Beginner’s guide to altcoins

Bitcoin may have started the revolution, but it was only the beginning. From digital dollars to programmable platforms, altcoins introduced us to the vast and diverse ecosystem of assets powering the world of Web3. 

What are altcoins?

Altcoins are any cryptocurrencies other than Bitcoin (BTC). The term is a portmanteau of ‘alternative’ and ‘coin’. While BTC was the first cryptocurrency, thousands of other digital assets have since launched with different features, technologies and use cases.

When BTC came about in 2009, it established the blueprint for decentralized digital money. However, developers soon began creating alternatives to improve upon BTC’s design or to solve different problems. These altcoins range from large, well-known networks like Ethereum to smaller, highly specialized tokens.

The crypto market has diversified significantly since then. While BTC maintains a significant portion of the total market capitalization – commonly referred to as ‘Bitcoin dominance’ – altcoins account for a substantial share of the ecosystem's total value and activity.

Today, there are tens of thousands of altcoins in existence. While some function similarly to BTC as a medium of exchange, many others power complex ecosystems, including decentralized finance (DeFi), gaming, AI and supply chain management.

(Source: CoinMarketCap, chart generated with Gemini.)

How do altcoins work?

Like BTC, most altcoins operate on blockchain technology. A blockchain is a decentralized, digital ledger that records every transaction across a network of computers. This ensures that the history of the asset is transparent, secure and resistant to tampering without needing a central authority.

To keep these networks running smoothly, altcoins use a consensus mechanism. This is a process where the computers in the network (nodes) agree that transactions are valid. While BTC uses Proof of Work (PoW), many modern altcoins use Proof of Stake (PoS).

In PoS systems, participants help secure the network by locking up a certain amount of the network’s native asset. This process replaces the energy-intensive hardware used in mining. 

By locking up these assets, participants are responsible for validating transactions and maintaining the network's integrity.

Many altcoins also introduce smart contracts, which are self-executing contracts with the terms of the agreement written directly into the code. They allow for complex transactions to happen automatically when certain conditions are met, which is the foundation for decentralized applications (dapps).

Types of altcoins

The altcoin market is diverse, with thousands of assets serving distinct roles. Most fall into a few primary categories based on their utility and design. 

Altcoins vs. Bitcoin: Key differences

While altcoins and Bitcoin share a common foundation, they serve different purposes within a digital portfolio.

1. Utility and scope 

BTC primarily functions as a decentralized store of value. People liken it to digital gold. 

Altcoins, on the other hand, frequently aim to solve specific problems. While BTC’s code is intentionally conservative and slow to change, altcoins experiment with faster transaction speeds and smart contract functionality.

2. Consensus mechanisms 

BTC relies on PoW, where computers solve complex puzzles to secure the network. Many newer altcoins use PoS. Instead of energy-intensive hardware, PoS relies on participants locking up their assets to validate the network.

Beyond PoW and PoS, the altcoin market has also introduced several specialized consensus mechanisms to solve the famed ‘blockchain trilemma’. Examples include Proof of History (PoH), Delegated Proof of Stake (DPoS), Proof of Authority (PoA) and more.

3. Risk and volatility 

As the largest and oldest cryptocurrency, BTC generally experiences lower volatility than most altcoins. Smaller altcoins can bring significant technological innovation but may also carry higher market risks and less liquidity.

The ‘altcoin season’ phenomenon, in which a majority of the top 100 tokens outperform BTC over a sustained period, can be an indicator that the market is pivoting from steady growth to high-risk speculation. However, this may form unsustainable price bubbles; history has shown that after these speculative peaks, many altcoins can lose 80% or more of their value.

Examples of popular altcoins

The altcoin market features thousands of projects, but a few have established themselves as pillars of the industry due to their technology and adoption.

Ethereum (ETH) 

Launched in 2015, Ethereum is the second-largest cryptocurrency by market cap. It pioneered smart contracts, allowing developers to build dApps on its network. Most of the DeFi and NFT ecosystems run on Ethereum's infrastructure.

Tether (USDT) and USD Coin (USDC) 

These are the top stablecoins by market capitalization. Their value is pegged 1:1 to the US dollar. They provide a stable medium of exchange within the volatile crypto market, allowing users to hold value in a digital format without constant price fluctuations.

Solana (SOL) 

Solana is a high-performance blockchain known for its speed and scalability compared to Ethereum. It uses a unique consensus mechanism called Proof of History (PoH) combined with PoS, which puts the network in a position to potentially process thousands of transactions per second with minimal fees.

XRP 

XRP is a digital asset built for payments. It’s the native token of the XRP Ledger, an open-source, permissionless, and decentralized blockchain. XRP is known for facilitating fast, low-cost cross-border transactions and liquidity for financial institutions.

How to buy altcoins on Crypto.com

Deep-diving into the altcoin market is straightforward through the Crypto.com App. You’ll enjoy a secure and user-friendly platform to acquire over 400 different cryptocurrencies.

Follow these steps to get started:

1. Download the Crypto.com App, available on the Apple App Store and Google Play. 
2. Complete the sign-up process and identity verification. On-screen prompts are at hand to guide. 
3. Funds deposited using bank transfers will usually clear within one to three business days. For faster access, you can also fund their account using Apple Pay or a prepaid/credit card. Please note that processing times and availability may vary depending on card issuer and other factors. 
4. Once the funds are cleared, you can start buying altcoins and other supported crypto and manage them conveniently from one place.

FAQs about altcoins

What are altcoins exactly? 

Altcoins are any digital assets other than BTC. They launched after BTC to provide different utilities, such as smart contracts, faster transaction speeds or specific roles like governance and utility within decentralized ecosystems.

What is the difference between BTC and altcoins? 

BTC is the first cryptocurrency and primarily serves as a decentralized store of value. Altcoins represent a broader category of assets that feature specialized functions, including powering dApps or maintaining a stable fiat peg.

What are the risks of altcoins?

Altcoins offer portfolio diversity and access to specific blockchain utilities. However, they carry different risk profiles compared to BTC. Evaluate each project's technology and use case as part of a sensible, diversified approach.

What are the most popular altcoins right now? 

Like market movements, the popularity of altcoins in any given moment is dynamic. It can stem from a myriad of factors such as adoption trends, project developments, macro news and more. It helps to observe trading volume and trending charts (e.g., top 10 movers) on platforms like Crypto.com to stay on top of what’s popular in the current moment.

What is the difference between a coin and a token? 

A coin operates on its own independent blockchain, such as SOL or ETH. A token is built on top of an existing blockchain, utilizing that network’s underlying security and infrastructure rather than its own ledger.

Are NFTs considered altcoins? 

No. While NFTs are digital assets built on blockchains, they’re non-fungible, meaning each is unique. Altcoins are fungible, meaning each unit is identical and used as a medium of exchange or utility.

How do I buy altcoins? 

The Crypto.com App is a secure solution for acquiring altcoins. After verifying your account and funding it via bank transfer or card, you can browse and acquire over 400 digital assets directly within the App.

What does 'altcoin season' mean? 

This refers to a market cycle where altcoins significantly outperform BTC in price growth and market dominance. During this period, capital may rotate from BTC into smaller or more specialized digital assets.

Are stablecoins considered altcoins? 

Since they’re not BTC, stablecoins would technically fall under the broad altcoin umbrella, although stablecoin is its own category. While they prioritize price stability by pegging to assets like the US dollar, they remain alternative digital currencies built on blockchain technology.

Important information:

This article is for informational purposes only and should not be construed as financial or investment advice. Past performance does not guarantee future results. Trading cryptocurrencies carries risks, such as price volatility and market risks. There's no assurance of future profitability. Before deciding to trade cryptocurrencies, consider your risk appetite.

Although the term "stablecoin" is commonly used, there is no guarantee that the asset will maintain a stable value in relation to the value of the reference asset when traded on secondary markets or that the reserve of assets, if there is one, will be adequate to satisfy all redemptions.