Do you want to become the next crypto millionaire by just investing in altcoin cryptocurrency? I know your answer is yes.
Altcoins can be referred to as cryptocurrencies other than Bitcoin (and sometimes also other than Ether). They share characteristics with Bitcoin but they distinguish themselves from Bitcoin by extending their capabilities and plugging their shortcomings.
For instance, some altcoins use a different consensus mechanism to produce blocks or validate or verify transactions.
Or they differentiate themselves from Bitcoin by giving new or additional capabilities, such as smart contracts or low price volatility.
Till the end of November 2021, there are over 14,000 cryptocurrencies.
According to CoinMarketCap, Bitcoin and Ether alone accounted for over 60% of the total cryptocurrency market in November 2021.
Altcoin accounted for the remaining cryptocurrency market.
Base on the fact that they are often derived from Bitcoin, altcoin price movements tend to mimic Bitcoin’s trajectory.
Nevertheless, analysts made a point that the maturity of cryptocurrency investing ecosystems and the creation of new markets for these coins will make price movements for altcoins independent of Bitcoin’s trading signals.
Understanding Altcoins
“Altcoin” consists of two words “alternative” and “coin” and altcoins include all alternatives to Bitcoin.
The basic framework for Bitcoin and altcoins is looked the same.
However, bitcoin and altcoin share code and function like peer-to-peer systems or like a giant computer capable of processing large amounts of data and transactions at the same time.
In some cases, altcoins also look forward to becoming the next Bitcoin by becoming an inexpensive method for digital transactions.
Moreover, there are also various differences between Bitcoin and altcoins.
Bitcoin falls among the first iterations of a cryptocurrency, and it has a philosophy and design which set the benchmark for the development of other coins.
Nevertheless, its implementation has several limitations.
For instance, proof of work (PoW)—the consensus mechanism used to create blocks—is energy-intensive and consumes time.
Bitcoin’s smart contract is also limited in its capabilities.
When Bitcoin was first introduced in 2009, it became the first widely adopted application of proof of work (PoW).
Proof of work (PoW) is the basis of many other cryptocurrencies as well, making it a secure, decentralized consensus.
Altcoins become better when Bitcoin’s perceived limitations to establish a competitive advantage.
Many altcoins use the proof of stake (PoS) consensus method to reduce the consumption of energy and the time required to create blocks and validate new transactions.
For example, Ether the world’s second-biggest cryptocurrency by market cap is used as payment for transaction costs otherwise known as gas in smart contracts on the Ethereum blockchain.
As the much-anticipated launch of Ethereum 2.0 has demonstrated, altcoins generally address the traditional critiques of Bitcoin, like scalability and sustainability.
By differentiating themselves from Bitcoin in this way, altcoins were able to create a market for themselves.
Which in turn has attracted investors who see potential in them as alternatives to Bitcoin.
The investors expect to gain as altcoins get more traction and users and appreciate in price.
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Types of Altcoins
Based on their functionalities and consensus mechanisms, altcoins come in various types and categories. Here’s a short explanation of some of the more important ones:
Note that: It is possible for an altcoin to fall into more than one category.
Mining-based
Mining-based altcoins are mined into existence and most mining-based altcoins use PoW, a method by which systems generate new coins by solving difficult problems to create blocks.
Examples of mining-based altcoins are Lite coin, Monero, and ZCash.
The alternative to mining-based altcoins is premined and often part of an initial coin offering (ICO).
Those premined coins are not generated through an algorithm but are distributed before they are listed in cryptocurrency markets. An example of a premined coin is Ripple’s XRP.
Stablecoins
The trading and use of cryptocurrency have been marked by volatility since its launch.
However, the aim of stablecoins is to minimize this overall volatility by pegging their value to a basket of goods, such as fiat currencies, precious metals, or other cryptocurrencies.
The basket is expected to act as a reserve to redeem holders if the cryptocurrency fails or faces problems.
Price fluctuations for stablecoins are not expected to go beyond a narrow range.
Examples of some notable stablecoins include Tether’s USDT, MakerDAO’s DAI, and the USD Coin (USDC).
In March 2021, payment processing giant Visa Inc. declare that it would begin settling some transactions on its network in USDC over the Ethereum blockchain, with plans to release further stablecoin settlement capacity later in 2021.
Security Tokens
Security tokens are almost the same as securities traded in stock markets except they have a digital provenance.
Security tokens look like traditional stocks, and they often promise equity in the form of ownership or a dividend payout to holders.
The prospect of price appreciation for such tokens is a major draw for investors to invest money into them.
In 2021, the Bitcoin wallet firm Exodus successfully completed a Securities and Exchange Commission-qualified Reg A+ token offering and sold $75 million shares of common stock to be converted to tokens on the Algorand blockchain.
What makes this a historical event is that this is the first digital asset security to offer equity in a United States-based issuing company.
Meme Coins
Meme coins are inspired by a joke or a silly take on other well-known cryptocurrencies.
They mostly become famous in a short period of time, often hyped online by prominent crypto influencers and retail investors who want to exploit short-term gains.
For instance, Tesla Inc. CEO and cryptocurrency enthusiast Elon Musk regularly posts cryptic tweets about leading meme coins Dogecoin and Shiba Inu, which often substantially move their prices.
In October 2021, Shiba surged 91% in a 24-hour period the moment after Musk tweeted a picture of his pet Floki, the Shiba Inu puppy, on a Tesla.
Many people called the sharp run-up in these same altcoins during April and May 2021 “meme coin season”, with hundreds of these cryptocurrencies posting enormous percentage gains based on mere speculation.
An initial coin offering (ICO) in the cryptocurrency industry is equivalent to an initial public offering (IPO).
A company that wants to raise money to develop a new coin, app, or service launches an initial coin offering (ICO) as a way to raise funds.
Utility Tokens
Utility tokens are used to offer services within a network.
For instance, they might be used to purchase services, pay network fees, or redeem rewards.
Unlike security tokens, utility tokens do not pay out dividends or part with an ownership stake. Filecoin, which is used to purchase storage space on a network, is an example of a utility token.
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What Are the Top 10 Altcoins?
The top 10 altcoins are Ethereum, Binance Coin (BNB), Tether (USDT), Solana, Cardano, XRP, Polkadot, Dogecoin, USD Coin, and Shiba Inu as of November 2021.
How Much Does an Altcoin Cost?
The price of altcoins has a pretty wide range from a couple of cents to thousands of dollars. For example, in November 2021, Ethereum was trading at around $4,500 while Ripple’s XRP, the sixth most valuable cryptocurrency, was trading for $1.10.
Are Altcoins Good Investments?
The market for altcoins is nascent and has an unequal pairing.
In cryptocurrency markets, the number of listed altcoins has rapidly increased in the past decade and attracted hordes of retail investors, feverishly betting on their price movements to amass short-term profits.
But this kind of investor does not have the capital required to produce sufficient market liquidity.
Thin markets and an absence of regulation generate quicksilver volatility in altcoin valuations.
Look at the case of Ethereum’s ether, which rises its prior peak of $1,299.95 on Jan. 12, 2018.
Just several weeks later, it was down to $597.36, and by the end of that same year, ether’s price had crashed to $89.52.
Nevertheless, the altcoin reached record prices of above $4,750 just two years later in November of 2021. Timed trades can allow traders to make a wealth of gains.
But here is a problem you need to take note of; Cryptocurrency markets are not yet mature.
Even though several attempts have been made, there are no defined investment criteria or metrics to evaluate cryptocurrencies.
Most of the time, the altcoin market is driven by speculation.
There are a lot of cases of cryptocurrency that are no longer in existence, those that failed to gain enough traction or simply vanished after collecting investors’ money, exist.
It is good to know that, the altcoin market is for investors willing to take on the outsized risk of operating in an unregulated and emerging market that is prone to volatility.
Investors should also be able to manage stress resulting from wild price swings. For this kind of investor, cryptocurrency markets can offer great returns.
Pros of investing in altcoin cryptocurrency
- Altcoins are “better versions” of Bitcoin because they aim to cater for cryptocurrency’s limitations.
- Altcoins, like stablecoins, can potentially fulfill Bitcoin’s original promise of a medium for daily transactions.
- Some type altcoins, such as Ethereum’s ether and Cardano’s ADA, have already gained traction among mainstream institutions, resulting in high valuations.
- Investors can take from a wide range of altcoins that perform different functions in the crypto economy.
Cons of investing in altcoin Cryptocurrency
- Altcoins have a smaller investment market as compared to Bitcoin. As of November 2021, Bitcoin alone has around a 42% share of the overall cryptocurrency market.
- The lack of regulation and defined criteria or metric for investment means that the altcoin market is characterized by fewer investors and low liquidity. As a result, their prices are more volatile as compared to Bitcoin.
- It is not always easy to differentiate between different altcoins and their respective use cases, which make investing in altcoin cryptocurrency even more hard and confusing.
- There are lot of dead altcoins that ended up sinking investor dollars.
Do Altcoins have a future?
Discussions about the future for altcoins and, indeed, cryptocurrencies have a precedent in the issue that led to the issue of a federally issued dollar in the 19th century.
Back then in the United States, there were various forms and types of local currencies circulating.
Every one of them had unique characteristics and was backed by a different instrument.
For instance, gold certificates were backed by deposits of gold at the Treasury. U.S. notes used to finance the Civil War were backed by the government.
Local banks were also issuing their own currency, of which some were backed by fictitious reserves.
That multiplicity of currencies and financial instruments parallels the current situation in altcoin markets.
In today’s markets, there are a lot of altcoins available in the markets, each one claiming to serve a different purpose and market.
The present state of affairs in the altcoin markets is unlikely to consolidate into a single cryptocurrency.
But it is also likely that a majority of the more than 1,000 altcoins listed in crypto markets may not exist again.
The altcoin market will coalesce around a bunch of altcoins (those with strong utility and use cases) which will dominate the markets.
For investors looking to diversify within crypto markets, one of the inexpensive ways to expand their horizons beyond Bitcoin is investing in an altcoin.
Rallies in cryptocurrency markets have generated returns that are multiples of those produced by Bitcoin.
But there are risks involved in altcoin investing, not the least of which is the lack of regulation.
When cryptocurrency markets mature, it will likely bring more sophistication and capital into the industry, paving the way for regulation and less volatility.
Investors that want to diversify within crypto markets should look into altcoins, that are generating returns that are often multiples of Bitcoin.
Are Altcoins Good Investments?
There is a risk to this form of investment. Altcoins also have many of the same investment risks associated with Bitcoin. Also, many of the small altcoins are illiquid. But well-established altcoins, such as ether and XRP, are competitors of Bitcoin.
Conclusion
Altcoins are good alternatives to investors, who want to invest in the cryptocurrency market and are also interested in diversifying their portfolios.
Though some altcoins, like Ethereum’s ether, have a recognizable name, a majority of the more than 10,000 altcoins out there still have yet to make a mark.
Altcoins are representative of the potential for cryptocurrencies to reshape modern finance.
But investors should do research on them well before investing in them. The risks associated with altcoins are almost or—in some cases—higher than those for Bitcoin investing.