What are altcoins? A guide to the cryptocurrencies beyond Bitcoin

Bitcoin kicked off the cryptocurrency era in 2009 and has become the name that immediately comes to mind when talking about digital currencies. In fact, Bitcoin has become so dominant in the evolving scene that all other cryptocurrencies are considered “altcoins,” alternatives to Bitcoin. And that name has stuck, but today there are literally thousands of competitors to the original digital currency.

Here’s the basics about altcoins, what to watch out for this year, and whether altcoins can overtake Bitcoin.

What are altcoins?

An altcoin is an alternative cryptocurrency to what was once the only cryptocurrency, Bitcoin. In its early years, Bitcoin dominated the space so much that other competitors were defined by the original cryptocurrency. It was Bitcoin and everything else. So anything that wasn’t Bitcoin was referred to, somewhat derisively, as an altcoin or, perhaps less charitably, as a sh*tcoin, in rhyme with the original digital currency.

So altcoins are any cryptocurrency that is not Bitcoin. In the early years of cryptocurrency, this definition made a lot of sense, as Bitcoin occupied most of the market’s attention and competitors were creating dozens or even hundreds of alternative coins. Today, some experts estimate that the number of individual cryptocurrencies is around 15,000.

However, Bitcoin remains the largest cryptocurrency by market capitalization, which is the value of the total number of coins in existence, more than three times that of second-largest player Ethereum, according to CoinMarketCap.com. The size of the other players drops rapidly from there.

Types of Altcoins

With literally thousands of cryptocurrencies in existence, speculators looking for altcoins are spoilt for choice, but most trading is centered around the biggest players and those with the best technical features, such as fast transaction times.

Mining based coins

Mined currencies are put into circulation by networks of computers that solve complex mathematical problems, often requiring a lot of energy. The world’s largest cryptocurrency – Bitcoin – is a mining-based currency, but so are many altcoins.

Stablecoins

Stablecoins are a type of cryptocurrency whose value is pegged to the value of another asset, usually the U.S. dollar. Stablecoins attempt to keep the coin’s price equal to the underlying asset by tracking the underlying asset. Typically, stablecoins are backed by assets such as real dollars (usually bonds and other assets), giving the stablecoin a basis in real currency. Examples of stablecoins include Tether and USD Coin.

The story continues

Despite their name, sometimes stablecoins are more about stability than anything else. TerraUSD, a stablecoin pegged to the dollar, made headlines when it fell to just a few cents per dollar in May 2022. The coin’s automatic pegs couldn’t keep up with orders from traders looking to sell their positions.

Security tokens

A security token is a type of coin that represents a fractional share in another asset. For example, a work of art might have security tokens that divide and verify ownership of that asset. Or a company might represent its ownership with security tokens. Therefore, these types of tokens could allow for the securitization of more traditional assets.

Memecoins

Memecoins are a type of cryptocurrency that gains public attention through social media or tweets from celebrities like Tesla CEO Elon Musk. Memecoins often have a lottery-like appearance, with prices rising very quickly and then falling rapidly. Popular memecoins include Dogecoin and Shiba Inu.

Popular altcoins

Here are the top 10 cryptocurrencies as of July 18, 2024, according to CoinMarketCap:

Bitcoin

Ethereum

Connecting

BNB

To the left

US dollars

XRP

Toncoin

Dogecoin

Cardano

Of course, these rankings can fluctuate, as each currency releases new coins and the price of the currency often moves up or down with significant volatility. Here are more details about the top cryptocurrencies by size.

What should be considered before buying altcoins?

If there’s one thing riskier than investing in a few top cryptocurrencies, it’s buying relatively unknown altcoins. Here are some things to consider before diving into altcoins in hopes of a lottery-like payout:

Cryptocurrency is driven entirely by sentiment. Since cryptocurrencies are not typically backed by the assets or cash flow of an underlying company like a stock, they are driven solely by sentiment. Sentiment can range from wildly optimistic to depressingly pessimistic, meaning that altcoins are relying on traders to become more optimistic or more optimistic in order for their prices to rise.

Investors tend to cluster around the most popular coins. Since cryptocurrency is driven by emotion, investors tend to cluster around the most popular coins, focusing on Bitcoin, Ethereum, and a handful of others. While an altcoin occasionally breaks out — Dogecoin or Shiba Inu are purebred examples — thousands more remain virtually unknown. This means that if an altcoin gets into the doghouse, it may never get back to being as popular as it once was, and could cost you most or all of your investment.

Can you afford to lose money? Given the extreme risk and volatility of altcoins, it’s important to ask yourself if you’re only investing money you can afford to lose. Cryptocurrency and other financial markets are not places to deposit your rent or other needed funds.

Focus on the technical capabilities of an altcoin. If you are considering investing in an altcoin, examine its technical capabilities. Some altcoins, such as Solana, have risen because they provide high functionality at a low cost. The characteristics of a cryptocurrency can help keep it at the forefront of the public’s imagination and therefore make it an attractive trading vehicle for investors to rally around.

When purchasing highly speculative assets like cryptocurrencies, it is important to understand that you could lose your entire investment. At the very least, investors should expect extreme volatility.

In conclusion

With literally thousands of them out there, altcoins continue to gain popularity. While no single coin can dethrone Bitcoin as the top cryptocurrency, altcoins as a whole could continue to erode the leader’s market share, even as the overall “cryptocurrency pie” continues to expand.