While Bitcoin was the first digital currency Satoshi Nakamoto envisioned in 2009, all other cryptocurrencies that came after Bitcoin were called altcoins. In other words, an altcoin or alternative coin is a currency other than Bitcoin. However, as the market expands further, this definition presents a very broad picture of those thousands of “altcoins” floating around the market. The recent definition has started to exclude the top 10 from the altcoins list.
Altcoins are diverse and plentiful: While Namecoin was the first altcoin (which gave rise to the concept of colored coins similar to NFTs), Ethereum is the most popular and largest altcoin, and most altcoins are forks of Ethereum (some altcoins like Litecoin, Bitcoin Cash, etc., hard fork of Bitcoin). Bitcoin accounts for over 40% of the market capitalization, Ethereum takes up 25%, and the rest is taken up by altcoins. There are currently over 17,000 different types of altcoins on the market. Some of the popular altcoins include Cardano (ADA), Solana (SOL), Tether (USDT), Dogecoin (DOGE), XRP (XRP), Polkadot (DOT), Uniswap (UNI) and many more.
Altcoins are highly correlated to Bitcoin: Altcoins are highly correlated to Bitcoin. This means that any major Bitcoin price movement has an even greater impact on altcoins, as Bitcoin holds the largest market share, giving it a lot of market influence and control. Another reason for this strong correlation is that altcoin prices are measured in Bitcoin. Most buyers first buy bitcoin in exchange for fiat and then trade their bitcoin for other altcoins. This relationship is symbiotic and has altcoin prices tied to bitcoin price movements.
Each altcoin is linked to a network: Each altcoin is tied to a particular blockchain network or platform, or project and performs certain specific functions. For example, Ether is the native token of the Ethereum platform and can be used by network participants to pay gas fees and to use other services on the network. Other altcoins can serve purposes such as governance, utility, or payment.
How do Altcoins work? Altcoins use the same underlying technology as Bitcoin – blockchain. Blockchain provides an immutable, distributed ledger to capture all transaction history and ensure transactions are legitimate. However, each altcoin is designed to achieve specific goals or is developed as an improvement over previous coins.
Types of altcoins: While altcoins can be differentiated based on many parameters, let’s delineate them based on the function they provide. There are several types of altcoins in the crypto market based on their use cases. Some of them include:
- Indigenous currencies are used as digital currencies to exchange values between parties within a particular platform or network. These native coins power the internal economy of the platform or ecosystem. Ethereum, Cardano, Solana, Filecoin, Internet Computer and Tron are some examples.
- Tokens: Tokens represent a unit of value on an existing blockchain, i.e. they do not have a separate blockchain of which they are the native tokens. For example, the Chainlink platform is a layer 2 scaling solution based on the Ethereum network. LINK is the token used to pay for the use of Chainlink services. There are several types of tokens:
- Payment tokens are used as digital currencies to exchange values between parties. Ether is an important altcoin that acts as a payment token. Litecoin, Dash and Bitcoin Cash are other examples.
- Security tokens are investment assets that use tokenization to exchange real assets by upgrading them to units on a blockchain. The distinction between a security token and a cryptocurrency is that while the latter requires its blockchain to trade, the former can run on any blockchain like Ethereum. Popular security tokens are Sia Funds (SC), Science Blockchain (SCI) and Blockchain Capital (BCAP).
- Governance Tokens enable their holders to influence decisions made on the network. Token holders can vote for or against the proposal to start a new project, make changes to a project, or even the operation of the network as a whole. Apecoin (APE), Maker (MKR), Aave (AAVE), and Decred (DCR) are some examples of governance tokens.
- Stable Coins bring stability to highly volatile cryptocurrencies by bringing the price of cryptocurrencies closer to fiat currency, other cryptocurrencies, industrial metals or precious metals. The purpose of the stablecoin is to maintain a stable value over time. In case stablecoin holders wish to withdraw, the asset value shown above acts as a reserve. Notable stablecoins are Tether (USDT), USD Coin (USDC), and Binance USD (BUSD).
Each of the altcoins mentioned above can be bought, sold, and traded on a crypto exchange in exchange for fiat, stablecoin, BTC, or another crypto. Although there are a number of crypto exchanges in India from which you can buy altcoins, WazirX is a trading platform that guarantees the highest levels of security, including KYC checks and 2FA authentication, high liquidity and a fast matching engine, and a user-friendly interface for both new and seasoned investors. It lists over 200 altcoins.
What are the best Altcoins to watch?
Although we have talked about altcoins in depth, you may want to know more about which altcoins present a good investment or trading opportunity in the crypto market. Buyers should consider doing plenty of market research and getting acclimated to the project or platform they are looking to invest in.
Top altcoins like Cardano, Solana, XRP, Chainlink, Polygon, Binance, Polkadot, etc. are always a good bet as these coins have proven themselves time and time again. As Web3 opportunities knock on our doors, besides Ethereum and scaling solutions, decentralized platforms such as Compound, MakerDAO, Dai, and Avalanche will continue to be relevant. Metaverses and gaming tokens like Decentraland, The Sandbox, Axie Infinity, Bloktopia ApeCoin, etc., are good choices for buyers looking for altcoin investments. Altcoins are volatile and more subject to market fluctuations. Investors should consider risk before seeking investments in altcoins.
Disclaimer: Cryptos are virtual assets that are unregulated, not legal tender and subject to market risk. The views and opinions expressed in the article are those of the authors and do not represent investment advice or the official position of WazirX.
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