Alternative coins or simply known as Altcoins, is a term used for basically any other cryptocurrency that is not Bitcoin. When new coins started appearing, some of them were calling themselves as “Bitcoin alternatives” so this Altcoins term stayed in the crypto world ever since then.
While Bitcoin is currently the biggest and most dominant cryptocurrency in the world with the largest market cap, the first altcoins launched in 2011 and today there are 17,000+ (and counting) other unique coins that offer different use cases and values such as transaction speed, energy efficiency and other purposes depending on the developers of that certain altcoin.
Some of the most well-known Altcoins, based on market cap at the moment, are Ethereum, Ripple, USDT as a Stablecoin, Solana, Chainlink, Polkadot, etc.
Different types of Altcoins
There are a lot of different altcoin types with some of the most popular being stablecoins, utility tokens, memecoins, governance tokens, etc. The way one coin can be categorized in these different types is depending on how the coin functions and what is the coin's main purpose.
Stablecoins
Stablecoin is a DOLLAR RESERVE crypto coin, in other words, it's generally backed by the same amount of fiat currency. For example, USD in the US banks under trust. Due to its nature, the exchange rate is always or almost 1:1 against USD. The most widely used of the stablecoins is USDT. You can click on the following link to learn more about Stablecoins: What is stablecoin?
Memecoins
Memecoins are mainly named after social media jokes, some theme or anything that is popular at the moment like a TV show or something related to a different cryptocurrency. Their value comes mostly from community buy-ins and are often promoted on social media and by popular influencers.
Some of these coins have reached high market caps, while in other cases - the price would go really high and drop down again to its previous value and never reach the all-time high price again.
Utility tokens
In short, utility tokens are used to provide services in a network. They could be used to buy other services, redeem rewards or pay network fees. Ether is maybe the most versatile utility token since one user can pay to mint currencies, buy NFTs and other digital art, and much more on the Ethereum network. Ethereum charges for these services a fee which is also known as gas fee. You can click here if you’d like to learn more about What are Gas fees?
Governance tokens
Governance tokens are something similar to utility tokens and their only use case is to give holders voting rights to help shape the future of the project. In most situations, these tokens let the user create and vote on cryptocurrency-related ideas. Because all holders have a say and decisions aren't made by a single central authority, this helps to make the coin a decentralized initiative.
Pros and Cons of Altcoins
Pros:
See the project grow:
If you have invested in an altcoin and you believe in the utility and features the coin brings, you can get a view of how the project itself develops over time and brings in new features.
Unique functions and new technology
Because these alternative currencies are more than just regular tokens, each one of them brings new functionality. If you compare some of these altcoins to Bitcoin, in terms of the technology itself, some altcoins offer more advanced features, competitive advantages, and the transaction speeds can be quite faster compared to Bitcoin.
Accessible with a lot of choices
A big number of these altcoins are listed on exchanges so it’s quite easy to invest. The harder part (which is also good) is that there are a lot of these altcoins in the market so an investor can take his time to do proper research and invest in the right coin he would pick based on functionality and potential returns.
Cons:
Risk of scams
This is really important when it comes to investing in altcoins. Investors should do their own research before investing since altcoins could be prone to scams. It’s a significant risk, as many altcoins can be scams or end up failing.
Volatile
In general, the cryptocurrency market is pretty volatile, especially when it comes to altcoins. One altcoin can see huge gains or big losses in a really short time period. The reasons for these big price shifts can be various. For example, Tesla founded Elon Musk posted on his Twitter account that Tesla could make some of their merchandise available for sale via Dogecoin. The price of Dogecoin increased around 20% after the tweet and the next day the price was down again.