Bitcoin currently has over 25 million owners in the US and reigns supreme as the most popular cryptocurrency. But as investors grow more comfortable with crypto, they tend to venture into the world of altcoins.
But what is an altcoin and how does it differ from BTC? Are other types of crypto investments outside of BTC worth the risk?
The following guide will explain everything you need to know before adding the lesser-known coins to your portfolio.
What Are Altcoins?
Altcoins are usually considered to be any type of cryptocurrency that isn’t Bitcoin. However, some people don’t consider ETH an altcoin because they place it in the same league as BTC.
There are some types of altcoin that use different validation methods for transactions and start new blocks. It’s meant to separate the altcoin from BTC and ETH by offering unique capabilities or uses.
For example, Litecoin generates blocks 4x faster than Bitcoin and uses a different algorithm. You can see more here about Litecoin and its current price.
Payment Token altcoins are meant to be a currency to exchange between two parties. Stablecoins are a type of altcoin created to lower volatility by linking their value to several other cryptocurrencies.
Security token altcoins get offered on stock markets as tokenized assets. Examples of tokenized assets include real estate and stocks.
Utility token altcoins offer services inside of a network. The coins might be used to buy services, pay fees, or obtain rewards. ETH is an example of a utility token because of its use on the Ethereum blockchain.
Meme coins are altcoins inspired by memes and typically skyrocket very quickly. However, the gains are usually short-term once the buzz dies downs.
Governance token altcoins let their holders have specific rights inside of a blockchain. Examples include voting for protocol changes and voting on other important decisions.
Altcoin Pros and Cons
In theory, altcoins get created to enhance the cryptocurrency they emanated from. So, certain upgrades to existing coins often look attractive to investors trying to find the next best crypto.
Many altcoins focus heavily on having more utility than bigger coins. The added utility makes the coin more needed and helps it live on.
There are a ton of altcoin options for investors to choose from. But despite this, the altcoin market is still substantially smaller than Bitcoin’s.
The limited number of investors combined with low trade activity creates thin liquidity. Some altcoins end up dying altogether, plummeting investors’ money.
Many altcoins have similar names, and it’s hard to tell the difference in utility. So, it can be a confusing experience compared to simply buying BTC or ETH.
Ready to Buy Altcoins?
Now you know that buying an altcoin has several advantages and disadvantages. Remember, it’s important to research their utility and purpose closely to find coins that will grow and thrive.
Take a look at our business and finance section for more insight into the world of cryptocurrencies.