CryptoCurrency is well known to everyone in today’s world, but many may limit themselves in the domain when it comes to crypto. Most of us are very well aware of BitCoin, but this is just a part of crypto. Have you heard about AltCoin? So what is an altcoin, and why is it important to understand the benefits and importance of AltCoin.

Altcoin term comprises two words Alt which stand for “Alternative,” and the other word term is “Coin” combing the two words gives us altcoin, making it an alternative to BitCoin. Even large transactions and extensive sets of data are now operated through a peer-to-peer system, a similar working system for both altcoin and bitcoin. The altcoin is considered to be an inexpensive way of digital transaction. As mentioned earlier, the altcoin is based on the same fundamentals as that of bitcoin. Both of them are based on Blockchain technology which prevents any tampering or deletion of transaction orders. To purchase or sell, or even store altcoin, you need a digital wallet and are likely to be volatile.

The significant difference between Altcoin and Bitcoin is the difference between the mining process; both of them use also called proof of stake, which helps to determine the mining power of the investor, which is determined by the number of coins they have.

It also helps save energy and reduces the time required to create new blocks and validate recent transactions. There are different exchange sites where you can easily buy altcoins, sell them or store them like Wazirx, Coinbase, Binance, Birmart, Coinmarketcap are great cryptocurrency forums that you can use to buy or sell altcoins.

Depending upon their functions, various kinds of altcoins are available, and these are categorized below:

  • Mining-based altcoin:

    As per the name suggests these types of altcoins are mined to exist. Majorly these mining-based altcoins use a proof of work method, which refers to a system that will generate new coins when you solve complex problems and create new blocks. Some examples of mined-based altcoins are Litecoin, Zcash which are just a few examples. Some of the top altcoins transformed themselves into mining-based in the early months of 2020. There is still an alternative to mining-based altcoins, which are pre-mined altcoins which simply mean these coins are not created by any complex algorithms but are distributed before they are listed in the market.

  • Stablecoin:

    Stablecoin targets to reduce volatility by adding values to goods like fiat currencies or precious metals in a basket. The basket is a reserve that helps the holder to redeem the cryptocurrency if it faces any problems. Stablecoin may not exceed the price fluctuation for stable coins over a fixed range. Some of the examples of stablecoins are Diem, USDC which are just some of the popular stablecoin.

  • Security tokens:

    These are similar to securities that are trading in the stock market. The only difference is that these have digital provenance. They resemble the traditional stock and promise equity in the form of dividends or equity to the owner. The major draw for investors to put money into it is price appreciation.

  • Meme coin:

    Meme coins are based on a joke or a humorous parody of other well-known cryptocurrencies, as their name suggests. They frequently gain popularity in a short amount of time, with prominent crypto influencers and everyday investors looking for quick profits promoting them online.

  • Utility Token:

    Utility tokens are being used to supply services within a network. Utility tokens can be used to carry out transactions for services, network charges, or receive rewards. With the exception of security tokens, utility tokens do not pay dividends or need an ownership stake. A utility token is similar to Filecoin, which can be used to purchase network storage space.

Altcoin Investment

The altcoin market is still in its infancy. It’s an asymmetrical match. The number of altcoins listed on cryptocurrency exchanges has dramatically increased in the last decade, attracting swarms of ordinary investors eager to profit from their price movements. However, such investors lack the cash required to produce adequate market liquidity. Altcoin valuations are subject to quicksilver fluctuation due to thin marketplaces and a lack of regulation.

Pros of Altcoin:

  • Altcoins can be said as “better models” of Bitcoin to address the cryptocurrency’s flaws.
  • Stablecoins, for example, can fulfill Bitcoin’s indigenous promise of becoming an everyday transaction medium.
  • Specific cryptocurrencies, such as Ethereum’s ether and Ripple’s XRP, have already acquired momentum with mainstream institutions, resulting in skyrocketing prices.
  • Investors have a vast range of altcoins to pick from, each of which serves a particular purpose in the crypto economy.

Cons of Altcoins:

  • In comparison to Bitcoin, the investment market for altcoins is much narrower. Bitcoin has a 42.5 percent stake in the global cryptocurrency market as of October 2021.
  • The altcoin market is characterized by fewer investors and limited liquidity due to the lack of regulation and established investment criteria. As a consequence, compared to Bitcoin, their prices are more variable.
  • At any circumstances, it’s not easy to tell apart the similarities and differences between altcoins and their many applications, making investing even more complex and perplexing.
  • Several “dead” cryptocurrencies have sunk investor funds.

Many of the same investment dangers apply to altcoins as they do to Bitcoin. Furthermore, many altcoins are unstable. However, well-known altcoins like ether and XRP compete with Bitcoin. Altcoins are attractive options for cryptocurrency market investors looking to diversify their portfolios. Though some, such as Ethereum’s ether, are well-known by name, the vast bulk of the nearly 9,000 altcoins have yet to make an impact. Altcoins exemplify the potential of cryptocurrencies to transform modern economics.