Bitcoin Bitcoin Bitcoin! Everywhere we see, people are talking about it. but few knows the different between Bitcoin and Altcoins.
Seeing such huge increases in the prices of Bitcoin over the decades, there are cryptocurrencies other than Bitcoin, called altcoins that have come up.
Some altcoins seem to be popular these days; for example, we saw that over a tweet by Elon Musk over a meme coin called Dogecoin, how its prices were fluctuating over a long period.
Not just these, but there are quite a few others which, due to some of the reasons, saw such changes in the prices due to the reason why people started showing interest in these altcoins.
But is investing in these altcoins safe?
It’s hard to give a direct comment or statement regarding this, but for your assistance, we have created an account regarding altcoins, including everything you need to know about.
So read this and decide yourself on how you want to go along with decisions on whether to invest in these altcoins or not.
While reading, understand the technology of altcoins here
Before we move forward, let’s first know what altcoins have.
What is an altcoin?
Altcoins are short for “alternative coins.” The term refers to cryptocurrencies other than Bitcoin, and they are similar to Bitcoin, while they are different in some ways. Fundamentally, Bitcoin and other cryptocurrencies work similarly.
Seeing a high surge in Bitcoin’s growth, the crypto world has seen a lot of new cryptocurrencies in current times. Till today there are around 14,000 cryptocurrencies in existence as of November 2021.
The Coin Market Cap reported that in 2021 nearly 60% of the crypto market was held by Bitcoin and Ethereum, while the remaining coins hold the remaining market cap. As peer-to-peer or giant computers capable of processing lots of data and transactions simultaneously, altcoins and Bitcoin share code and function the same way.
To become better than Bitcoin or outstand, altcoins develop various advancements or start adopting technologies by becoming alternatives for digital transactions. There are, however, several differences between the most popular cryptocurrency, Bitcoin, and alternative cryptocurrencies, and its philosophy and design provided a model for developing other cryptocurrencies.
The first cryptocurrency was Bitcoin, one of the first incarnations of cryptocurrency. However, its implementation has several shortcomings. For instance, the consensus mechanism for creating blocks, proof of work (PoW), is time-consuming and energy-intensive. Additionally, there are very few capabilities for smart contracts in Bitcoin.
Cryptocurrencies improve upon Bitcoin’s perceived limitations to gain an edge over the cryptocurrency market. To minimize the amount of energy used and the time required to create blocks and confirm new transactions, proof of stake (PoS) is used by many altcoins.
Ether, for example, one of the most popular and the world’s second-biggest cryptocurrencies by market cap, is used as gas (or payment for transaction costs) in smart contracts on the Ethereum blockchain. Altcoins generally address Bitcoin’s traditional criticisms, such as scalability and sustainability, as demonstrated by the launch of Ethereum 2.0 as shown here.
Such various ways of distinguishing themselves from Bitcoin have allowed Altcoins to gain a market. This has led to investors seeing them as alternatives to Bitcoin, which has resulted in investors flocking to them. Therefore, Altcoins are expected to gain more engagement in the form of users, which ultimately results in appreciation in the value of altcoins and attracts more and more investors.
Now lets us look at some of the types of altcoins.
Types of Altcoins
Mining-based Tokens
As their names suggest, these are altcoins that have been mined. Most mining-based altcoins are based on Proof of Work, which generates new coins by solving difficult problems. Litecoin, Monero, and ZCash are some examples of mining-based altcoins. In early 2020, mining-based altcoins have dominated the list.
Premined altcoins are an alternative to mining-based altcoins, and they are part of initial coin offerings (ICOs). It doesn’t use an algorithm to produce such coins; they are distributed before listing cryptocurrency markets.
Stablecoins
Traders and users of cryptocurrency have experienced volatility ever since the cryptocurrency was released. Using stablecoins, one can reduce overall volatility by linking the value of the cryptocurrency to a basket of goods such as fiat currency, precious metals, or other cryptocurrencies.
Stablecoins should have a limited range of price fluctuations to be redeemed if the cryptocurrency fails, and price fluctuations are not supposed to exceed this range.
USDC is a stablecoin issued by the USDT based Tether. MakerDAO’s DAI is a stablecoin launched by MakerDAO.
To expand its ability to settle stablecoin settlements later in 2021, Visa Inc recently announced that it would begin settling some transactions through the USD coin on the Ethereum blockchain.
Governance Tokens
Governing tokens are altcoins that represent voting power on blockchain projects. DeFi protocols utilize them to distribute power and rights to users. Holders of altcoins in governance tokens can influence the project by proposing or voting on new feature proposals or even changing the governance system.
The development of governance tokens is in response to the democratic ideals of crypto coders, developers, and community members in the world of decentralized finance (DeFi), a practice in which holders of crypto coins leverage them for advanced yields.
In general, most people are more inclined to engage with governance tokens after thoroughly sampling the more beginner-friendly aspects of crypto in the first place. Most people are attracted to crypto because of its security, but its complexity contributes to its volatility in general.
Security Tokens
The security token is similar to the securities traded on stock exchanges, except it has digital provenance. The security token is similar to a stock in that it often promises its holders an equity stake or dividends. For investors, the prospects of price appreciation over time are one of the most compelling reasons to invest in these types of tokens.
The Bitcoin wallet firm Exodus issued 75 million shares of common stock converted into tokens on the Algorand blockchain in 2021 in an SEC-qualified Reg A+ token offering. We are witnessing a historic event in that this is the first digital asset security to offer ownership in an issuer based in the U.S.
Meme Coins
It is a form of cryptocurrency based on a joke or a silly take on well-known cryptocurrencies. Meme coins usually shoot to popularity in a short period and are widely hyped by crypto influencers and retail investors interested in short-term profit.
Also, as we previously mentioned, Tesla’s CEO Elon Musk regularly tweets cryptic information about leading meme coins Dogecoin and Shiba Inu, which often dramatically affect their price.
Floki, Musk’s Shiba Inu puppy, rode on a Tesla in an October 2021 tweet of Musk. Shiba gained 91% in 24 hours after that tweet. Hundreds of these cryptocurrencies experienced astronomical percentage gains during the spike period during April and May 2021, referred to as the “meme coin season.”
Utility Tokens
The Blockchain platform upon which all cryptocurrencies are coded is a promising technology by many experts across many industries. The individuals and the blockchain industry outside of the crypto community predict that one-day blockchain will be as ubiquitous as the internet is today. Some have even referred to it as the newer version of the web.
Considering all these new features, users will need to pay for transactions, such as publishing artwork, minting tokens, trading services, and accessing specific services within a blockchain network. Utility tokens are a type of altcoin explicitly created for this purpose.
In addition to allowing users to purchase currency and digital art on the Ethereum blockchain, Ethereum is perhaps the most versatile utility token. Ethereum charges a service fee called a “gas fee,” which covers the costs associated with processing data. Filecoin is also a utility token used to store files on the Filecoin blockchain. It is considered a new, decentralized version of popular cloud storage platforms like Google Drive.
Wait! Please don’t go away because we will now discuss some advantages and disadvantages of investing in altcoins.
Advantages Of Investing In Altcoins
Plenty Of Choices
Altcoins are in abundance in the market, making it easier for investors to choose one based on the return on investment, the acceptability of the coin, and other factors.
Better Alternative to Bitcoin
The truth is that altcoins are better and more advanced versions of Bitcoin in many ways. As they developed after Bitcoin, they are more advanced in technology. Even in terms of transaction speeds, many altcoins are better than Bitcoin.
Stability
The volatility of altcoin prices is generally low, unlike Bitcoin, making them a great investment option. Investments in altcoins would have a greater chance of returning a profit since they are more stable.
Disadvantages Of Investing In Altcoins
Lack of acceptance
It is still difficult to establish acceptance in the market since Bitcoin has become so popular. Since many people are still not familiar with these coins, it isn’t easy to do so.
Risks
Investing in Altcoins is often considered as risky as these alternative coins could result in scams or other failures. We currently saw a scam involving Squid coins, which were based on the Netflix series Squid Game and they lost almost all their value when it was discovered they were scams.
Market Value
People who were have been investing in altcoins were not aware of it until a few years. Also, we know that Bitcoin is more popular and has high market value than altcoins. Even though investors still prefer to invest in something that they feel could provide them higher returns with less investment in a short period.
Should you consider investing in altcoins?
Investing in altcoins may be the right decision for you if you plan to make crypto a part of your portfolio and have the time to do the research. Several altcoins offer a multitude of uses for their digital currencies, unlike Bitcoin, which serves primarily as a means of storing value. Due to their lack of visibility, altcoins may see higher price increases if they gain momentum.
There are notable downsides to buying altcoins. Since there are so many altcoins to invest in, it can be difficult to choose the best ones. So as the altcoins present a greater risk, it is advisable not to follow anybody’s advice blindly and always do your research and then think of adding any of the altcoins in your portfolio.
A Closing Note On Investing In Altcoins
Cryptocurrency investors interested in diversifying their portfolios may find alternative cryptocurrencies of interest. Although some, such as Ethereum’s ether, are recognizable, the vast majority of the more than 10,000 alternative cryptocurrencies have yet to make a significant impact.
Alternative cryptocurrencies are a good example of how cryptocurrencies can reshape modern finance. Yet investors should do their research before taking a position in them. The risks associated with altcoin investments are often the same as or even greater than those associated with Bitcoin investments. So be smart and choose wisely!