Cryptocurrencies other than Bitcoin are Altcoins. They are similar to bitcoin but have differences too. Such as, Altcoins provide new capabilities like low price volatility or small contracts, which you won’t get in Bitcoin. Some examples of Altcoins are stablecoins, mining-based cryptocurrencies, utility tokens, and security tokens.

According to the market capitalization in November 2021, Binance coin and Ethereum turned out to be the most prominent Altcoins. As the name suggests, Altcoins means alternative currencies. Therefore it is an alternative to bitcoin and shares the same framework. We can also say that they have similar functions and code as a giant system that can simultaneously process large amounts of transactions and data.

As mentioned earlier, both have some differences also. Bitcoin has some limitations and shortcomings. And Altcoins improvise these limitations to develop a competitive advantage. Due to the significant differences, Altcoins succeeded in creating a market for themselves. It, in turn, has drawn the attention of many investors.

Is it reasonable to invest in Altcoins?

Altcoins are new to the market. But still, it is multiplying and attracting a mob of investors. But the fact is that these investors do not have the required capital to generate sufficient market liquidity. The truth is that timed trades will yield traders a wealth of profits. But as you know, the crypto market is not yet mature, and there are no defined metrics or investments to evaluate cryptocurrencies.

In short, investment here is risky. The altcoin market is an emerging and unregulated market prone to volatility. The investors who are ready to handle stress by wild price swings can gain significant returns. Let us discuss some of the advantages and disadvantages of Altcoins.

Pros:

  • Altcoins are the better alternative to Bitcoin, and they improve all the shortcomings of Bitcoins.
  • Many Altcoins have yielded traction among mainstream institutions leading to high valuations.
  • Altcoins prove best as a medium for daily transactions.
  • You have a choice from a wide range of Altcoins performing different functions in the economy of cryptocurrency.

Cons:

  • Altcoin has a smaller investment market in comparison with bitcoin.
  • The prices of Altcoins are more volatile than Bitcoin due to the absence of defined criteria and regulations for investment.
  • Investment decisions turn out complicated and confusing due to undifferentiated use cases of different Altcoins.
  • The investors’ dollars are at risk of sinking due to several dead Altcoins.

Altcoins have the same risks as Bitcoins. And some of the small Altcoins are illiquid also. But investing in well-established Altcoins can turn out to be a good decision, such as XRP, ether, etc. Altcoins also have innovative contract capabilities, and according to the market, capitalization ether is the most well established and the biggest Altcoin.

What are the types of Altcoins?

Altcoins come in various categories and flavors depending on their consensus mechanism and functionalities. However, some of the essential types are:

  • Stablecoins:

    They are digital currencies backed by assets like Fiat currency, gold, or other cryptocurrencies. Some stablecoins use computer algorithms to maintain their value comparatively stable. Examples are USD coin, Tether’s USDT, etc.

  • Mining based:

    These Altcoins are mined into existence. Examples include Monero, Litecoin, etc. These coins are not produced through any algorithm. They are distributed before listing in the cryptocurrency market.

  • Meme coins:

    They are inspired by a silly take or a joke on other cryptocurrencies. They typically gain popularity in significantly less time. Leading meme coins example is dogecoin, Shiba Inu, etc. They are almost the same as securities traded in the stock market, but they have a digital provenance. It is a portable device that authenticates a person’s identity electronically. It does so by storing some personal data.

  • Utility tokens:

    They are utilized to give service within a network. You can use them to pay network fees, purchase services, or redeem rewards——an example of utility tokens is Filecoin.

  • Security tokens:

    They are almost the same as securities traded in the stock market. But they have a digital provenance. It is a portable device that authenticates a person’s identity electronically. It does so by storing some personal data.

  • Utility tokens:

    They are utilized to give service within a network. You can use them to pay network fees, purchase services, or redeem rewards—an example of utility tokens js Filecoin.

Before planning to invest in Altcoins, you need to do proper research and ask yourself specific questions. Such as who is the issuer and the sponsor of the Altcoins. And whether you know everything about the sponsors’ background or not. You must be knowing where your money will go and for what use. You must also learn about how you can sell your investment and when.

If you invest in Altcoins, you should be knowledgeable about the legal protections available in case of fraud and all your specific rights. Also, keep yourself informed regarding the refund policies in case something goes wrong. As the world is risky, you must be very clear about everything before entering this market.

Conclusion

If you are an investor interested in diversifying your portfolio, then Altcoins are good alternatives for you. There are several Altcoins in the market. But only a few like Ethereum’s ether is recognizable, and others are still waiting. But before investing, you must do proper research and be clear about every risk associated with it. However, the risk is similar to Altcoins and Bitcoins but sometimes can be higher. If you are investing, then make sure to invest only the amount you can afford to lose because nothing is guaranteed here in investing.