What
Is an altcoin?
In
the crypto world, altcoin stands for alternative coins and is simply a term
used for any cryptocurrency other than bitcoin. So, that makes Ethereum, the
cryptocurrency with the second largest market cap an altcoin as much as the
3,000 ranked cryptocurrency.
Altcoins
are not required to be different from bitcoin as each altcoin will have its
preferred consensus mechanisms, such as proof-of-stake or proof-of-work. For
example, bitcoin is the oldest cryptocurrency and uses the original validator
method of proof-of-work, which is used by many altcoins today. Proof of work is
resource-intensive and time-consuming, pushing more investors towards proof of
stake coins, allowing them to contribute to the blockchain.
However,
altcoins do try to differentiate themselves from bitcoin through new technology
like smart contracts, PoS, or different tokenomics. Some aspects between
altcoins and bitcoin will always stay the same, such as peer-to-peer systems,
which are embedded into the philosophy of cryptocurrency.
Relationship
between Bitcoin and Altcoins
Since
the beginning of cryptocurrency, with bitcoin as the spearhead, the market has
generally revolved around the price of bitcoin, with altcoins following its
pumps and dips. Altcoins often come from bitcoin, tending to follow bitcoins’
overall trends. Some of this matching can be put down to investors using
bitcoin as a major market indicator, but some altcoin graphs are similar to
bitcoins that it becomes hard to ignore.
However,
as bitcoin dominance steadily decreases and more of the crypto market cap is
eaten up by bitcoin, we start to see more independently priced altcoins, not
exactly following bitcoins trajectory. We can put this phenomenon down to two
major factors:
- Investors
are slowly plowing more capital into new projects with huge potential.
Often large ecosystems such as DOT. - The
overall amount of cryptocurrencies being created is ever increasing.
Are
All Altcoins Made Equal?
Simply
put, no. The term altcoin encompasses a massive group of coins, all providing
different utility to the crypto sphere, the term is used to differentiate them
from bitcoin.
Cryptocurrency
is still a very new asset class, so each cryptocurrency project has its own
coin which investors buy into and often use inside of the ecosystem. For
example, HIVE is used to navigate the platform. Later down the line, we should
expect major altcoins to take over as the main coin used over multiple
projects, as there is simply too much volatility for so many different altcoins
to be viably used in the future.
The
Different Types of Altcoins
Remember: Altcoins can be part of
several categories at once.
Stable
Coins
Stablecoins
have come into existence to try and counteract the extreme volatility that the
crypto market faces. Investors can hold some value in stable cryptocurrency,
without having to convert it into fiat, while waiting for the next investment
opportunity, or the perfect entry.
Examples
of altcoins would be USDT (Tethered to the US dollar, or USDC). Stablecoins are
pegged to the value of a fiat currency or other more stable commodities such as
gold to help hold their value.
Also,
stable coins help investors get money into exchanges, without having to
instantly buy a more traditional cryptocurrency.
Utility
Tokens
Utility
tokens act as a way of payment for services or to participate in an ecosystem.
Each ecosystem will usually have its own unique utility token that is not
mineable.
A
well-known example of a utility token is Filecoin, used to provide storage to
other blockchains. The most famous example is Ethereum.
Meme
Coins
A
type of stable coin fresh in the mind of most crypto investors, meme coins are
described by the name, memes. Examples would be dodge coin or the recent
speculation on SHIB, based on Elon Musk’s dog.
Typical
attributes of a meme coin include a rapid surge in price over a short period of
time, lack of utility, and often shilled and advertised by crypto influencers
or celebrities on platforms such as Twitter.
Meme
coins have become rife with scams once people saw the massive potential that
comes from playing with investors’ FOMO.
Security
Tokens
Security
tokens are the closest cryptocurrency comes to traditional stocks and shares.
Those buying security tokens will have ‘shares’ in a company that participates
or does business on a blockchain.
Security
tokens help to validate ownership of a certain asset, providing greater
security than before to owners and their assets. However, when a user owns
their own ‘keys’ they are at risk of permanently losing access to the asset, as
no centralized body can help them regain it.
Mining-Based
vs Pre-mined
Altcoins
which are mining based use PoW (Proof of Work) as a way to generate new coins,
the method that bitcoin uses. As mentioned before this is resource-intensive
and many altcoins are moving over to a PoS model, allowing users to participate
in the blockchain themselves.
The
alternative is to have a project with pre-mined coins, which requires initial
capital to get off the ground. Coins are usually distributed during an ICO, or
initial coin offering, where investors pay Bitcoin, Ethereum, or fiat for a
pre-arranged amount of the essentially worthless coin. ICOs are naturally risky
as there is no guarantee these coins will ever be worth anything, having never
been traded before.
XPR
is a massive example of a successful pre-mined coin, firmly sitting in the top
10 coins by market cap.
Do
Any Altcoins Stack Up to Bitcoin
Currently,
bitcoin has a market dominance hovering around 40%, with Ethereum second just
under 20%. For an altcoin to ever flip bitcoin, we would need to see an already
prominent coin such as Ethereum really explode in the coming years.
Bitcoin
was the first cryptocurrency and will always be in the hearts of crypto
investors as the unbreakable, decentralized, permissionless blockchain, an
example for all future altcoins to follow.
Will
Any Altcoin Ever Flip Bitcoin?
Many
experts suggest that Ethereum is capable of flipping bitcoin, but will rely on
a successful Ethereum 2.0 release, executing the promises that were made about
faster transactions and cheaper transaction fees (Gas Fees).
However,
to successfully flip Bitcoin or even Ethereum, the coin must defeat the problem
of scalability, making it accessible to billions, such as Cardano.
Bitcoin
has had an early bird advantage over all other cryptocurrencies, so only time
will tell if an altcoin topples the Satoshi Tower.
Why
Altcoins Are Important
Obviously,
Bitcoin does not provide a solution to every problem trying to be solved by
cryptocurrencies, so Altcoins are a necessity to solve the shortcomings of
Bitcoin and provide actual utility across thousands of different sectors and
markets. A task that no singular coin could finish.
Altcoins
are absolutely essential for this stage in the cryptocurrency ecosystem,
providing investors with a massive choice of projects to invest in and allowing
different projects to show off their potential utility and use-cases while we
grow in the adoption phase.
Time
will slowly weed out useless altcoins as cryptocurrency becomes more heavily
adopted and the strongest altcoins will emerge and most likely become staples
as utility tokens across many ecosystems.
The
Dangers of Altcoins
Altcoins
encompass almost all cryptocurrencies in the market, meaning as much as they
are a necessity, many come with their flaws, or are suffering from a volatile
market. Here are the main dangers presented by altcoin investing and what you
should look out for:
- The cryptocurrency market is driven around sentiment:
Market sentiment is arguably the most
powerful indicator in the cryptocurrency markets as massive bearish or bullish
swings are common. Volatile cryptocurrencies are the most dangerous to hold
during a bearish sentiment, as there are zero guarantees they will even recover
50% of their original price, especially if real-world utility is low, such as
meme coins.
- The Crypto Market Does Not Follow Economic Principles
Just because an altcoin has utility, does not
mean the price will reflect it. We are still too early for mass adoption,
meaning most utility speak is around the potential utility, making the
cryptocurrency vulnerable to a massive drop in value.
- Low Market-cap altcoins are even more volatile
Many altcoins operate on extremely low market
caps, possibly trapping an investor’s liquidity forever as trades are rare.
- Anyone can make an altcoin
Do not get fooled by the term altcoin, any
coin that is not Bitcoin is an altcoin, even meme coins made by anyone with
absolutely zero value.
What
Does the Future Hold for Altcoins
The
honest truth that most altcoin investors do not want to hear is: that most, almost
all altcoins, will not survive the next ten years. To see this as evidence, we
only must look back a few years at the top 100 cryptocurrencies by market cap
and see which ones are still there. Many projects have simply vanished out of
existence, which will happen for our current set of altcoins now, only the
strongest will survive.
Most
analysts predict a consolidation around the top ten, fifty, or whatever the
optimal amount of strong altcoins are needed for their utility and real-world
use cases.
Conclusion
Altcoins
will always be around and only time will tell which ones survive. The most
practical advice one can give on altcoins is to simply look for projects which you
see surviving past the adoption phase, based purely on speculation, and assess
the future utility that is possible, and what real-world problems they are
trying to solve.
What
Is an altcoin?
In
the crypto world, altcoin stands for alternative coins and is simply a term
used for any cryptocurrency other than bitcoin. So, that makes Ethereum, the
cryptocurrency with the second largest market cap an altcoin as much as the
3,000 ranked cryptocurrency.
Altcoins
are not required to be different from bitcoin as each altcoin will have its
preferred consensus mechanisms, such as proof-of-stake or proof-of-work. For
example, bitcoin is the oldest cryptocurrency and uses the original validator
method of proof-of-work, which is used by many altcoins today. Proof of work is
resource-intensive and time-consuming, pushing more investors towards proof of
stake coins, allowing them to contribute to the blockchain.
However,
altcoins do try to differentiate themselves from bitcoin through new technology
like smart contracts, PoS, or different tokenomics. Some aspects between
altcoins and bitcoin will always stay the same, such as peer-to-peer systems,
which are embedded into the philosophy of cryptocurrency.
Relationship
between Bitcoin and Altcoins
Since
the beginning of cryptocurrency, with bitcoin as the spearhead, the market has
generally revolved around the price of bitcoin, with altcoins following its
pumps and dips. Altcoins often come from bitcoin, tending to follow bitcoins’
overall trends. Some of this matching can be put down to investors using
bitcoin as a major market indicator, but some altcoin graphs are similar to
bitcoins that it becomes hard to ignore.
However,
as bitcoin dominance steadily decreases and more of the crypto market cap is
eaten up by bitcoin, we start to see more independently priced altcoins, not
exactly following bitcoins trajectory. We can put this phenomenon down to two
major factors:
- Investors
are slowly plowing more capital into new projects with huge potential.
Often large ecosystems such as DOT. - The
overall amount of cryptocurrencies being created is ever increasing.
Are
All Altcoins Made Equal?
Simply
put, no. The term altcoin encompasses a massive group of coins, all providing
different utility to the crypto sphere, the term is used to differentiate them
from bitcoin.
Cryptocurrency
is still a very new asset class, so each cryptocurrency project has its own
coin which investors buy into and often use inside of the ecosystem. For
example, HIVE is used to navigate the platform. Later down the line, we should
expect major altcoins to take over as the main coin used over multiple
projects, as there is simply too much volatility for so many different altcoins
to be viably used in the future.
The
Different Types of Altcoins
Remember: Altcoins can be part of
several categories at once.
Stable
Coins
Stablecoins
have come into existence to try and counteract the extreme volatility that the
crypto market faces. Investors can hold some value in stable cryptocurrency,
without having to convert it into fiat, while waiting for the next investment
opportunity, or the perfect entry.
Examples
of altcoins would be USDT (Tethered to the US dollar, or USDC). Stablecoins are
pegged to the value of a fiat currency or other more stable commodities such as
gold to help hold their value.
Also,
stable coins help investors get money into exchanges, without having to
instantly buy a more traditional cryptocurrency.
Utility
Tokens
Utility
tokens act as a way of payment for services or to participate in an ecosystem.
Each ecosystem will usually have its own unique utility token that is not
mineable.
A
well-known example of a utility token is Filecoin, used to provide storage to
other blockchains. The most famous example is Ethereum.
Meme
Coins
A
type of stable coin fresh in the mind of most crypto investors, meme coins are
described by the name, memes. Examples would be dodge coin or the recent
speculation on SHIB, based on Elon Musk’s dog.
Typical
attributes of a meme coin include a rapid surge in price over a short period of
time, lack of utility, and often shilled and advertised by crypto influencers
or celebrities on platforms such as Twitter.
Meme
coins have become rife with scams once people saw the massive potential that
comes from playing with investors’ FOMO.
Security
Tokens
Security
tokens are the closest cryptocurrency comes to traditional stocks and shares.
Those buying security tokens will have ‘shares’ in a company that participates
or does business on a blockchain.
Security
tokens help to validate ownership of a certain asset, providing greater
security than before to owners and their assets. However, when a user owns
their own ‘keys’ they are at risk of permanently losing access to the asset, as
no centralized body can help them regain it.
Mining-Based
vs Pre-mined
Altcoins
which are mining based use PoW (Proof of Work) as a way to generate new coins,
the method that bitcoin uses. As mentioned before this is resource-intensive
and many altcoins are moving over to a PoS model, allowing users to participate
in the blockchain themselves.
The
alternative is to have a project with pre-mined coins, which requires initial
capital to get off the ground. Coins are usually distributed during an ICO, or
initial coin offering, where investors pay Bitcoin, Ethereum, or fiat for a
pre-arranged amount of the essentially worthless coin. ICOs are naturally risky
as there is no guarantee these coins will ever be worth anything, having never
been traded before.
XPR
is a massive example of a successful pre-mined coin, firmly sitting in the top
10 coins by market cap.
Do
Any Altcoins Stack Up to Bitcoin
Currently,
bitcoin has a market dominance hovering around 40%, with Ethereum second just
under 20%. For an altcoin to ever flip bitcoin, we would need to see an already
prominent coin such as Ethereum really explode in the coming years.
Bitcoin
was the first cryptocurrency and will always be in the hearts of crypto
investors as the unbreakable, decentralized, permissionless blockchain, an
example for all future altcoins to follow.
Will
Any Altcoin Ever Flip Bitcoin?
Many
experts suggest that Ethereum is capable of flipping bitcoin, but will rely on
a successful Ethereum 2.0 release, executing the promises that were made about
faster transactions and cheaper transaction fees (Gas Fees).
However,
to successfully flip Bitcoin or even Ethereum, the coin must defeat the problem
of scalability, making it accessible to billions, such as Cardano.
Bitcoin
has had an early bird advantage over all other cryptocurrencies, so only time
will tell if an altcoin topples the Satoshi Tower.
Why
Altcoins Are Important
Obviously,
Bitcoin does not provide a solution to every problem trying to be solved by
cryptocurrencies, so Altcoins are a necessity to solve the shortcomings of
Bitcoin and provide actual utility across thousands of different sectors and
markets. A task that no singular coin could finish.
Altcoins
are absolutely essential for this stage in the cryptocurrency ecosystem,
providing investors with a massive choice of projects to invest in and allowing
different projects to show off their potential utility and use-cases while we
grow in the adoption phase.
Time
will slowly weed out useless altcoins as cryptocurrency becomes more heavily
adopted and the strongest altcoins will emerge and most likely become staples
as utility tokens across many ecosystems.
The
Dangers of Altcoins
Altcoins
encompass almost all cryptocurrencies in the market, meaning as much as they
are a necessity, many come with their flaws, or are suffering from a volatile
market. Here are the main dangers presented by altcoin investing and what you
should look out for:
- The cryptocurrency market is driven around sentiment:
Market sentiment is arguably the most
powerful indicator in the cryptocurrency markets as massive bearish or bullish
swings are common. Volatile cryptocurrencies are the most dangerous to hold
during a bearish sentiment, as there are zero guarantees they will even recover
50% of their original price, especially if real-world utility is low, such as
meme coins.
- The Crypto Market Does Not Follow Economic Principles
Just because an altcoin has utility, does not
mean the price will reflect it. We are still too early for mass adoption,
meaning most utility speak is around the potential utility, making the
cryptocurrency vulnerable to a massive drop in value.
- Low Market-cap altcoins are even more volatile
Many altcoins operate on extremely low market
caps, possibly trapping an investor’s liquidity forever as trades are rare.
- Anyone can make an altcoin
Do not get fooled by the term altcoin, any
coin that is not Bitcoin is an altcoin, even meme coins made by anyone with
absolutely zero value.
What
Does the Future Hold for Altcoins
The
honest truth that most altcoin investors do not want to hear is: that most, almost
all altcoins, will not survive the next ten years. To see this as evidence, we
only must look back a few years at the top 100 cryptocurrencies by market cap
and see which ones are still there. Many projects have simply vanished out of
existence, which will happen for our current set of altcoins now, only the
strongest will survive.
Most
analysts predict a consolidation around the top ten, fifty, or whatever the
optimal amount of strong altcoins are needed for their utility and real-world
use cases.
Conclusion
Altcoins
will always be around and only time will tell which ones survive. The most
practical advice one can give on altcoins is to simply look for projects which you
see surviving past the adoption phase, based purely on speculation, and assess
the future utility that is possible, and what real-world problems they are
trying to solve.