What is Altcoin?
Altcoin, as the name suggests, is a catch-all term describing a collection of the several thousand cryptocurrency alternatives to Bitcoin. Though Bitcoin is both innovative and seemingly synonymous with cryptocurrency, Altcoins are being developed at a rapid pace to address problems that hamper Bitcoin’s growth.
Altcoins are dissimilar to Bitcoin in multiple ways including the mining mechanism, distribution methods, and the ability to create decentralized applications. There are currently more than 4000 altcoins and make-up more than 30% of the cryptocurrency marketplace. The main types of cryptocurrencies are:
- Mining based
- Stable coins
- Security tokens
- Utility tokens
The approximate value of the over 4000+ crypto-coins available today if valued well above $200 billion dollars. Mining based coins are the most similar to Bitcoins, in that more coins are created after complicated problems are solved to unlock blocks. Stable coins promise price stability by pegging the value of the coin to an external asset such as a countries currency, lie the U.S. dollar, or commodities like Alloys. Security Tokens are linked to a business and can act like stocks and bonds, where the owner can receive dividend payments, or have ownership in the business. Utility Tokens give the owner use of certain services like cloud file storage.
Most altcoins are created with the same base principles first innovated by Bitcoin technology. For example, most altcoins are person-to-person and offer simple and relatively cheap ways to complete digital transactions. Investors were primarily drawn to Bitcoin because of the novelty, and potential disruption of traditional assets. As an investment, altcoins can be a bit more volatile than Bitcoin. For some investors that can be a good thing, that volatility generally leads to a higher profit margin. That volatility can also mean far greater losses if the asset tanks.
Related: Cryptocurrency
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