11. What is an altcoin?
It is an alternative coin, meaning all other cryptocurrencies and tokens that are not Bitcoin. We already have more than 5,000 different altcoins on the cryptocurrency market, which represents almost 60% of the total cryptocurrency market.
Initially, many alternative coins were created based on the most popular cryptocurrency – Bitcoin. They were advertised at the time as an improved version of this flagship cryptocurrency. Over time, however, this idea was abandoned and altcoins that had absolutely nothing to do with Bitcoin began to be ‘produced’.
While it is true that there are still many altcoins that have similar functions to Bitcoin, an increasing number of them are distinguished by other factors e.g. technology, transaction validation, mechanisms or smart contracts.
The first ever altcoin was Namecoin and was created in 2011. It was based on Bitcoin’s source code and the PoW consensus mechanism. It was far more anonymous than Bitcoin and resisted censorship. Six months later, Litecoin was created, the first indispensable and serious rival to our top cryptocurrency.
Different types of altcoins
As we have already mentioned, there are more than 5,000 altcoins on the crypto market. This means you have countless varieties of this coin to choose from. So, which one to decide, and what is worth investing in? Let’s have a look at what types of altcoins we have on the market:
1. Mining altcoins – these are all cryptocurrencies other than Bitcoin that are dug by miners and are based on a Proof-of-Work algorithm. They are most similar to Bitcoin in their structure and functions.
2. Stablecoins – we have already discussed this topic in our previous lessons, so you know very well what it is. As a reminder, we will just say that stablecoins were created to prevent cryptocurrency price fluctuations and guarantee security in this market.
3. Security Tokens – alts that act, as securities. They are generally used to carry out Security Token Offering.
4. Utility tokens – are used for ICOs, cryptocurrency project management, rewards, dividends, or even loyalty programs.
Investing in altcoins
The altcoin market is very unpredictable. They can be a great investment, but it can also be the other way around. All altcoins have very high volatility. Their value can fluctuate greatly in very short periods of time (unless you consider stablecoins). Thus, it can be seen that, on this basis alone, the investment involves a very high level of risk. Based on the above, however, don’t think that it’s not worth investing in alts at all. If it were true, they would not have appeared on the cryptocurrency market. Invest only as much as your finances allow. Investing in altcoins can be broken down into a few basic principles that crypto-experts follow:
1. Expect risk and be ready for a small return on your invested capital. As we have already mentioned – altcoins are risky, but he who doesn’t take the challenge doesn’t drink the champagne, right? However, if you are not prepared to lose some funds, don’t invest in alts.
2. Invest in altcoins and related projects that you understand. Don’t push your funds into a project that a colleague told you was cool. Reminder again – alts are risky. Read and understand a project or a new cryptocurrency before you invest.
3. Do your own research. Don’t listen to pseudo-investing gurus or fall for FOMO. It’s your money. Seek information from sources, white papers, or social media.
Altcoins are high risk, but through their fluctuations, they can yield a substantial rate of return. Of course, by doing a sizable amount of research, you come across altcoins that will definitely not be worth the effort. But there are those uncut diamonds that will be worth the risk.
The most popular altcoins
1. Litecoin (LTC) – a cryptocurrency based on open-source code. It is very similar to Bitcoin, but is much faster and more scalable than BTC.
2. Ethereum (ETH) – a platform built on the blockchain that supports smart contracts, with its own native ETH token. It was created at the initiative of Vitalik Buterin.
3. Monero (XMR) – was established in 2014. It is based on PoW and the CryptoNightV8 algorithm. It provides privacy to its users and is considered the most anonymous cryptocurrency in the world.
4. Ripple (XRP) – who hasn’t heard about the recent adventures of Ripple and the SEC… Nevertheless, the cryptocurrency was created to improve and facilitate the bank payment system.
5. Tether (USDT) – which is currently thriving and looking to connect with a growing range of currencies. It is the world’s third largest (in terms of capitalization) cryptocurrency. It is mostly backed by US dollars.
6. Polkadot (DOT) – a multichain network that can collaborate with other blockchains. The network was founded in 2017, but has only recently become very popular. Due to its innovation, we will devote a separate lesson to the project.
7. Binance Coin (BNB) – the creation of the world’s largest exchange, Binance. One of the most popular utility tokens, which you can use to trade, pay for travel, shop purchases or even a gift for a loved one.
8. Decentraland (MANA) – is a virtual world in which you buy and sell pieces of land, on which you build properties at the same time. Of course, you make money through this. The platform is based on the Ethereum blockchain.
9. Cardano (ADA) – this is also an extensive platform, based on the blockchain. It has its own cryptocurrency, its own source code, and is based on Proof-of Stake consensus.
As you can see from today’s lesson, the world does not end with Bitcoin. When you hear the word ‘cryptocurrency‘, don’t just think of the most well-known asset. There are many other variants that can yield a profitable return. Altcoins and stablecoins can be excellent choices.
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