Altcoins: A Quick Refresher On Bitcoin’s Strongest Competitors
While altcoins are used to describe all of the cryptocurrencies that aren’t Bitcoin, altcoins shouldn’t be viewed as second-class citizens. These coins occupy a major percentage of the crypto market, and their value continues to increase.
Let’s take a look at the world of altcoins, which ones are leading the pack, and where they’re headed next.
What Are Altcoins?
Bitcoin is believed to be the first cryptocurrency and everything that comes after it is an altcoin.
But many altcoins aren’t that different from Bitcoin since they’re all digital assets and use similar blockchain technology.
The price of altcoins is also often tied to Bitcoin and closely follows the market leader’s movements.
However, there are some differences.
Some altcoins are built on a blockchain that uses different consensus mechanisms to produce blocks or validate transactions, while others rely on blockchain technology that offers different features. Still, other altcoins are notable because of their low price volatility.
Bitcoin relies on Proof-of-Work as its consensus mechanism for creating blocks on the blockchain. Many believe the POW concept is energy-intensive and time-consuming. Additionally, Bitcoin differs from the new crop of altcoins because the Bitcoin network’s smart contract capabilities are limited.
There are several different types of altcoins on the market. They include mining-based cryptocurrencies, stablecoins, non-fungible tokens, security tokens, utility tokens and more.
Let’s break down each of these different types.
These altcoins were introduced to address the volatility of the cryptocurrency market.
They are tied to real-world assets such as precious metals (gold, silver, etc.) or real-world money (dollars, pounds, etc.), which means these- real-world assets can use them to increase and protect your assets.
For those looking to trade fiat to cryptocurrency quickly, stablecoins also serve as an efficient middleman. Stablecoins include DAI, USD Coin, True USD, and Digix Gold.
You can learn more about guaranteed stability with our stablecoins guide.
Many mining-based altcoins use Proof-of-Stake, a concept where a person can mine or validate block transactions according to how many coins they hold.
This means that the more coins a miner owns, the more mining power they have. Altcoins are the only ones that use the POS concept.
Mining-based altcoins include Litecoin, Monero, and Zcash. You can learn more about mining here in our beginner’s guide to mining.
Non-fungible tokens in simple terms are another kind of altcoin.
But these cryptographic assets have ultra-unique value and are more scarce than other altcoins.
They are different from other types of altcoins in that one NFT is not interchangeable with another.
Each NFT is unique. They can range in variety from digital artworks to digital trading cards.
Check out this crash-course piece we did on Non-Fungible Tokens (NFTs) to really get an idea of what NFTs are all about.
This type of altcoins is more similar to traditional stocks than the other coins on the list.
These tokens are digital liquid contracts that enable holders to purchase a fraction of a valuable asset like real estate, a car, or stocks.
Security tokens have the potential for price appreciation because they give holders an ownership stake. Altcoins of this kind can be purchased through initial coin offerings.
Security tokens include Blockchain Capital’s BCAP token, Overstock.com’s tZERO token, and Aspen Digital’s Aspen Coin.
This type of altcoin involves digital tokens issued to fund the development of a blockchain network.
These utility token-type altcoins can be used to purchase goods or services within that network. Utility tokens do not pay holders dividends, and their value relies on the value of the network itself. These coins can also usually be purchased through an ICO.
Utility tokens include BZZ (Swarm’s utility token) and the Status Network Token.
The Altcoin Market
Today there are more than 9,000 altcoins. According to figures from the crypto price tracking website CoinMarketCap, altcoins accounted for more than 40% of the total cryptocurrency market in March 2021.
As of this writing, the top altcoins by market capitalization are Ether, Tether, Cardano, Binance Coin, and Dogecoin. But there are other coins worth paying attention to. While altcoins aren’t the original cryptocurrency, a lot of them have been around for a while. Let’s take a look at some old favourites and newbies.
Litecoin is an early Bitcoin spinoff launched in 2011 by Charlie Lee, a former Google employee. Despite its veteran stays, Litecoin isn’t currently in the top ten cryptocurrencies by market cap, and its price has been on a downward trend in recent months.
Unlike the other altcoins on this list, it isn’t easy to think of Ether as an underdog in the crypto market. The altcoin is the second most valuable cryptocurrency by market capitalization. While it lags behind Bitcoin to a dramatic degree, Ether’s closest competitor has one-fourth of the altcoin’s market cap. The Ethereum network was crowdfunded and went live in 2015.
Cardano was founded in 2015 by Ethereum co-founder Charles Hoskinson. It was funded through an initial coin offering and debuted with a market cap of $600 million. Today Cardano finds itself in the top five of cryptocurrencies according to market cap.
This coin inspired by a meme was created by software engineers Billy Markus and Jackson Palmer in 2013. Even though this altcoin was created as a joke, Dogecoin currently finds itself in the top ten of cryptocurrencies by market cap. The price of Dogecoin reached its highest point in May, 2021 when it neared $.70.
This is believed to be the earliest notable altcoin. It was created in 2011 and is based on the Bitcoin code. Like Bitcoin, Namecoin uses a POW algorithm and is limited to 21 million coins.
The Namecoin blockchain was developed as a decentralized domain name system to eliminate censorship. The altcoin price reached an all-time high of $13 in 2013, but since then, the price has remained low.
The Future of Altcoins
According to Graph Blockchain, a Proof of Stake miner that focuses on altcoins, the altcoin market has seen significant growth. Bitcoin will most likely always be on top, but Graph Blockchain says altcoins are starting to take up a bigger market share.
Graph Blockchain looks at Bitcoin Dominance, the ratio of the total market cap of Bitcoin versus the market cap of the entire cryptocurrency market.
Every altcoin wants to be the next Bitcoin, so the number of altcoins listed in cryptocurrency markets has increased dramatically in the last decade. However, despite the number of coins on the market, most altcoins are not yet mature.
Investors in the market have been able to earn small profits, but none of the altcoins have amassed as much value as Bitcoin.
Still, many altcoins don’t want to be the next Bitcoin. Instead, they’re trying to be better by learning from Bitcoin’s mistakes. Stablecoins, for example, was created to address the volatility of the crypto market.
Overall, the crypto market remains unregulated, highly volatile, and highly speculative, making predicting the future of altcoins difficult. There are fewer investors involved in the altcoin segment of the market, which leads to thin liquidity.
Among the many altcoins we’ve covered here are the hundreds of dead coins and failed ICOs that failed to gain traction. Investors in these coins now find themselves shit out of luck.
Those looking to get involved in the market need to remember that altcoins are subject to wild price swings. It’s also important to be wary of altcoins that might be designed for certain investors to make a quick buck.
With so many altcoins on the market, investors need to do their homework to prevent being scammed.