Altcoins stands for “alternative coins.” So, this implies that they are alternatives to something. They are an alternative to the first and oldest cryptocurrency, Bitcoin. Altcoins are cryptocurrencies that make use of the “blockchain” technology. It enables secure peer-to-peer transactions. They build on the success of Bitcoin by tweaking the regulations to appeal to a wider range of users. They may also need less energy. The majority of Altcoins aims to deliver something that the main cryptocurrency cannot. The fact is that each of them has at least one feature of Bitcoin’s technology in its own unique way. As of November 2021, there are over 7,000 different altcoins.
How did it all start?
Bitcoin’s history began in 2009 when Satoshi Nakamoto established the world’s first cryptocurrency. Namecoin (NMC) was the first cryptocurrency developed after Bitcoin in 2011. Its principal purpose was to aid in the decentralisation of online identities. It will make censorship more difficult to install and enforce.
You’re probably wondering where Namecoin has disappeared these days. NMC is being traded on a few unpopular exchanges as of this writing. It has a negligible value and a negligible trading volume. But it signalled the beginning of altcoins.
While Namecoin was the first digital asset after Bitcoin, other altcoins surpassed it as the second-largest cryptocurrency. Litecoin (LTC), a cryptocurrency that is quite similar to Bitcoin, is one of them.
Ripple (XRP) entered the ranks of cryptocurrencies in August 2013, followed by Ethereum in July 2015. Thousands of other cryptocurrencies have entered the market since then. It gives the cryptocurrency sector fresh use-cases and inventive solutions.
To know more about the history of Cryptocurrencies and Bitcoin read: A beginners’ Guide to Cryptocurrency and Bitcoin
How do they work?
In general, altcoins function similarly to the original Bitcoin. You may send money from your digital wallet to another user’s wallet using a private key. The transactions are permanently and openly recorded on a blockchain or public ledger. So, changing them or rejecting them after the recording is impossible.
Mathematical proofs that confirm transactions in blocks safeguard the blockchain. Some cryptocurrencies, such as Bitcoin, rely on “proof-of-work.” It is a time-consuming and energy-inefficient method of verifying transactions.
On the other hand, several cryptocurrencies, such as Ethereum, use proof-of-stake. Proof-of-stake validates transactions by using other accounts in the network. It makes validation quicker, easier, and less energy-intensive.
Bitcoin vs. Alternative Cryptocurrencies
Not all altcoins follow the same set of regulations as Bitcoin. For example, Bitcoin only mines (or produces) bitcoins every 10 minutes. However, a cryptocurrency called Litecoin produces coins every 2.5 minutes, allowing it to process payments more quickly. Litecoin will also produce an amount of 84 million units. However, Bitcoin will only produce an amount of 21 million units.
Litecoin’s mining regulations are also different from Bitcoin’s. Unlike bitcoins, which need expensive technology to mine, Litecoins may be mined on any computer.
Litecoin is only one of the thousands of alternative currencies available. Some cryptocurrencies stand out as attractive alternatives to Bitcoin. Even so, their market capitalizations fall short of Bitcoin’s $1.07 trillion.
What Are the Most Common Altcoins and What Do They Do?
We’ve selected a few of the most popular cryptocurrencies. These are cryptocurrencies that have withstood the test of time and have the support of large communities.
Ethereum is a platform that allows developers to create decentralised applications using smart contracts. ETH is the native token of the Ethereum network.
2. Ripple (XRP)
The business behind the XRP cryptocurrency is Ripple Labs. It’s one of the oldest and most stable cryptocurrencies in terms of market capitalization. Its goal is for banks and financial institutions to use it to settle transactions faster and more securely. In contrast to regular transactions, transmitting XRP takes only a few seconds.
3. TRON (TRX)
The TRON Foundation, led by a Chinese entrepreneur Justin Sun, debuted TRON. The project’s goal is to create a decentralised blockchain-based platform that aspires to create a worldwide, free, and digital content entertainment system that includes distributed storage technologies, as well as easy and cost-effective digital content sharing.
4. Binance Coin (BNB)
BNB is an exchange-owned coin. This is the native cryptocurrency of Binance, the largest cryptocurrency exchange in the world. BNB aims to allow consumers to utilise it and decrease their trading expenses. However, as Binance grows and evolves, so do the applications for BNB. In terms of market capitalization, it is now the largest exchange-owned cryptocurrency.
5. Polkadots (DOT)
Polkadot, a blockchain-based platform that competes with Ethereum, is a relatively young blockchain-based platform. It basically allows the transfer of data and assets across blockchains instead of simple coins. It’s also very scalable, and its Substrate platform allows users to develop unique blockchains.
The Pros and Cons of Altcoins
- Enhance Bitcoin’s shortcomings: Altcoins are typically created to fix a perceived fault with the Bitcoin architecture, whether it’s speed, mining cost, or some other element.
- Create a competitive environment: Altcoin designers create space for new rivals to the Bitcoin system by altering the rules under which Bitcoin runs.
- Transaction costs are low: Aside from the secure blockchain technology, one of the advantages of utilising cryptocurrencies as a payment mechanism is the comparatively low transaction costs imposed for each transaction.
- Altcoins’ values fluctuate a lot.
- High risk of scams and fraud: Altcoins, like Bitcoin, are frequently the target of scams and other forms of fraud.
Is Investing in Altcoins a Good Idea?
Your understanding of cryptocurrencies and your financial goals will determine if altcoins are a viable investment for you. Altcoins can be risky, with some posing a greater risk than others. Do your homework before investing in any cryptocurrency, just as you would before investing in any traditional investment.
The Risks and Benefits of Investing in Altcoins
- Investing in cryptocurrencies is dangerous, especially over time, since the majority of altcoins will lose value.
- Pump and dumps are more likely in smaller markets with lower trading volumes.
- Whale (big) investors and bag holders may be able to influence them more easily.
- When something better comes along, the technology they give may become obsolete.
- The price and momentum of Bitcoin have a significant influence on them.
- Higher risks can result in greater rewards. However, there are a lot of “ifs” in this scenario.
- You might be able to get in on the ground floor of a worthwhile initiative that will take off in the future. It’s not uncommon to come across cryptocurrencies with 100x ROIs in a few months.
What are the Best Places to Buy Altcoins?
Using bitcoin exchange services is the simplest way to buy altcoins. With BTC and other major currencies, they may be purchased with bank transfers or credit cards.
If you wish to acquire altcoins with less market capitalization, you need to first convert your fiat cash into a large crypto (ETH or BTC). Then you must send your cryptocurrency to an altcoin exchange that supports the coin you wish to buy.
Use cases for altcoins
As a result of Bitcoin’s restrictions, altcoins have emerged on the market with the ambitious goal of expanding the crypto space’s use-cases. Many successful altcoin initiatives have provided value to cryptocurrency consumers to date.
For example, Ethereum, for example, enhanced its blockchain technology with smart contracts and decentralised applications (DApps) to give cryptocurrencies additional capabilities. As a result, Ethereum has become one of the most active blockchain networks, with around 900,000 daily transactions.
Decentralized finance (DeFi), a fast-growing trend in the crypto sector to provide decentralised alternatives to traditional financial systems, has become a reality thanks to Ethereum’s capabilities.
When does the Altcoin season begin?
The phrase “altseason” is a condensed form of the term “altcoin season.” It is a sort of cryptocurrency market cycle in which altcoin values climb rapidly. This price shift can occur with or without the effect of Bitcoin’s dollar value.
During this market period, the price success of altcoins exceeds that of Bitcoin. Altcoin prices are generally either steady or very slow-moving. However, every now and then, the value of all cryptocurrencies might skyrocket in a matter of seconds.
This demand cycle might last anywhere from a few days to several months in length. As a consequence of the uncertainty, many investors try to boost their profits at this time. During the alt season, the rate and magnitude of price increases might vary greatly.
Investing in altcoins might be beneficial, even if it is riskier. However, before investing in any cryptocurrency, make sure to learn everything there is to know about it and approach it as a serious investment.
Do not invest money just because “it’s $0.01, and if it hits “only” $0.1, I can earn a fortune of 10X. Thousands of cryptocurrencies have disappeared from the market because they have no real-world value. In 2018, the greatest number of initiatives died. This is reasonable, given that the ICO boom in 2017 spawned the largest number of cryptocurrencies, which, regrettably, died out almost as quickly as they started.
We recommend doing due investigation before spending your hard-earned money to avoid severe disappointment.