Altcoin

Rakesh Kumar

16 Sep, 2023

Altcoins are cryptocurrencies other than Bitcoin, created to offer alternatives with potentially improved features or different use cases. These digital assets can originate from unique blockchains or forks of existing ones like Bitcoin and Ethereum. They encompass various categories including, but not limited to, payment tokens, stablecoins, and meme coins, each designed with a unique purpose and functioning based on different mechanisms. While they offer diverse options for users and investors, their future value remains uncertain.

What is Altcoin?

• Altcoin refers to all, including cryptocurrencies, rather than Bitcoin (BTC). Usually, people refer to altcoins as all cryptocurrencies different from Bitcoin (BTC and Ethereum (ETH).
• Tokens, cryptocurrencies and other digital assets, excluding Bitcoins, are together known as alternative cryptocurrencies, in short form as “altcoins” or “altcoins”.
• Various cryptocurrencies are forked from one or two. Many altcoins under different mechanisms are supposed to validate transactions and open new blocks or differ themselves by offering some new additional capabilities or purposes.
• Moreover, most altcoins are created and designed according to the needs and vision of developers and released in the manner of tokens or another cryptocurrency.
• In the Wall Street Journal, Paul Vigna mentions and describes the altcoins as “alternative versions of Bitcoin”.

Key Points on Altcoins

• Cryptocurrencies, excluding Bitcoin, are formally known as Altcoin.
• There exist tens of thousands of altcoins in the market.
• Altcoins are created and designed according to the needs and vision of developers and are typically released in the manner of tokens or another cryptocurrency.
• It is impossible to forecast the future value of Altcoin; if the designed blockchain remains in use and further developed in the future, then the altcoins will continue to exist.

Understanding the Altcoins

• Tokens, cryptocurrencies and other digital assets, excluding Bitcoins, are together known as alternative cryptocurrencies, in short form as “altcoins” or “altcoins”.
• Altcoin is comprised of two words, a combination of “alternative” and “coin.” It is supposed to hold all those cryptocurrencies, including the tokens which are different from the Bitcoin.
• Altcoins come from blockchains, and a few altcoins are being separated due to the splitting of such blockchains, which are not compatible with the original blockchain, usually from Bitcoin and Ethereum.
• Such separation among blockchains supports many reasons, as most groups of developers of such blockchains disagree with the other developer group. Thus, they exit from the group and are supposed to develop their own coin, etc.
• Different altcoins are used according to their own blockchains to compete or achieve some task, such as ether being used under Ethereum to pay transaction fees. Some developers created some new series of bitcoin in order to make such bitcoin to be used as a payment method, such as Bitcoin cash. 
• Others fork and advertise in such a way to raise funds according to the specific projects. Take an example of the token “Bananacoin,” which separated from Ethereum and got its identity in the year of 2017 in order to raise funds for organic growing Bananas in Laos. 
• Usually, altcoins get further improvement from the cryptocurrency and blockchain from which they have forked or competed with. The first Altcoin was Litecoin, forked from the blockchain of Bitcoin in the year of 2011. 
• Basically, Lite coin uses a different verification mechanism other than Bitcoin, known as Scrypt, while the mechanism used by Bitcoin is known as SHA-256.

Fact-

Dogecoin is one of the popular coins itself created coincidently. It was separated from Litecoin, and Litecoin was separated from Bitcoin in the year of 2011. Developers’ intentions differ, but Dogecoin was designed and developed to be used as a digital payment method.

• Dr Gavin Wood and Vitalik Buterin designed another altcoin known as Ether, which is totally different from Bitcoin as it has not forked from Bitcoin. Basically, Ether is used in paying network participants transactions to validate their machine work.

Types of Altcoins

Altcoins can be classified into different categories depending on their use and the intention behind their design. It is very common for Altcoin to fall within various categories. Teera USD is also known as a stablecoin and is used as a token.

Payment Token

• It is very clear from this token’s name that payment tokens are usually designed to make payments and be used as wise currency to exchange the value between two or more parties.
• Bitcoin itself is one of the payment tokens.

Stablecoins

• Trading using cryptocurrencies since their launch is dynamic in nature. Stablecoins are designed with the intention of decreasing the dynamic rate of such cryptocurrencies by fixing their exchange value accordingly, as fiat currencies, precious metals or other existing cryptocurrencies.
• The intention behind fixing the exchange rate of cryptocurrency is to provide holders with a reserve value of their cryptocurrency in case they fail or are somehow facing problems in the market. Generally, price fluctuations do not affect the stablecoins largely.
• Stablecoins like Tether’s USBT, Maker DAO’s DAI and the USD Coin (USDC). In March 2021, the payment processing Visa Inc. (V) officially stated that they would take some transactions on their network in USDC. Then, the Ethereum blockchain is planned to roll out as a stablecoin in late 2021.

Security Tokens

• A security token is a tokenized one which was offered in the stock market. 
• Tokenization refers to the transfer of asset value to a token, which can later be made available for stock market investors.
• Any property or assets can get tokenized easily, like real estate or any stocks. For the tokenization process, assets must be secured and held in nature.
• The Securities and Exchange Commission regulated the security tokens as these are designed to act as securities.
• The Bitcoin wallet firm Exodus in the year 2021, certified under Reg A+ token by the Securities and Exchange Commission, resulted in $75 million shares of common stock to be converted as security tokens.

Utility Tokens

• Utility tokens are generally used within a network to provide services, such as purchasing any service, paying network fees, redeeming rewards, etc.
• File coins among utility coins used to buy space on networks in order to store information accordingly is the best example of utility tokens.
• Ether (ETH) also comes in the utility token category and is designed to be used in the Ethereum blockchain for virtual machines to pay out transactions. The US Terra, known as a stablecoin, used utility tokens in order to maintain its peg to the dollar. It got lost in May 2022 after minting and burning two utility tokens with the intention of creating upward and downward pressure on its price.
• Utility token can easily be purchased on exchanges, although it was designed to be used in the blockchain network for their smooth functioning.

Meme Coins

• Meme coins are designed and inspired by a joke. It significantly holds popularity within a short period of interval.
• Meme coins generally originated from an internet meme with some humorous characteristics.
• It got popular when Elon Musk facilitated the use of Dogecoin among the first meme coins, posted some tweets about Dogecoin in 2022, and informed them to have a happy meal from McDonald’s if they accepted it.
• In 2013, Dogecoin launched after a joke created on Doge meme by a software engineer. Till October 2021, approx. 124 meme coins are circulated with the market.
•  Example of meme coins includes Dogecoin and Shiba Inu, etc.

Interesting Fact

Initially, a coin offering (ICO) within the cryptocurrency world is equivalent to an initial public offering (IPO). A company offers ICO to raise funds to create or design another coin, any application or services related to ICO.

Governance Tokens

• Especially those cryptocurrencies that enhance holders’ participation in chain governance under crypto projects.
• Such a token held by a person is regarded the same as one vote for upcoming proposals.
• Governance tokens are usually close to a private blockchain and used for blockchain purposes. They come under utility tokens but are sometimes considered different depending on their purpose.

Pros of Altcoins

• Basically, Altcoins can be determined as an updated version of the cryptocurrencies. Altcoins are derived from cryptocurrency and designed with the intent to plug perceived shortcomings.
• Using Altcoins more brings a better opportunity for survival in the crypto world, like Ethereum’s ether.
• Investors can select different available altcoins and use them accordingly, as different altcoins perform various functions in the crypto economy.
• Altcoins are more upgraded than Bitcoins shortcomings.
• Investors who do not prefer to invest in Bitcoins can easily invest in Altcoins.

Cons of Altcoins

• Altcoins cover a small market as compared to Bitcoin. As Bitcoin covered approx. 40% of the world crypto market since 2021.
• The altcoins market engaged only a few investors with fewer activities, which resulted in thin liquidity.
• It is very difficult for investors to draw a line between different available altcoins according to their use. Usually, investors, during investments, get more confused while selecting Altcoin.
• In the crypto world, there are existing altcoins that are dead in nature due to fewer investments from investors.