What Are Altcoins? A Guide to Cryptocurrencies Beyond Bitcoin

Bitcoin ushered in the era of cryptocurrencies in 2009, and quickly became the name of the game whenever anyone talked about digital currencies. In fact, Bitcoin dominated the growing scene so much that any other cryptocurrency was considered an “altcoin,” an alternative to BitcoinAnd that name has stuck, even though today there are literally thousands of competitors to the original digital currency.

Here are the basics of altcoins, which ones to watch this year, and whether altcoins will surpass Bitcoin.

What are altcoins?

An altcoin is an alternative cryptocurrency to Bitcoin, which at one point was the only cryptocurrency. In its early years, Bitcoin dominated the field so much that other rivals were defined in relation to the original cryptocurrency. It was Bitcoin, and all that. So anything that wasn’t Bitcoin was, somewhat derisively, called an altcoin or perhaps, even less charitably, a sh*tcoin, to rhyme with the original digital currency.

So altcoins are any cryptocurrency that is not Bitcoin. In the early years of cryptocurrency, this kind of definition made a lot of sense, as Bitcoin took up most of the market attention and competitors created dozens or even hundreds of alternative coins. Today, some experts estimate the number of individual cryptocurrencies at around 15,000.

That said, Bitcoin remains by far the largest cryptocurrency, with a market capitalization (the value of the total number of coins in existence) more than three times that of the second largest player, Etherealaccording to CoinMarketCap.com. From there, the size of the other players drops rapidly.

Types of Altcoins

With literally thousands of cryptocurrencies in existence, speculators looking for altcoins are spoiled for choice. But so much trading is concentrated around the biggest players and those with some of the best technical specifications, like fast transaction times.

Mining-based coins

Mining-based coins are mined and put into circulation by networks of computers that solve complex mathematical problems that often require a lot of energy. The world’s largest cryptocurrency, Bitcoin, is a mining-based currency but so are many altcoins.

Stablecoins

Stablecoins are a type of cryptocurrency whose value is pegged to another asset, usually the U.S. dollar. Stablecoins track the underlying asset, attempting to keep the price of the coin equivalent to the currency. Stablecoins are often backed by assets such as actual dollars (though often bonds and other assets), giving a stablecoin a real-world currency backing. Examples of stablecoins include Tether and USD Coin.

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Despite their nickname, stablecoins are sometimes anything but stable. TerraUSD, a dollar-pegged stablecoin, made headlines in May 2022 when it collapsed to just pennies on the dollar. The coin’s automated stabilizers couldn’t keep up with orders from traders trying to sell their positions.

Security token

A security token is a type of currency that represents a fractional interest in another asset. For example, a piece of art might have security tokens that divide the ownership of that asset and validate ownership. Or a business might have its ownership represented by security tokens. So this type of token can allow for the securitization of more traditional assets.

Memecoins

Memecoins are a type of cryptocurrency that have gained traction with the public, perhaps through social media or tweets from celebrities like Tesla CEO Elon Musk. Memecoins They often have a lottery-like appearance, rising in price very quickly and then falling precipitously. Popular memecoins include Dogecoin AND Shiba Inu Dog.

Popular Altcoins

Here are the 10 largest cryptocurrencies, as of July 18, 2024, according to CoinMarketCap:

1. Bitcoin

2. Ethereal

3. Bind

4. BNB

5. Solana

6. USDC

7. Exchange rate risk

8. Toncholine

9. Dogecoin

10. Cardano

These rankings can of course fluctuate, as each currency mines new coins and the price of the currency goes up or down, often with significant volatility. Here are more details on Top Cryptocurrencies by Size.

What to Consider Before Buying Altcoins

If there was anything riskier than investing in the handful of major cryptocurrencies, it would be buying relatively unknown altcoins. Here are a few things to consider before jumping into altcoins in the hope of a lottery-like win:

• Cryptocurrencies are driven entirely by sentiment. Because cryptocurrency is typically not backed by the assets or cash flow of an underlying company like a stock, it is driven solely by sentiment. Sentiment can swing from wildly optimistic to depressingly pessimistic, meaning altcoins are counting on traders to be or become more optimistic for their prices to rise.

• Investors focus on the most popular coins. Because cryptocurrency is driven by sentiment, investors flock to the most popular coins, focusing on Bitcoin, Ethereum, and a handful of others. While every once in a while an altcoin emerges (Dogecoin or Shiba Inu are purebred examples), literally thousands of others remain unknown. This means that if an altcoin falls into disuse, it may never come back, costing you most or even all of your investment.

• Do you have money you can afford to lose? Given the extreme risks of altcoins and their volatility, it is important to ask yourself if you are only betting money you can afford to lose. Cryptocurrencies and other financial markets are not places to invest your rent money or other much-needed funds.

• Focus on the technical strength of an altcoin. If you are looking to invest in an altcoin, study its technical capacity. Some altcoins like Solana have skyrocketed because they provide high functionality at low cost, for example. A cryptocurrency’s features can help keep it at the forefront of the public’s imagination and thus make it an attractive trading vehicle that traders can flock to.

When purchasing highly speculative assets like cryptocurrencies, it is important to understand that you could lose your entire investment. At a minimum, traders should expect extreme volatility.

Bottom line

With literally thousands of altcoins in existence, altcoins continue to gain popularity. While no single coin may be able to displace Bitcoin from its position as the top cryptocurrency, altcoins as a whole may continue to chip away at the market leader, even as the overall “cryptocurrency pie” continues to expand.

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