Altcoins | Definition


alternative cryptocurrencies to bitcoin with each holding unique characteristics; traded on multiple different blockchain networks.

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Did You Know

Altcoins are divided into different subcategories: meme, stable, mining, security tokens, and utility tokens.

What are Altcoins?

The term altcoins refer to alternative cryptocurrencies to Bitcoin. These alternatives to Bitcoin are traded on multiple different blockchain networks, and they each have unique characteristics. For example, one characteristic that some altcoins have is their smart contracts usage.

Smart contracts are self-executing contracts that go into effect once the conditions of a contract are met. These contracts make it easy for the parties involved as it allows them to immediately know with certainty what the outcome of the transaction will be. This ensures that no one’s time is wasted.

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Types of Altcoins

Currently, there are 10,000 distinct types of altcoins in circulation. All of them do not provide the same purpose, so it is essential to know the different types and how they differ.  

Meme Coins

These types of coins hold no kind of value and instead are created as a joke. Typically, these coins receive a short-term surge in price due to them being promoted on social media. Some examples of meme coins include Dogecoin, Shiba Inu, and SQUID, all of which received a short-term surge in price.

Stable Coins

The crypto market experiences volatility daily, and stable coins are designed to combat and restrict that volatility up to a certain point. Stable coins limit volatility by attaching their price to other crypto, fiat currencies, and precious metals. By anchoring themselves to these items, the level of volatility lowers, and it appeals more to those investors who wish to invest in crypto at a fraction of the risk.

Mining Based

As the name suggests, these types of coins can be accessed through mining them. To mine them, many of these coins use a process called Proof-of-Work (POW), which is a program that ensures enough work has been done for the recipient to receive a coin. 

Furthermore, instead of mining them, some coins also offer an initial coin offering. The coins that provide an initial coin offering are instead are pre-mined, and are spread around before being offered on crypto markets. 

Security Tokens

Security tokens behave very similarly to regular stocks, with their main difference being that these coins are purely digital. Like stocks, these coins provide equity to their investors, and they may also offer dividends. Like stocks, these coins provide equity to their investors, and they may also offer dividends.

Utility Tokens

Utility tokens offer services to be performed within a network, such as paying fees and redeeming rewards. 

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Risks of Trading Altcoins

No Consistent Return

Investing in altcoins is equivalent to investing in penny stocks, as the invested money has no guarantee of generating a consistent return. Instead, the stocks being invested in are being held for short periods of time in hopes of a short-term gain. Sometimes, the investor may get lucky and make a substantial return on their investment, but this is not the case more often than not. 

Lots of Price Volatility 

Most of the time, these sudden surges in price occur when a person with sufficient social media sways their followers to purchase altcoins. This creates a fad within the market, causing the altcoin price to surge for a short time. It then returns to its regular price once people realize that there is no actual value behind its current price.

One type of Altcoin that experienced a price surge was Dogecoin, a cryptocurrency initially created in 2013 that became a meme popularized by Elon Musk. However, as Elon Musk is known for being involved in memes, his tweets regarding Dogecoin have made the cryptocurrency experience price volatility

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As most of these cryptocurrencies are worth less than a dollar, any major news headlines could send the price of them soaring. This was the case with Dogecoin when Elon Musk tweeted about them multiple times. This caused the price to increase 100% over the next two days. As a result of Elon’s continuous tweets about Dogecoin and the hype created by the meme community, the cryptocurrency surged in price. However, the price plummeted after Elon called the coin a ‘hustle’ while on Saturday Night Live.  

Currently, a similar surge is occurring to another altcoin, Shiba Inu, leading to its price increasing over 700% over the past month. Unfortunately, many speculate this significant price increase is not sustainable, and it will inevitably lead to the price crashing back to its pre-surge. 

In conclusion, it is essential to note that investing in cryptocurrency, especially those promoted by people on social media, is extremely risky. Purchasing crypto promoted by influencers is risky because they are paid to promote a certain cryptocurrency that will most likely result in a “pump and dump” investment. Therefore, if someone tells you to invest in any type of investment, for that matter, always do your research before making any major decisions. 

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