What’s An Altcoin?
Altcoin is a collective term to refer to other cryptocurrencies outside Bitcoin. The word itself is a combination of the words ‘alternative’ and ‘coin’.
More than 5,000 altcoins are in existence today. They have a smaller market cap, though, compared to Bitcoin which is a trillion.
Altcoins are introduced to the market through an Initial Coin Offering (ICO). Similar to a stock IPO, it provides an opportunity for investors to purchase digital coins or tokens to run the blockchain.
The most popular altcoins are Ethereum, Ripple, Litecoin, Bitcoin Cash, Dash, and Tether. Some of them serve a function other than being an alternative currency.
Most of these altcoins are based on the concept that makes Bitcoin operational. They use the same blockchain technology for decentralized peer-to-peer transactions. Altcoins, in a way, are like Bitcoin but with slight changes in the rules of the system so they can function the way they should be.
For example, Bitcoin produces a coin every 10 minutes while the altcoin Litecoin does the same every 2 and a half minutes.
Altcoins also have different limits when it comes to the production of digital currencies. For instance, the maximum number of Litecoin that can be produced throughout its lifetime is 84 million units, while Ethereum is capped at 18 million per year.
Types of Altcoins
There are different types of altcoins:
These are cryptocurrencies pegged to an existing fiat system like the Euro or USD. The idea behind this is to lower price volatility and make them easier to invest in.
- Mining-based coins
This type of coin rewards miners more, enticing them to join the cryptocurrency.
- Security tokens
These are based on investment contracts involving equity, profit sharing, or voting rights. They’re usually linked to a business and are governed by rules and regulations with stricter purchasing guidelines.
- Utility tokens
These tokens provide users access to a specific service. For example, a Filecoin token can be used to access the P2P network for online file storage.
Advantages and Disadvantages
Here are the pros and cons of investing in altcoins:
- Improved version of Bitcoin
Altcoins address the flaws of the Bitcoin framework, with improvements in speed, mining system, limitation, and pay-out scheme, to name a few.
- Competitive alternatives
Altcoins challenge the existing Bitcoin system by offering other functions aside from being just an alternative currency.
- Lower fees
Altcoins generally charge lower fees compared to Bitcoin, making them easily accessible to more users.
- High volatility
Since altcoins are fairly new and have lower market caps, they can be very volatile to invest in.
- Security concerns
Altcoins can be easily made, so they’re susceptible to scams and fraudulent schemes.
Where to Buy Altcoins
If you’re interested in investing in altcoins, here are the exchanges you can tap into:
Good for beginners because of its low spread fees.
Trusted by professional traders because of its security features.
- Digital Surge
Easy to use exchange with low fees.
Established exchange that allows you to purchase crypto with cash.
- Independent Reserve
Provides multiple ways to deposit your capital.
Just like investing in any form of financial instrument, make sure you study first before putting your money into the altcoin of your choice.