An altcoin refers to a cryptocurrency other than Bitcoin. Each has its own set of rules, properties, and specific use cases. Altcoins could be completely new technologies or forks of existing cryptocurrencies.
What Is an “Altcoin”?
The word “altcoin” pertains to any cryptocurrency, other than Bitcoin. Being the original cryptocurrency, any succeeding digital currency is deemed as an “alternative”. Although some Bitcoin enthusiasts categorize Ethereum as an altcoin, others have excluded it, declaring that all digital currencies excluding Bitcoin and Ethereum are altcoins.
Dissecting the Differences Between Crypto and Altcoins
Altcoins represent all cryptocurrencies, excluding Bitcoin and Ethereum. Bitcoin patrons often assert that Bitcoin is not just a cryptocurrency but a unique category in itself. Nevertheless, no substantial differences separate crypto from altcoins.
Understanding the Different Altcoin Categories
Various altcoin types exist
Payment Tokens
Mainly used for payments, payment tokens are less considered as “genuine” cryptocurrencies due to their centralized nature.
Utility Tokens
Utility tokens are utilized for specific functions within their ecosystem. For instance, gas payments can be seen as a utility.
Governance Tokens
Governance tokens are employed to cast votes on project governance. Governance token holders can impact a project’s token swap fee.
Memecoins
Cryptocurrencies like Dogecoin and Shiba Inu, created humorously with no practical utility, are known as memecoins.
Stablecoins
Pegged to currencies like the dollar and often supported by fiat currencies as collateral, stablecoins are deemed as unusual altcoins due to their stable value unlike other cryptocurrencies.
Advantages and Disadvantages of Altcoins
Altcoins exhibit various strengths and weaknesses.
Strengths
Variability: Altcoins are vast in number, each presenting its unique use case.
Profit Potential: Low market capitalization allows altcoins to appreciate rapidly.
Innovation: Altcoins introduce groundbreaking solutions to the market.
Weaknesses
Volatility: Altcoins present higher volatility compared to Bitcoin or Ethereum.
Illiquidity: Altcoins can demonstrate drastic value fluctuations.
Vaporware: Numerous altcoins might be deemed vaporware due to their absence of practical use case.