As the world of cryptocurrency continues to evolve, new digital assets, known as ‘altcoins’, are making their mark. Altcoins, short for alternative coins, refer to any cryptocurrency other than Bitcoin (and, for some, Ethereum). In this comprehensive guide, we explore what altcoins are, their various types, and how to trade them effectively.
What Are Altcoins?
Altcoins emerged as alternatives to Bitcoin, seeking to address some of the perceived limitations of the pioneer cryptocurrency. They are digital assets that operate on similar principles as Bitcoin but are built on different blockchain platforms with varying features and functionalities. Since the introduction of the first altcoin, Namecoin (NMC), in 2011, thousands of altcoins have been created, each aiming to provide unique value propositions to the cryptocurrency market.
Altcoins vs Bitcoin
Altcoins differentiate themselves from Bitcoin in several ways:
- Age: Bitcoin was launched in 2009, while the first altcoins appeared in 2011. New altcoins continue to be released regularly.
- Risk vs Reward: Although Bitcoin is volatile, it is the market leader and has already gained substantial value. Altcoins have more room for growth but also come with risks.
- Technical Advancements: Altcoins are typically built on more advanced technology than Bitcoin, offering faster transaction speeds and lower costs.
Types of Altcoins
Altcoins come in various forms and categories, each with their own unique purpose and functionality. Here are some of the main types of altcoins:
Stablecoins are designed to maintain a stable value by pegging their price to a basket of assets, such as fiat currencies, precious metals, or other cryptocurrencies. These coins aim to reduce the overall volatility of the cryptocurrency market. Examples of notable stablecoins include Tether (USDT), USD Coin (USDC), and MakerDAO’s DAI.
Mining-based altcoins rely on the process of mining to verify transactions and add more coins to the supply. Miners use powerful computers to solve mathematical equations, and the first miner to solve the equation gets to verify a block of transactions, receiving crypto rewards in return. Bitcoin is the most well-known example of a mining-based cryptocurrency.
These cryptocurrencies use a process called staking to verify transactions and add more coins to the supply. Staking involves pledging coins to be used for transaction processing, with stakers receiving crypto rewards in return. Peercoin was the first altcoin to introduce the concept of staking, and this method has since gained popularity due to its energy efficiency compared to mining.
Governance tokens give holders voting rights to help shape the future of a project or network. These tokens allow users to create and vote on proposals related to the cryptocurrency, contributing to its decentralised nature and ensuring that decisions are not made by a single central authority.
How to Buy Altcoins
Buying altcoins can be a rewarding endeavour, but it is essential to be cautious and approach trading with a clear understanding of the risks involved. Here are some steps to consider when trading altcoins:
- Research: Before trading any altcoin, it’s crucial to conduct thorough research on the project, its team, and its potential use cases. Understanding the fundamentals of an altcoin can help users make informed trading decisions.
- Choose a reputable platform: To trade altcoins, users need an account with a cryptocurrency platform. They should ensure that the exchange is reputable, secure, and offers the altcoins they’re interested in trading. The Crypto.com App is a popular choice in the crypto space.
- Create a trading plan: Develop a trading plan that outlines goals, risk tolerance, and trading strategies. This can help users stay disciplined and focused on their objectives.
- Implement risk management: Users should incorporate risk management techniques, such as setting stop losses and using proper position sizing, to protect their trading capital.
- Stay informed: Keep track of news and developments in the cryptocurrency market, as these can have a significant impact on altcoin prices.
Pros and Cons of Altcoins
Here are some advantages and disadvantages of trading altcoins:
|Improve on aspects of Bitcoin||Lack Bitcoin’s first-mover advantage and market share|
|high potential rewards||Run significant risk due to increased volatility|
|Offer a large variety of selections||Remain difficult to buy on some exchanges|
|Pros||Improve on aspects of Bitcoin|
|Cons||Lack Bitcoin’s first-mover advantage and market share|
|Pros||high potential rewards|
|Cons||Run significant risk due to increased volatility|
|Pros||Offer a large variety of selections|
|Cons||Remain difficult to buy on some exchanges|
The cryptocurrency market is vast, with thousands of altcoins available. Some notable examples include:
- Ethereum (ETH): The second-largest cryptocurrency by market capitalisation, Ethereum is a platform for building decentralised applications (dapps) using smart contracts.
- Litecoin (LTC): Considered by some as the ‘silver’ to Bitcoin’s ‘gold’, Litecoin was designed to have faster transaction speeds and a larger maximum supply than Bitcoin.
- Chainlink (LINK): A decentralised oracle network, Chainlink connects smart contracts to off-chain data and services.
- Uniswap (UNI): A decentralised exchange (DEX) built on the Ethereum blockchain, Uniswap uses an Automated Market Maker (AMM) protocol to facilitate token swaps.
- Stellar (XLM): An open-source payment network, Stellar aims to enable seamless cross-border transactions between different currencies.
Traders can peruse and purchase 250-plus cryptocurrencies in the Crypto.com App. Learn more here.
The Future of Altcoins
The future of altcoins remains uncertain, as the rapidly changing cryptocurrency landscape continues to evolve. Some projects will likely gain prominence and establish themselves as dominant players in the market, while others may fade into obscurity. As the market matures and consolidates, it is essential for traders to stay informed and adapt to shifting trends and opportunities.
In conclusion, altcoins offer an exciting and diverse range of opportunities for traders looking to explore the cryptocurrency market beyond Bitcoin and Ethereum. With a solid understanding of what altcoins are and how they function, as well as a careful approach to risk management, trading altcoins can be a rewarding venture. However, always remember to consult a professional financial advisor before making any trading decisions.
Due Diligence and Do Your Own Research
All examples listed in this article are for informational purposes only. You should not construe any such information or other material as legal, tax, investment, financial, cybersecurity, or other advice. Nothing contained herein shall constitute a solicitation, recommendation, endorsement, or offer by Crypto.com to invest, buy, or sell any coins, tokens, or other crypto assets. Returns on the buying and selling of crypto assets may be subject to tax, including capital gains tax, in your jurisdiction. Any descriptions of Crypto.com products or features are merely for illustrative purposes and do not constitute an endorsement, invitation, or solicitation.
Past performance is not a guarantee or predictor of future performance. The value of crypto assets can increase or decrease, and you could lose all or a substantial amount of your purchase price. When assessing a crypto asset, it’s essential for you to do your research and due diligence to make the best possible judgement, as any purchases shall be your sole responsibility.