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ETH+3.32%
$1173.7
BNB+1.16%
$236.20

What Are Altcoins? Meaning and Using

The question “what is altcoin?” arises among many beginners. An altcoin is any cryptocurrency that appeared after Bitcoin. The term comes from an abbreviation of the words “bitcoin” and “alternative,” resulting in a new type of digital currency.

What Are Altcoins?

They are alternative coins to Bitcoin. You will recall that Bitcoin was the first cryptocurrency ever. Its successful concept paved the way for other digital currencies, the number of which, at the moment, reaches 500 titles. Aside from the question “What are altcoins in cryptocurrency?” we need to understand why they keep emerging. Each new cryptocurrency variation tries to be more convenient and cheaper for the user, thus gaining more popularity than the previous options. The lack of centralized regulation is the key aspect that fuels the emergence of so many new altcoins.

How Do Altcoins Work?

Altcoins operate on blockchain technology used to check the correctness of transactions. The system ensures that a coin will get flawlessly from the sender to the recipient. They use the technology of "smart contracts," which remove a specified amount of coins from an account and keep it until the contract terms are met. This approach reduces human intervention and makes the algorithm do all the work.

Usability

Now that we know the answer to the question “what is altcoin?”, let’s figure out whether they are really usable. For example, the peculiarity of Ethereum is that the technology can be used to register any transactions with any assets. And it is not about payments only. ETH is used to buy and sell securities, exchange resources, etc. Another young currency, Cardano, is used to support transactions with cryptocurrency wallets. And Solana is a technology designed to support scalable decentralized applications. As you can see, many altcoins have gone beyond the concept of currency and are used in many processes and the latest technologies in various areas of activity.

Types of Altcoins

Actually, the answer to the question “what are altcoins used for?” mainly depends on the altcoin type. The main types of altcoins include mining-based cryptocurrencies, stablecoins, and security and utility tokens.

  • Mining-Based Coins. These altcoins are produced as a result of an open-source mining process whereby new coins are generated by solving complex cryptographic problems to create new blocks. They are more similar to Bitcoin than other altcoins, and most of the top altcoins fall into this category. Ethereum is the most famous mining-based altcoin of today.
  • Stablecoins. Stablecoins aim to improve Bitcoin by reducing volatility. In practice, this is achieved by linking the value of coins to existing currencies.
  • Popular options for pegging altcoins include the US dollar, euro, and gold.
  • Security Tokens (STO). These altcoins are business-related and often launched within an Initial Exchange Coin Offering (ICO). Security tokens are similar to traditional stocks, with good dividends, such as payouts or ownership shares in a business.
  • Utility Tokens. Utility tokens provide services, and they are sometimes also sold as part of an ICO. Filecoin is a great example of a utility token offered in an ICO intended to be exchanged for decentralized file space.
  • Non-fungible Tokens. Non-fungible tokens or NFTs are digital assets that can represent both tangible and intangible items. They are cryptographically unique tokens associated with digital (and sometimes physical) content, providing proof of ownership. What does altcoin mean in this case? NFTs come in many forms, including artwork, digital collectibles, music files, and in-game items.
  • Examples of Altcoins to Invest in

    What does altcoin mean to an investor? You have to invest in digital currency that meets your needs based on what you plan to get from it. Of course, it should be a cryptocurrency, in the prospects of which you have no doubts. Here are some suitable examples:

  • Ethereum (ETH). The price of Ethereum surged along with Bitcoin last year, peaking at $4K during the crypto boom in May. Despite being second only to Bitcoin in terms of market capitalization, Ethereum accounts for about 20% of the total market and could outperform Bitcoin.
  • Solana (SOL). The Solana cryptocurrency has solved one of the biggest problems associated with Ethereum - reducing transaction fees. Like Ethereum, Solana was created as a first-class platform for decentralized finance - DeFi, excluding financial intermediaries, banks, brokers, and centralized exchanges.
  • Cardano (ADA). With a market capitalization of $55 billion, Cardano keeps right behind SOL. This cryptocurrency has shown a sharp rise in 2021. The token began trading below $0.20, and by early September, the value rose to $3, making ADA the third-largest cryptocurrency in the world. What does altcoin mean when it comes to Cardano? The altcoin aims to create a developer-friendly ecosystem for decentralized applications.
  • Avalanche (AVAX). At the beginning of 2021, the cryptocurrency was trading below $3, but by the end of November, it reached an all-time high of over $146. It is now worth $85 and has a market capitalization of over $26 billion market capitalization.
  • What to Consider Before Buying

    There are several factors you should pay attention to several factors when choosing altcoins to invest in, such as liquidity, trustworthiness, usability, the statement of the creators, and reviews from investors.

    Where to Buy

    An interesting project worth investing in must be listed on popular and highly liquid crypto markets (for example, Binance, Currency, or Kraken). It must be possible to buy or sell an asset quickly; it must have sound liquidity.

    Large exchanges add only trustworthy assets. Any altcoin undergoes extensive testing by the analytical department of exchange, and those altcoins in demand and technologically proven get on the marketplace.

    How Altcoins Are Trusted

    It is important to find out if the company you a going to invest in has a real product and devoted users. Often, such currency projects have nothing but a website. Your research should also include checking whether the project is eagerly supported on social networks. This suggests that real people are involved in the project, and plenty of funds are invested in it. Besides, you can check if there are ambassadors behind the project, for example, famous and rich people who believe in this product and trust its owners.

    Investing in Altcoins

    Next to receiving an answer to the question “what is altcoin?”, it is important to choose promising projects correctly if you want to make money by investing in new tokens or at least not lose your funds.

    How to Buy Altcoins

    You can buy cryptocurrency on a digital exchange. What is an altcoin exchange? It is an online platform where you can buy and sell altcoins. This is how to proceed with it:

  • Choose a trading platform. First, you will need to choose a reliable platform to trade your assets.
  • Register an account. Create a virtual account following instructions. With this account, you will be able to deposit funds and spend them to buy altcoins. Please note that exchanges charge fees for transactions.
  • Complete two-factor authentication and, if necessary, the KYC procedure which provides investors with an extra level of security.
  • Make secure transactions. You can purchase a certain amount of cryptocurrency and store it on your account before selling it at the right time.
  • Pros and Cons of Altcoins

    What pros and cons should you keep in mind when choosing altcoins to invest in? Let's figure it out.

    Advantages of investing in altcoins:

  • Large selection. There are many altcoins in circulation on the market. This makes it easier for an investor to choose an asset based on profitability and other competitive advantages.
  • Better version than Bitcoin. It would be wrong to say that altcoins are in many ways the best and improved versions of bitcoins. In terms of technology, they are more advanced since they appeared after Bitcoin. Many altcoins outperform bitcoins even in transaction speed.
  • Stability. Unlike in the case of Bitcoin, price fluctuations are usually small for altcoins. This would be a great advantage for an investor, as altcoins are more stable as opposed to the volatility associated with Bitcoin.
  • Disadvantages of investing in altcoins:

  • Lack of recognition. Many people are still not fully aware of altcoins. So, there is not much acceptance in the market for altcoins, and it's hard to build them soon after Bitcoin became so popular.
  • Risks. There are several risks associated with altcoins. They are vulnerable to fraud or other mishaps. Besides, if you use a centralized exchange to hold altcoins, you do not own a private key to them, and your funds may be blocked by the platform.
  • Market price. Since many investors were unaware of altcoins until recently, Bitcoin is more popular and has a higher market value compared to other cryptocurrencies. Investors will not want to invest in something that gives them less profit.
  • Altcoins vs. Crypto

    What’s an altcoin place in the general cryptosystem? Let’s take a look and compare.

    How Has the Pandemic Affected the Altcoin?

    During the pandemic, governments and businessmen accelerated the introduction of blockchain in various areas of life to avoid forcing the population to go out into the street and risk their health. In addition, the quarantine spurred the creation of new payment instruments that would not have a physical form. All large countries have recognized the importance of introducing electronic means of payment. There was also a noticeable increase in interest in cryptocurrencies from users interested in converting fiat currencies into digital money.

    Summing Up

    There are many altcoins to invest in; however, no one will ever predict with 100% certainty which one is really good. Many factors affect the price of any asset, and cryptocurrencies are even more volatile than other assets. One of the main rules is to think through all possible scenarios of price behavior before investing.

    Frequently Asked Questions

    What Is An Altcoin?

    An altcoin is any cryptocurrency launched after Bitcoin. Altcoins act as improved alternatives to the latter.

    What Are Most Popular Altcoins Examples?

    The most promising tokens in 2022 are Uniswap (UNI) (Ethereum platform), Chainlink (LINK) (Ethereum platform), FTX Token (FTT), Aave (AAVE), The Graph (GRT), DAO Maker (DAO), SHIBA INU (SHIB), and Thorchain.

    Are Altcoins Good Investments?

    If you have learned enough about what a virtual currency is and how it works, then the answer is yes!