https://nasacademy.com/blog/article/what-are-altcoins
We’ve all heard of Bitcoin by now, but you might have noticed that there are many other cryptocurrencies out there too. These are called altcoins. But what are altcoins? Who created them…and are they worth investing in?
Altcoins are just an abbreviation of the term “alternative coins” meaning a coin that is an alternative to the first-ever created cryptocurrency: Bitcoin.
Pretty straightforward, right?
Dogecoin, Solana, and Ethereum are all considered examples of altcoins. And as of 2022, there’s somewhere around 18,000 different tokens on the coinmarket.
Here’s a short list of cryptocurrencies that have recently been labeled as some of the top altcoins on the market today:
Bitcoin’s creator still remains anonymous to this day under the pseudonym of Satoshi Nakamoto, and the coin they created still dominates the market today with a near $530 billion USD market cap.
But now, it has a pretty hefty contender in the blockchain biz. Since Bitcoins creation, a Russian-born Canadian named Vitalik Buterin created the Ethereum (ETH) Blockchain to create a more diverse way of using crypto technology.
But the truth is – you don’t have to be a genius like these two to create your own token. Pretty much anyone can create an altcoin if they really wanted to.
Whether it be from coding your own blockchain or simply creating a token on a pre-existing blockchain, all you need to have is the time, money and computing power to do it.
Tokens are created all the time for Decentralized Autonomous Organizations (DAO). These tokens are then used exclusively in a given group as a way of establishing your membership, and giving you voting power when decisions are being made for the community.
So what are altcoins used for, and how do they differ from the OG Bitcoin? Well, each coin differentiates itself in one way or another.
Firstly, some coins are capped at a specific amount (like Bitcoin) and some aren’t. There are different ways of mining or creating coins, and they all have different utilities depending on the context and blockchain they exist on.
For example, Bitcoin runs on a “proof-of-work”system meaning that people (miners) from all around the world use incredibly powerful computers to process transactions and encode them into blocks that are then added to the blockchain. And as a reward, they get paid in Bitcoin. (and if you’re completely lost and confused by whatever you just read, you’ll want to check out this better explanation of blockchain tech before you keep reading)
There are also different categories of coins that differentiate each token from the other:
Mining-Based Coins: Tokens that are brought into the market via mining like Bitcoin.
Stablecoins: Tokens that aren’t mined, but that are created to replace regular fiat currency or other recognized currencies 1 for 1. For example, $1 USDC (the US crypto token) is equivalent in value to $1 USD.
Security Tokens: These tokens store data and are similar to owning stocks on the real stock market, or shares of a company, where you get dividends or ownership.
Utility Tokens: These tokens are pre-created by a specific group and valued only within that community. This could be used for rewards systems, buying services, assets and more.
Meme tokens: meme coins like Dogecoin for example are inspired by memes and largely driven in value by the culture that surrounds that meme. These usually tend to spike in popularity for short periods of time– but can still gain immense value.
There are also plenty of differences between these various coins when it comes to how they function on a more detailed level. For example, the Bitcoin blockchain is pretty much only useful for exchanging cryptocurrency.
But Vitalik Buterin saw an opportunity to use blockchain for much more than just crypto transactions.
He created Ethereum to allow for greater functions of smart contracts, which meant users could exchange and own other digital assets, and do so much more than exchanging tokens – like owning digital files (NFTs) of images and other artwork, and then selling them.
But each altcoin tends to have different mechanisms when it comes to how blocks are created and added to the blockchain. While Bitcoin and Ethereum blockchains use a proof-of-work mining system (where “nodes” or people from around the world invest in high-powered computers to process transactions and keep the blockchain running), this tends to get pretty resource-dependent and have a negative environmental impact.
There are also some coins that use a “proof of stake” system that rather incentivizes miners to do their work of approving transactions and running the blockchain based on the fact that they own big shares in that cryptocurrency. This ensures that they won’t do anything to sabotage the system.
Each coin also has different markets and ecosystems that surround them. This means that there are various things that impact a coin’s value in the overall market that differ from token to token.
Altcoins can bring people great success, as we’ve seen with people’s stories like the Dogecoin, millionaire. But these are typically just exceptions.
There’s no guarantee investing in any one particular token is going to land you millions of dollars. There’s no guarantee that investing in Bitcoin is going to earn you millions.
There’s something to be said about all cryptocurrency tokens in general when it comes to investing.
The internet is full of scams and people giving poor advice. But as long as you remember that when making any type of investment into a volatile and unpredictable market – you should never invest more than you can lose.
Not only this, but if you start investing in any altcoins, do your research beforehand and join communities to get expert advice if you’re not confident you’re doing it right.
In short: Altcoins can have incredible opportunities. They fill up what Bitcoin lacks, and they can grow to be just as big one day– like we’ve seen with Ethereum. But altcoins are more easily impacted by outside factors, and tend to be more unpredictable than a cryptocurrency like Bitcoin.
But does that mean steer clear of them all? Not necessarily. You just have to make sure you know what you are looking for, find something you believe in (with research to back it up) and don’t use it as a place to house your life savings.
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