What is an Altcoin?
The term “Altcoin” is used to refer to any cryptocurrency that isn’t Bitcoin. Because Bitcoin was the first cryptocurrency, it completely dominated the market to the point that it was considered the original cryptocurrency. As a result, any other cryptocurrencies that entered the market were deemed “alternative coins,” which was then shortened to “altcoin” This trend continues today, despite the vast number of different cryptocurrencies on the market – if it’s not Bitcoin, it’s an altcoin.
The first altcoin, Namecoin (NMC), was released in April 2011, three years after Bitcoin; it was designed to be an alternative currency to Bitcoin. Litecoin became the second altcoin in October 2011, though it was created from the Bitcoin source code.
Today there are thousands of altcoins that work differently from the Bitcoin blockchain. Unlike Bitcoin, many altcoins also have other use cases, apart from serving as a medium of exchange. For example, Ether (ETH) is used to pay transaction fees (gas) on the Ethereum Blockchain, and Maker (MKR) allows its holders to vote on the community decisions for the token.
Types of Altcoins
There are over 10,000 altcoins currently available, with several categories of use or function Here are the different types of altcoins you should know:
Stablecoins are digital assets pegged to another financial instrument, usually a fiat currency or stable asset like Gold, to create and enforce a stable price. They maintain this price stability through algorithmic formulas and holding reserves of the financial instruments they are pegged to. For example, the USDT stablecoin is pegged to the US Dollar at 1:1, which means that 1 USDT equals $1.
Utility tokens are developed for a specific purpose, usually for financing crypto projects. They are typically issued early in a project during what’s called the “ Initial Coin Offering” to gather funds and offer investors (their holders) unique benefits, like exclusive access to some services or products. However, utility tokens don’t give you an ownership stake in the project. ERC-20 tokens on the Ethereum Network are utility tokens: their main function is to be used within their respective environment – Metaverse tokens are one example of this dynamic.
Meme coins don’t exactly have a use case; instead, they are inspired by memes or jokes from social media and the internet. Their performance is driven mainly by their community or social media influence. Therefore, meme coins are usually highly volatile. They gain popularity but then slump overnight with massive price movements. Examples of meme coins are Dogecoin (DOGE) and Shiba Inu (SHIB).
Governance tokens give you the right to vote on certain decisions on a project within a particular DAO, dApp, or DeFi protocol. Governance tokens are a way for decentralized projects to distribute the decision-making power within their community. An example of a governance token is the MAKER Token (MKR)
A security token is a digital asset representing your ownership right or stake in a project issued on an existing blockchain. Generally, security tokens are usually created as investments; you can think of them as tokenized securities or stocks on blockchains.