Altcoins are the other cryptocurrencies established after the success of Bitcoin. In general, they sell themselves as better alternatives to Bitcoin. The term”altcoins” refers to all cryptocurrencies other than Bitcoin. As of early 2020, there are more than 5,000 cryptocurrencies. According to CoinMarketCap, altcoins market capitalization is about 35% of the entire cryptocurrency marketplace.
Understanding Altcoins
An altcoin is a combination of the two words “alt” and “coin”, and it includes all alternatives to Bitcoin. The success of Bitcoin as the first cryptocurrency paved the way that made many altcoins try to overcome the limitations of Bitcoin. So an altcoin should have a competitive advantage to succeed against Bitcoin, and one of the most popular examples of altcoins is Ethereum with its smart contracts feature.
Many of the altcoins are built on the basic framework provided by Bitcoin. Therefore, most altcoins are peer-to-peer. They try to offer efficient and inexpensive ways to carry out transactions on the Internet. Despite the many overlapping attributes, altcoins vary widely from each other.
Types of Altcoins
Mining-Based: This type of altcoins has a mining process by which new coins are generated by solving challenging problems to unlock blocks. They are more similar to Bitcoin in the way they work than other altcoins. Most of the top altcoins fell into this category. Ethereum is one of the well-known mining-based altcoins.
Utility Tokens: Utility tokens provide a claim on services, and they are sometimes sold as part of an ICO or an IEO. Cardano is an excellent example of a utility token offered in an ICO back in 2017.
Stablecoins: Stablecoins are made to improve on Bitcoin by reducing volatility. In actual practice, this is achieved by linking the value of the coins to existing fiat currencies. Popular choices for backing altcoins include the U.S. dollar, Euro, and gold.
Security Tokens: This type of altcoins is linked to businesses. Security tokens are often launched in a Security Token offering “STO“. They resemble traditional stocks and usually promise some type of dividend like payout or ownership in a business.