investments with varying risk profiles.
- Sticking to large and mid cap altcoins is recommended if you want to mitigate your risk
- Generally, altcoins are riskier investments than Bitcoin due to their lower market cap & past track-record
- Some altcoins have serious potential to be widely adopted in the future, which would mean a significant increase in price
MOST altcoins will not succeed – so choose your investments wisely. Countless altcoins have emerged promising great things only to never even make it off the ground.
Before investing in an altcoin, ensure you understand the project & have done your research. If you’re new to crypto, be sure to check out our other articles on how to evaluate a good crypto investment and how to do your own research.
Key Takeaways
- The term ‘altcoins’ refers to all cryptocurrencies besides Bitcoin
- Like Bitcoin, altcoins are ‘decentralised’ and carry many of the advantages that Bitcoin does
- Altcoins have a wide range of use-cases & offer possibilities that Bitcoin doesn’t
- Altcoins carry higher risk-reward profiles than Bitcoin
- Altcoins can be classified in terms of risk into small, mid or large-cap cryptocurrencies. Most altcoins & crypto projects will not achieve what they set out to do – you should always DYOR before investing
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Pros and cons of investing in altcoins
Pros
Low barrier to entry – Most altcoins trade at very low prices compared to Bitcoin. They are a good place to start if you feel you’re late to the Bitcoin party!
Higher potential for greater return on investment (ROI) – Altcoins are higher-risk-higher-reward than Bitcoin & many other investments, and volatility can be used to your advantage if you know what you’re doing!
Wide-range of use-cases – Altcoins have the power to revolutionise areas beyond finance, including online voting, cloud-based storage, supply chain management, Blockchain gaming, digital IDs, medical record-keeping, weapons tracking, tax regulation & much more.
Room for evolution – With mainstream adoption growing, the future possibilities of crypto are boundless– plenty of altcoins have A LOT of room to grow.
Not just digital money – Unlike Bitcoin, altcoins are built with specific utilities, meaning they are often more than just an investment and can be used on a specific Blockchain to redeem a service.
Innovative tech – Altcoins address many of the shortcomings of Bitcoin. Many altcoins also use more efficient, scalable and sustainable Blockchains & network verification methods than Bitcoin.
Decentralisation – Altcoins are more scalable than Bitcoin and mark a huge step towards decentralisation and putting financial autonomy back in the hands of regular people.
Support the future of crypto – Legitimate altcoin projects add new value and functions to cryptocurrencies & the world at large – if you believe in crypto, the world of alts is for you!
Cons
Risk & speculation – In comparison to Bitcoin, most altcoins lack exposure, infrastructure and acceptance. While altcoins like Ethereum and XRP are well supported, the majority of alts can be considered speculative & risky investments.
Lack of track record – Most altcoins are relatively new and have not yet proven that they will be adopted. Unlike regular investments, their track record & financial history is harder to analyse.
Rapidly evolving – With new altcoins being created every day, it can be hard to stay on top of all the news. Never invest in more coins than you can keep track of!
Potential for scams – As with all emerging technologies, there are those that capitalise on the naivety and inexperience of new investors through scams and theft – particularly in the world of altcoins & initial coin offerings (ICOs).
Harder to buy – A lot of online exchanges don’t provide direct fiat (USD, AUD, etc.) trading for certain altcoins. That means you’ll also have to convert any altcoins to Bitcoin or a stablecoin before cashing out into fiat money.
*Note – This is not a problem with Digital Surge. We allow you to buy/sell over 250+ altcoins directly with AUD – saving you time and money!
How do I evaluate what a good altcoin investment is?
When assessing a potential crypto investment, the key elements to consider are:
- The Utility & Use-case
- The Community
- The Team (developers, advisors, partners)
- Market Cap
- The Website & White Paper
- The Competition
- The Road Map & Vision
- Trading Volume & Liquidity
- Circulating Supply vs Total Supply
For a step-by-step guide on how to evaluate a good cryptocurrency investment, click here.
Ethereum & Altcoins
You can’t talk about altcoins without mentioning Ethereum. Ethereum, the second largest crypto by market cap, is not just a form of digital currency but also a platform which facilitates the creation of smart contracts, decentralised applications and other altcoins & cryptocurrency projects.
Ethereum’s Blockchain has its own coding language called Solidity, which anyone with some tech knowledge can use to create smart contracts & new altcoins. This is done using the ‘ERC-20’ standard which is now the most widely used standard for altcoins, leading to the explosion of thousands of new cryptocurrencies.
Why are there so many altcoins?
There are plenty of problems in society that the right crypto project could solve. And thanks to Ethereum’s ERC-20 standard, cryptocurrencies are not as difficult to create as they once were. Thousands of cryptocurrencies (some better than others) have emerged since the inception of Bitcoin, with the idea that each crypto should provide a unique utility to the ecosystem, or solve a real problem in the world.
However, it must be noted that there are countless altcoins that have emerged only to suddenly disappear and take all of its investor’s money with it. Altcoins are a volatile game and with a high potential for reward comes a very real degree of risk. While you don’t have to be a financial wizard or crypto expert to make the most of the altcoin market, doing your research and taking the necessary precautions are key to effective investing.
If you’re new to crypto feel free to read more about what cryptocurrency is and how it can change the world!
This question is far too simplistic to provide a clear-cut answer. Given that altcoins refer to literally thousands of cryptocurrencies, whether or not they are a good investment depends on your investment goals and which ones you choose.
As altcoins and crypto in general are bringing a huge number of utilities and innovation to the world, some of these projects will likely be extremely lucrative investments. However, it’s important to note that the vast majority don’t end up accomplishing what they claim they will. Do your own research and make sure you know what you’re investing in before you pull the trigger. For a simple but comprehensive guide on how to evaluate a good altcoin investment, click here.
What are the different types of altcoins?
While you don’t need a technical understanding of altcoins to make the most of the crypto revolution, altcoins can be broadly classified into 4 main types:
Utility Tokens
Utility tokens are a type of altcoin used to provide a service or function within a Blockchain network. For example, they might be used to purchase services or redeem rewards. Filecoin, which is used to buy cloud storage space, is an example of a utility token.
Stablecoins
A stablecoin is a type of hybrid cryptocurrency whose value is tied to a stable asset like USD or gold. Stablecoins attempt to bridge traditional finance with the world of cryptocurrency. Initially, stablecoins were created to mimic fiat currency and to be used by traders who operated on exchanges that did not offer direct fiat to crypto trading.
Stablecoins are generally ‘pegged’ to a real-world asset like fiat currency, precious metals or even other cryptocurrencies. This adds stability to their value, reducing much of the uncertainty and volatility that deters people from investing in crypto.
Mining-based coins
While coins can be bought with fiat currency, they can also be mined. Mining requires the user to validate transactions on the network, ensuring the network’s authenticity and legitimacy. This is done with powerful computers and miners are rewarded with cryptocurrency. Bitcoin is an example of a mining-based coin, while Ethereum is an example of a mining-based coin transitioning to a Proof-of-Stake method which is far less energy intensive.
Security tokens
Security tokens are traded with the expectation of getting direct profit from them. They are a form of investment contract which promises equity in a company or even voting rights in the project. Security tokens are generally linked to a business and are governed by security laws, meaning there are stricter guidelines on purchasing and transferring security tokens than other types of tokens.
Examples of popular altcoins
Ethereum (ETH)
Ethereum is the second-largest cryptocurrency in the world. It is both a cryptocurrency and an open-source platform that allows developers to innovate and build decentralised applications and smart contracts.
Smart contracts allow people from anywhere in the world to execute a contract without needing a third party. Instead, pre-defined conditions are put into the smart contract, and when these conditions are met the contract is executed.
Ethereum’s cryptocurrency, ‘Ether’ (ETH), is just a small component of what makes the Ethereum network so special. A new era of programming, digital ownership and other innovations are being introduced as a result of Ethereum’s smart contract capabilities. While Ethereum is more like Bitcoin than other altcoins (in its solid infrastructure), it serves an entirely different purpose and has opened a world of new possibilities.
Etherum’s key takeaways:
- Ethereum is highly secure and is used and accepted in many large industries
- If Bitcoin crumbles, altcoins like Ethereum will be there to fall back on
- ETH has the largest market cap after Bitcoin and is well-established in the space
- The internet may have connected the world, but Ethereum is demonstrating new levels of interconnection for businesses and individuals, without middlemen
- While Ethereum is extremely popular, the altcoin market is fierce with competition. There are many other companies looking to address Ethereum’s potential inability to scale well
Ripple (XRP)
Ripple is a technology that acts as both a cryptocurrency and a digital payment network for banking & financial transactions. The idea is that Ripple can act as a trusted agent in between two parties transacting, as the network can process & confirm the validity of the exchange in a highly efficient manner.
Ripple’s affordable price, low barrier to entry and potential to revolutionise international banking makes it one of the most attractive crypto investments on the market, with many large banks already adopting Ripple technology for cross-border payments
Ripple’s key takeaways:
- Founded in 2012, Ripple (XRP) is one of the most traded digital currencies across the globe. It has one the biggest market caps in the crypto space.
- Ripple is faster, more cost-effective and more scalable and transparent than many other cryptocurrencies.
- Ripple transactions use less energy than Bitcoin, are confirmed in seconds, and cost less than Bitcoin.
- Ripple operates similarly to the SWIFT system, aiding in the transfer of various currencies and securities across borders.
- Ripple is both a currency and a platform that allows for fast and affordable transactions from user to user, wherever they are in the world.
Cardano (ADA)
Cardano (ADA) is the world’s first sustainable & peer-reviewed Blockchain. Founded in 2017 by a co-founder of Ethereum, Cardano looks to combine the benefits of Ethereum (allowing for smart contracts and decentralised applications) while fulfilling several other functions.
Cardano looks to solve issues of scale, transaction speed and operability. It also enables owners of its cryptocurrency to help operate its network and vote on changes to its software rules. This promising project differs from other cryptos by focusing on a rigorous research-driven approach. Many people like Cardano because of its world-class team of academic leaders, researchers and scientists.
Bitcoin Cash (BCH)
Bitcoin cash (BCH) was created in 2017 as an early fork of Bitcoin. Bitcoin cash made the following improvements to the original Bitcoin:
- Faster transaction times
- Cheaper transfer fees
- Able to handle more transactions per second
- Better scalability
While its value and market cap are still nowhere near that of Bitcoin, Bitcoin Cash is a well-established altcoin that operates on its own Blockchain. Despite not offering any radically new possibilities or changes (like some other altcoins), it has proven useful to the market and thus continues to be a popular altcoin investment.
Tether (USDT)
Tether (USDT) is not your typical altcoin. USDT is what’s known as a stablecoin, which is a hybrid form of cryptocurrency pegged to the US dollar (meaning it doesn’t fluctuate in value like other cryptocurrencies). USDT and other stablecoins are 100% backed by actual USD or other real-world assets in the issuing company’s reserve.
In addition to being a useful currency for making everyday payments, USDT was initially created to be used on crypto exchanges that did not provide direct fiat to crypto trading. It mimicked fiat currency and provided a place for investors to keep their money as it is a stable store of value which can be easily converted into a variety of cryptocurrencies. Some other popular stablecoins include TUSD, PAXG and BUSD.
What is an altcoin ICO?
ICOs or ‘initial coin offerings’ are the most common way for companies to roll out a new altcoin and raise money for their project. An ICO refers to a fundraising stage where developers essentially explain their project and try to convince people why this particular altcoin will succeed.
Just like the stock market, you’re betting on which company can deliver what they promise. ICOs are often the best way to get in at ground level and see the biggest gains. However, ICOs are not bound by any legal requirements, making them susceptible to scams. Getting in on an altcoin at ground level during the ICO phase is a high risk-high reward investment that should be treated with great caution. You should always do your own research and get a wide range of opinions, especially if you’re looking to invest in an ICO.
To learn more about how to stay safe trading crypto, click here.
What do I need to get started trading crypto?
To get started you need an account at a trusted crypto exchange like Digital Surge. For this, you’ll just need some personal identification, a secure Internet connection, a method of payment and a few minutes of time.
Did this answer your question?
Digital Surge is the easiest way for Australians to buy, sell & store over 250+ cryptocurrencies. With extremely low fees, a uniquely user-friendly interface and a customer-support team you can rely on, getting involved in crypto has never been easier. Sign up today and enjoy safe, stress-free trading.
Crypto-curious? The time you spend here will be the best investment you ever make.
Enjoy effortless trading today
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