What are altcoins? – everything need to know
Chances are that you also intend to invest in cryptocurrencies. If this had not been the case, you would never have come to this site. Most people are familiar with Bitcoin, this is of course the biggest project you can invest in at the moment. However, this is not the only project that you can invest in on the crypto market: there are also altcoins.
We can see that not everyone is familiar with altcoins, let alone know what the term exactly means. To explain this to you, we decided to list the most important information in this article. After you read this article you will know everything you need to start investing in altcoins.
What are altcoins? – definition of altcoins
First we discuss what altcoins are. It is necessary to know exactly what we are talking about. An altcoin is a cryptocurrency or virtual currency. In particular, it is an alternative to Bitcoin. Each altcoin works according to its own rules. This means that it is really something different from Bitcoin itself. They are cryptocurrencies that use a technology called blockchain which enables secure peer-to-peer transactions.
Altcoins build on the success of Bitcoin by using the underlying technology, only with modifications. Sometimes these modifications are so significant that they bear almost no resemblance to Bitcoin itself, and we will show you more about this in a moment.
How to buy altcoins yourself?
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Types of altcoins – what options are there?
What many people do not know is that there are different types of altcoins. These different types of altcoins each have their own unique characteristics. To see how this works it is useful to look at how altcoins work in general.
In general, altcoins work just like the original Bitcoin. Using a private key, you can send a payment from your digital wallet to the wallet of another user. In such a cryptocurrency there is a blockchain in which all transactions are permanently and publicly recorded. This ensures that you cannot make changes afterwards. The blockchain is secured by mathematical proof that confirm transactions in blocks.
Now that you know this, it is time to look at the different types of altcoins that exist today:
Stablecoins
Stablecoins are coins that are linked to an existing asset. A stablecoin can for example track the value of the dollar or pound. One of the most popular examples of this is Tether. This coin is linked to the USD. The idea behind tying a coin to an existing asset is to reduce the price volatility often seen with Bitcoin.
This ensures that you can use this coin to buy other cryptocurrencies. Now, since this altcoin is linked to the dollar or the pound, it is not logical to invest in it. The price will not increase but will always remain the same as 1 dollar or 1 pound. However, they are very useful coins for trading since you can safely use them to buy different types of altcoins
Coin-based mining tokens
This is a mouthful, but once you know how it works, it’s not that bad. While coins can be bought like traditional currency, they can also be mined. Mining requires the user (or miner) to validate a transaction, guarantee its authenticity and update the blockchain.
There is a certain reward for this if you have succeeded in doing so. The reward you get is cryptocurrency. An example of a mining-based altcoin is Ethereum. This will be discussed in further detail later in this article.
Security tokens
The next type of altcoin you can find today is the security token. Security tokens are a form of investment contract. These contracts promise clients shares in a company, a share of a profit or even voting rights. As such, they are usually linked to a company and fall under security legislation. This means that there are stricter guidelines for buying and transferring security tokens.
Because these coins fall under the security legislation, the returns on these coins are often not extremely high. However, these coins will generally be used a lot by companies. Hence, this is a promising type of cryptocurrency.
Utility tokens
Finally, there are the Utility tokens which can be found among the altcoins. Utility tokens give a user access to a service. For example, owners of a Filecoin token can spend the cryptocurrency to access the Filecoin network. This is a decentralized peer-to-peer network that stores files online. There are many other projects that work with Utility tokens.
You can think of utility tokens as a kind of currency that you pay with to be able to use the service. If you run out of tokens, you will not be able to use the platform until you buy more coins. Another well-known example of utility tokens is GASS, the special token needed to use NEO’s platform.
The advantages of altcoins
It is useful to briefly consider the main advantages of altcoins. Although every coin is different, we can see that there are some general goals or advantages between the different types of altcoins. Firstly, altcoins can overcome the disadvantages of Bitcoin. Altcoins are usually designed to address a shortcoming of the Bitcoin framework. This may include speed, mining costs or other aspects of the currency.
In addition, altcoins create more competition. By changing the rules under which Bitcoin works, altcoin creators make room for new competitors to the Bitcoin system. This competition in turn leads to better coins being created.
Finally, the altcoins provide lower transaction costs. The relatively low transaction fees make it cheap to use the currency.
As an investor, you can also profit from altcoins. Especially new coins are often very volatile: as a result, a coin can sometimes rise (and fall!) in value by hundreds or even thousands of percent.
What are the best-known altcoins at the moment?
Now that you know what altcoins are, it is time to move on to the best altcoins. There are numerous coins that you can invest in. Although it would be too much work to list all the altcoins, we can take a look at the most well-known altcoins you can find. To give you some insight, we have listed the top 5 best-known altcoins below. If you like to invest in cryptocurrencies these altcoins are certainly not a bad option to go for:
Ethereum
Ethereum is currently the most well-known altcoin. After Bitcoin, it is also the most traded currency on the entire crypto market. Ethereum is a public peer-to-peer network with its own cryptocurrency called Ether. The main difference with Bitcoin is that while Bitcoin aims to become a globally accepted currency that could replace conventional money, Ethereum is a system on which smart contracts can be made. These are also called special digital contracts that are automatically executed when their conditions are met. These contracts make it much easier for companies to enter into agreements with each other.
Besides the support for smart contracts, it is a platform that can be used to create decentralized apps. These are applications that can be compared to normal apps that you can download on your phone. The only advantage of this is that the apps on the Ethereum network cannot be controlled by anyone.
In 2016, there was hype around Ethereum and many people predicted that the project could overtake Bitcoin as the most popular currency. Since then, the price of Ethereum has risen considerably, although it is not as if Ethereum has been able to knock Bitcoin off its throne. Nevertheless, it is certainly not a bad project to invest in if you want to own cryptocurrencies yourself.
Ripple
Time to move on to the next well-known altcoin. This is one you’ve probably heard of as well. Ripple is also known as the cryptocurrency of the banking world. Despite its association with the US company Ripple, XRP is an independent digital currency, not owned or controlled by any one entity or person.
Ripple is an open-source cryptocurrency with the great advantage that it can be used to transfer money easily. Using Ripple, it is possible to settle transactions much cheaper and faster than with other types of payment methods. XRP works on its blockchain ledger and transactions can be processed in just 3-5 seconds. The token acts as a kind of bridge between different currencies.
Transactions on Ripple are not limited to XRP, however. Ripple also supports fiat currencies such as dollars, euros, pounds and even the Chinese yen. Ripple also includes support for other cryptocurrencies such as Bitcoin to conduct the transactions. Ripple can therefore be seen as a major payment processor and currency exchange.
For this, the XRP currency is necessary, but secondary to Ripple’s mission. In this sense, Ripple is not aiming to compete with Bitcoin or Ethereum. This makes it really a different project to invest in. Ripple brings the speed and security of blockchain to the international payments’ industry.
Cardano
This is probably a slightly less well-known project for beginners. Nevertheless, it is a good project to invest in. This can be seen from the fact that the project has experienced a lot of growth over the last few years. Cardano allows owners of its ADA cryptocurrency to help operate its network and vote on changes to its software rules. Developers on the platform can use the Cardano blockchain to execute smart contracts and build decentralized applications. In this respect, Cardano is very similar to Ethereum’s project, as it has the same kind of goals.
Cardano differs from the other projects by emphasizing a research-driven approach to design. They have therefore placed a much greater focus on the academic world.
Although Cardano does not really have many new features compared to a project like Ethereum, it does have many advantages. All adjustments to the network were made after sufficient scientific research. They also use a special kind of formal verification. This is a process in which the code is verified mathematically.
In addition, Cardano is equipped with a special algorithm called Ouroboros. This algorithm allows for much more secure transmission of data to the blockchain itself. Furthermore, Cardano’s code is written in the formally specified programming language Haskell. This is a language that is widely used in the banking and defence sectors. This may well mean that companies from this sector will start using the project in the future.
Polka dot
Few people would have predicted that this would become one of the most well-known altcoins today. Polkadot is a special kind of software that aims to encourage a global network of computers to use a blockchain. It is a system that allows users to set up their blockchains if they wish. In this way, Polkadot is one of a number of competing blockchains that wants to grow an ecosystem of cryptocurrencies. This makes it a rather unique project.
Although the project is similar to EOS in many ways, Polkadot has a number of unique features. To begin with, Polkadot is designed to serve two types of blockchain. One main network where transactions are permanent and user-created networks. This is also called a parachain. Parachains can be adapted for any number of applications and are powered by the main blockchain. This ensures that they have the same kind of security.
With this design, the Polkadot team claims that transactions can be kept safe and accurate by using only the computers needed to run the main chain. However, users get the added benefit of being able to customize many parachains for a wide range of applications. The Polkadot team believes that this design will allow its users to conduct transactions privately more efficiently, create blockchains that do not reveal user data to the public network or process a larger number of transactions. Although the project is still in its infancy, there is a good chance that its goals can be achieved.
Litecoin
You have probably heard of Litecoin. This is one of the better-known types of altcoins that you can find to invest in. Litecoin is similar to Bitcoin in many ways, which is what the project is based on. Litecoin was founded in 2011 with the intention of becoming a global digital payment system.
Like any other online payment system – people use Litecoin to transfer coins to each other when making payments. But despite the obvious comparisons with Bitcoin, Litecoin is a cheaper and faster alternative. This is well reflected in the fact that Litecoin can process payments over four times faster. It aims to process a block every two and a half minutes compared to Bitcoin’s 10 minutes.
Because Litecoin is faster, it is much easier for companies and organizations to use Litecoin themselves. You do not want to wait very long for your money. This is simply not useful for online payments. In addition to being faster, Litecoin is also a lot cheaper to use. It only takes 1/1000 of a Litecoin to process a transaction of any size.
Litecoin also uses a different set of rules for mining than bitcoin. While bitcoins require expensive hardware to mine, Litecoin can be mined with ordinary computers. This avoids making it possible for only large companies to mine the currency. This ensures that control of the network cannot be taken away by large-scale companies.
What are the risks of altcoins?
Altcoins are certainly not without risk! As you may know, bitcoin is very volatile. The price of the cryptocurrency can drop by tens of percent in the space of a year. It is therefore important to take this volatility into account. Therefore, only invest in altcoins with money you can really afford to lose.
A smart strategy for investing in altcoins is dollar cost averaging. This involves periodically investing a fixed amount in an altcoin. In this way you invest money at the top and the bottom and benefit from an average return.
It is also important to spread your investments sufficiently. By investing in different altcoins, you reduce the chance of losing your entire deposit on one cryptocurrency. Many altcoins only have a limited lifespan, so this is certainly not an unnecessary luxury.
Conclusion – should you invest in altcoins?
The information from this article has made it possible to get a much better idea of the altcoins and the reasons to invest in other types of digital currencies besides Bitcoin. There really are many projects that have a possible golden future, although it is important to examine them critically.
Only invest in altcoins with money you can afford to lose. It is certainly possible to make a killing, but you can also easily lose your entire deposit. Therefore, read up on the subject and discover if there is a good team behind the cryptocurrency. By doing so, you can determine whether an investment in the relevant altcoin will turn out well.
If you would like to stay informed about the best altcoins to choose for your investments, you are in luck. Here on the site there are many more articles that you can read. In these articles we will discuss the various altcoins, so you can determine if it is interesting to invest in them.
Auteur
Over Alex Mostert
When I was 16, I secretly bought my first stock. Since that ‘proud moment’ I have been managing trading.info for over 10 years. It is my goal to educate people about financial freedom. After my studies business administration and psychology, I decided to put all my time in developing this website. Since I love to travel, I work from all over the world. Click here to read more about trading.info! Don’t hesitate to leave a comment under this article.
