Altcoins (alternative coins) are all cryptocurrencies that are not Bitcoin (BTC). They get their moniker from the fact that they are alternatives to Bitcoin and regular fiat money.
The first altcoins appeared in 2011, and there are currently hundreds of them. Early altcoins sought to improve elements of Bitcoin such as transaction speed and energy efficiency. Recent cryptocurrencies fulfill a number of functions based on the authors’ objectives.
Because altcoins make up such a large portion of the market, every crypto investor should grasp how they operate. Continue reading to find out what altcoins are used for, their benefits and drawbacks, and much more.
Types of altcoins
Stablecoins, mining-based coins, staking-based currencies, and governance tokens are among the several types of altcoins. The kind of altcoin is determined by how it operates and its intended use. When researching altcoins, you’ll come across several different sorts of cryptocurrency.
1. Stablecoins
Stablecoins are cryptocurrencies that are meant to track the value of another asset. The majority of the largest stablecoins are linked to the US dollar and aim to replicate its value. If the price of the coin swings, the coin’s issuer will take action to rectify it.
Stablecoins are often not chosen as a cryptocurrency investment since they are meant to keep the same value. People instead utilize stablecoins to save or transmit money. Stablecoins can potentially generate interest by lending them out or participating in particular savings systems.
2. Mining-based altcoins
To authenticate transactions and add new coins to the supply, this sort of cryptocurrency employs a process known as mining. Miners solve mathematical calculations using gadgets. The first miner to solve the equation usually gets to verify a block of transactions. In exchange, miners that verify blocks earn cryptocurrency incentives.
Mining was the first technology used to process crypto transactions since Bitcoin is a mining-based cryptocurrency. One downside of mining is that it consumes a lot of energy.
3. Staking-based altcoins
To validate transactions and add more coins to the supply, these cryptocurrencies employ a mechanism known as staking. Holders of a staking-based cryptocurrency can opt to stake their coins, promising them to be used for transaction processing. The blockchain protocol of a cryptocurrency selects a member to verify a block of transactions. Participants earn cryptocurrency incentives in exchange.
Peercoin (PPC) was the first cryptocurrency to introduce the idea of staking. Although Peercoin has not become a household name, staking has grown in popularity since it is less energy-intensive than mining.
4. Governance altcoins
Governance tokens are cryptocurrencies that grant holders voting rights in order to help determine the project’s future. In most situations, these tokens let you create and vote on cryptocurrency-related proposals. This contributes to the coin being a decentralized initiative since all holders have a vote and decisions are not made by a single central authority.
Advantages and disadvantages of altcoins
Below are some advantages and disadvantages of altcoins:
Pros:
1. Improves on the limitations of Bitcoin.
2. High reward potential
3. A wide range of altcoins, each with its own distinct purpose and competitive edge.
Cons:
1. Don’t have the first mover advantage or market share of Bitcoin.
2. Many cryptocurrencies are difficult to obtain since they are exclusively available on certain altcoin exchanges.
3. Many cryptocurrencies are difficult to obtain since they are exclusively available on certain altcoin exchanges.