Cryptocurrency has lately sought a lot of attention from people and businesses because of its accessibility and better transaction speed than fiat currency. Well, the digital currency has another important subdivision which is altcoins. Bitcoin is a well-known currency that generated much hype as it owes the honor of being the first-ever currency minted on the blockchain. However, besides bitcoin, there’ is another crypto category which is popularly called an altcoin. This blog will shed adequate light on altcoins, their various types and why you should seriously invest in them.
What are Altcoins?
As the name suggests, this currency category serves as an alternative to bitcoin, meaning every other digital currency apart from bitcoin is an altcoin. The existence of altcoins traces back to 2011; after that, an endless number of altcoins were created. Majorly, the driving force behind its creation is to address issues of scalability and decentralization, which was a limitation of bitcoin.
Often creators portray a specific objective behind designing an altcoin, e.g., ApeCoin, a native currency of the famous NFT BAYC, was created as a governance token. These coins use a wide array of consensus mechanisms to validate transactions to make them more productive and efficacious than Bitcoin and Ethereum.
Like any other cryptocurrency, altcoins also come with risks; however, with proper research, you can find they can be a good investment option.
Categories of Altcoins
Altcoins belong to a wide array of categories, and their classification depends on the type of objective they serve.
- Utility tokens
Utility tokens differ from other minable cryptocurrencies; they serve a purpose. With its help, users undertake some specific actions on the altcoin’s ecosystem. Activities one can perform through utility tokens include publishing art, trade currency, or even mint tokens. Examples of utility tokens are Ether, filecoin, BAT (Basic Attention Token), etc.
Stablecoins are created to address the rising volatility of cryptocurrency. This category of altcoin is pegged their value to any metal like gold or other digital currencies. Stablecoins is a good investment option because their price fluctuations never exceed a specific range. Some best-performing stablecoins include USD, USDT, and Marker DAO’s DAI.
- Meme coins
Meme coins have their inception from memes created initially as a joke. However, within a short span, the coin category flourished into a popular cryptocurrency. Dogecoin, Elon Musk’s favorite crypto, could generate hype due to celebrity endorsements; the coin has achieved a respectable place in the crypto market. Examples are DOGE, Shiba Inu, MonaCoin etc.
- Security tokens
Security tokens undergo the process of tokenization, which means they become a token from an asset. The real estate and stock markets use this category of the altcoin. The security and exchange commission regulates the security tokens.
- Governance tokens
Governance tokens enable users or holders to participate in any voting decisions. These tokens belong to a particular blockchain ecosystem. ApeCoin is one of the best examples of governance tokens, as holders get a chance to become decision-makers in any DAO protocol.
Why invest in Altcoins?
With over 5000 alternate coins in the market, investors might confuse about which one to choose. Like cryptocurrency, risks are commonplace in altcoins. However, certain alternate coins have the potential to survive the market uncertainties. As far as your portfolio diversification is concerned, adding altcoin to your bucket list can prove less burdensome on your pocket than bitcoin. Well, before staking your hard-earned money in altcoins, let’s take a deeper insight into it by weighing the pros and cons associated with its investment.
|Multiple use cases||No security|
|Limitless options to choose from||Lower market cap|
|High survivability||Susceptible to scams|
- Altcoins’ potential is gauged by the diversity it portrays in its use cases. Most of them are used in governance like DAOs. Altcoin, like ether, is a revolutionary and productive blockchain which aims at discovering and undertaking new web3 projects.
- One can get invested in an altcoin based on the objective they wish to achieve from the investment. If an investor wishes to participate actively in the DAO decision-making, the governance token can serve their purpose.
- As alternate coins were created to address the shortcoming of bitcoin, they provide better opportunities to the holders. People investing in a certain altcoin with diverse use cases can reap benefits.
- If your altcoins get lost or stolen from your wallet, you risk losing all your hard-earned investment. The biggest challenge in crypto investment is limited security protocols.
- Altcoins have a lower market cap than bitcoins, which means investors will get lower returns. Before you invest in altcoins, keep this factor in mind.
- High chances of scams in altcoins as anyone out of the blue can create and mint new crypto on a digital ledger.
Investing in altcoins requires you to assess factors like risk tolerance, financial condition, investment goals and market situation. Staking your hard-earned money in bulk on any altcoin would be the wrong decision; hence try putting an amount you can afford to lose. Suppose you intend to diversify your portfolio in the cryptocurrency market. In that case, altcoins are the best option as it’s a bit less volatile than bitcoin.