Bitcoin may have started the revolution, but it was only the beginning. From digital dollars to programmable platforms, altcoins introduced us to the vast and diverse ecosystem of assets powering the world of Web3.
What are altcoins?
Altcoins, a portmanteau of ‘alternative’ and ‘coin’, refer to any cryptocurrencies other than Bitcoin (BTC). While BTC laid the groundwork for decentralized digital money back in 2009, developers soon sought to innovate, resulting in thousands of digital assets with unique features and use cases. From dominant networks like Ethereum to highly specialized tokens, altcoins reflect a growing and varied ecosystem.
Although Bitcoin continues to maintain a significant market share—commonly referred to as ‘Bitcoin dominance’—altcoins now account for a substantial portion of the total market capitalization, offering diverse functionalities that go beyond mere transactions.
Today, tens of thousands of altcoins exist, each with distinct roles, from serving as mediums of exchange to powering decentralized finance (DeFi), gaming applications, artificial intelligence, and even supply chain management.
(Source: CoinMarketCap, chart generated with Gemini.)
How do altcoins work?
Most altcoins utilize blockchain technology, which acts as a decentralized digital ledger. This ledger securely records transactions across a network of computers, ensuring transparency and resistance to tampering without a central authority.
To facilitate smooth operations, altcoins employ a consensus mechanism, a process where network participants (nodes) agree on the validity of transactions. While BTC utilizes Proof of Work (PoW), numerous altcoins have adopted Proof of Stake (PoS) mechanisms.
In PoS systems, users secure the network by locking up a certain amount of the cryptocurrency, replacing the need for energy-intensive hardware. This process not only validates transactions but also helps maintain the integrity of the network.
Moreover, many altcoins leverage smart contracts—self-executing contracts with the agreement terms directly embedded in code. This allows for automated transactions when conditions are met, serving as the backbone for decentralized applications (dApps).
Types of altcoins
The altcoin landscape is incredibly diverse, with thousands of assets serving various roles. While they fall into a few primary categories based on their utility and design, the distinctions among them can often become quite complex.
Altcoins vs. Bitcoin: Key differences
Although Bitcoin and altcoins share foundational principles, they serve differing purposes within a digital portfolio.
1. Utility and scope
Bitcoin primarily functions as a decentralized store of value, commonly likened to digital gold. However, altcoins usually aim to solve specific challenges, offering functionalities like faster transaction speeds or smart contract capabilities.
2. Consensus mechanisms
While Bitcoin relies on PoW, where computers solve intricate puzzles to secure the network, many modern altcoins prefer the PoS model. PoS allows participants to lock up their assets to validate network transactions, minimizing energy consumption. Additionally, various other specialized consensus methods have been introduced to tackle the ‘blockchain trilemma’, such as Proof of History (PoH), Delegated Proof of Stake (DPoS), and Proof of Authority (PoA).
3. Risk and volatility
Due to its status as the first and largest cryptocurrency, Bitcoin typically experiences lower volatility compared to many altcoins. While some smaller altcoins present significant technological advancements, they can also carry heightened market risks and exhibit lower liquidity levels. The phenomenon known as ‘altcoin season’ occurs when a majority of the top 100 tokens outperform BTC over extended periods, indicating a shift from stable growth to speculative trading.
Examples of popular altcoins
While thousands of projects populate the altcoin market, several have emerged as industry stalwarts due to their innovative technology and widespread adoption.
Ethereum (ETH)
Launched in 2015, Ethereum is currently the second-largest cryptocurrency by market capitalization. It spearheaded the concept of smart contracts, enabling developers to create dApps on its platform. Most DeFi and NFT ecosystems operate on Ethereum’s infrastructure.
Tether (USDT) and USD Coin (USDC)
Ranking as the top stablecoins by market capitalization, both Tether and USDC maintain a 1:1 valuation with the US dollar. They serve as stable vehicles of exchange within a notoriously volatile crypto landscape, enabling users to hold digital value without being subjected to constant price fluctuations.
Solana (SOL)
Solana is a high-performance blockchain platform recognized for its speed and scalability in comparison to Ethereum. It employs a unique consensus mechanism termed Proof of History (PoH), combined with PoS, which grants it the potential to process thousands of transactions per second at minimal fees.
XRP
XRP is a digital asset designed for swift and cost-effective payments. It serves as the native token of the XRP Ledger, a decentralized blockchain artifact, known for its rapid low-cost cross-border transactions, facilitating liquidity for financial institutions.
How to buy altcoins on Crypto.com
Exploring the altcoin landscape is straightforward through the Crypto.com App, which offers a secure and user-friendly platform for acquiring over 400 different cryptocurrencies.
To get started:
- Download the Crypto.com App, available on the Apple App Store and Google Play.
- Complete the sign-up process and identity verification; on-screen prompts will guide you.
- Funds deposited via bank transfers typically clear within one to three business days. For faster funding, you can also utilize Apple Pay or a credit/prepaid card, noting that processing times may vary based on your card issuer.
- Once your funds are available, you can begin buying altcoins and other supported cryptocurrencies, easily managing them from one intuitive platform.
FAQs about altcoins
What are altcoins exactly?
Altcoins are any digital assets apart from BTC, developed to provide various functionalities, including smart contracts, faster transaction speeds, or designated roles within decentralized frameworks.
What is the difference between BTC and altcoins?
BTC stands as the first cryptocurrency and primarily serves as a decentralized store of value. Altcoins constitute a wider range of digital assets that offer specialized functions like powering dApps or maintaining a stable fiat peg.
What are the risks of altcoins?
While altcoins can diversify your portfolio and grant access to distinctive blockchain utilities, they carry different risk profiles compared to BTC. Evaluate each project’s technology and intended use case to adopt a balanced approach.
What are the most popular altcoins right now?
The popularity of altcoins changes continuously, driven by factors such as adoption trends, project developments, and macroeconomic news. Monitoring trading volumes and trending charts (e.g., top 10 movers) on platforms like Crypto.com can help you stay updated.
What is the difference between a coin and a token?
A coin operates on its own independent blockchain, like SOL or ETH, whereas a token is built atop an existing blockchain, utilizing that network’s established security and infrastructure.
Are NFTs considered altcoins?
No, NFTs, while digital assets on blockchains, are inherently non-fungible, making each unique. Conversely, altcoins are fungible assets, meaning each unit is interchangeable and used for exchange or utility.
How do I buy altcoins?
The Crypto.com App serves as a secure solution for acquiring altcoins. After verifying your account and funding it through bank transfer or credit card, you can explore and buy from over 400 digital assets directly within the app.
What does ‘altcoin season’ mean?
‘Altcoin season’ refers to a market phase in which altcoins tend to outperform BTC in terms of price growth and market share. During such times, investments may shift from BTC toward smaller or specialized digital assets.
Are stablecoins considered altcoins?
Stablecoins fall under the broad altcoin umbrella, although they form a distinct category that prioritizes value stability through pegging to assets like the US dollar while remaining alternative digital currencies built on blockchain technology.
Important information:
This article is for informational purposes only and should not be construed as financial or investment advice. Past performance does not guarantee future results. Trading cryptocurrencies carries risks, such as price volatility and market risks. There’s no assurance of future profitability. Before deciding to trade cryptocurrencies, consider your risk appetite.
Although the term “stablecoin” is commonly used, there is no guarantee that the asset will maintain a stable value in relation to the value of the reference asset when traded on secondary markets or that the reserve of assets, if there is one, will be adequate to satisfy all redemptions.
