As the name suggests altcoin is made up of two parts “alt” and “coin” essentially meaning that it is an alternative crypto to Bitcoin. For example, XRP is considered an altcoin as its an alternate coin to Bitcoin and is created differently as its more efficient and the way the transaction gets verified is different too.
There are currently over 10,000 different cryptocurrencies meaning it is important to understand how altcoins work as it could be a great investment.
To start with, given that these altcoins have been created from Bitcoin infrastructure the altcoins price will tend to mimic or copy the current swings, gains and losses that Bitcoin goes through in the market. This is due to Bitcoin currently being the biggest crypto in the market that is traded the most, as such news events that can trigger bitcoin to go up or down will also affect altcoins, you can use this to your advantage to determine when particular altcoins may dip down or push higher resulting in higher returns.
Different Types of Altcoins
As altcoins look to further enhance the fundamentals of Bitcoin it has created a number of functionalities different, these are some of the different types of altcoins:
- Security Tokens – This is quite similar to stocks that get traded in the form of securities on the stock market where particular crypto will promise equity in the coin, for Example purchasing Ethereum will essentially represent you owning a certain stake in that coin.
- Utility Tokens – These tokens are quite different to the rest of the list as its used when providing a service. For example, if Uber Eats produced Uber Eats coins where they can only be redeemed to purchase food on their app it would be considered a utility token as it can only be redeemed for the service of ordering food to your doorstep.
- Mining Based – These altcoins are needed to be mined from miners in order for these coins to exist in the network, these miners validate block transactions and are awarded coins for the amount of problems they mine. The more complex problems that get mined will result in a higher reward for the miners.
- Stablecoins – These coins are made to be stable hence the name this is done by copying what the US dollar is currently worth, due to the price copying the US dollar it is not necessarily an investment but a way to send crypto without worrying about the volatility of it dropping.
- Staking Based – This is where you can stake the coins you have as a way to verify transactions and to add coins to the currently supply, this will allow you to verify blockchain transaction and in return receive coins as a reward.
When investing in crypto it is always best for you to do your own research in these projects, do note that investing into alt-coins will need a thorough investigation as some of these coins overall goals are quite ambitious. However, it doesn’t hurt to diversify your crypto portfolio and invest into a small percentage of these coins.