What is an altcoin? In addition to the definition & explanation, learn in this article which best alternatives to Bitcoin exist.
The term refers to alternative digital assets that are not bitcoin.
In this article, we answer the most important questions about Altcoins:
- What is an altcoin?
- What are the 5 top altcoins?
- What categories of altcoins are there?
- How can altcoins be bought?
What is an altcoin? – definition and explanation
Altcoins are those cryptocurrencies invented after Bitcoin and advertised on the market as “Bitcoin alternatives”. The term is made up of the words “alternative” and “coin”.
By the end of 2021, there were around 12,000 altcoins, most of which were of little relevance. The technology on which Altcoins are based is fundamentally not identical to that of Bitcoin. This already starts with the choice of distributed ledger technology in blockchains vs. DAG networks. There are also some fundamental differences with regard to technical properties such as scalability, decentralization, etc.
Bitcoin dominates the crypto market, but altcoins are increasingly catching up. At the end of 2021, Bitcoin’s market share fell to an annual low, so it is assumed that the market dominance will soon be put into perspective. Altcoins, on the other hand, is gaining in importance.
Altcoins that are new to the market can experiment with new ideas and gain market share through considerable marketing effort. In this sense, some altcoins can also be viewed as advancements from Bitcoin, provided they are carefully developed and tested. The boom in the crypto market ensures that altcoins can be developed quickly and marketed even faster. Due to the decentralization of the networks, new features can be implemented rapidly and centrally.
The Bitcoin successor Ethereum can be named here as an example. While it is impossible to change the basis with the Bitcoin blockchain, this can be done comparatively quickly and easily with the Ethereum blockchain.
5 Top Altcoins by market capitalization
The market capitalization indicates the total market value of a cryptocurrency and is calculated based on the current volume in circulation multiplied by the current supply. Bitcoin still ranks first in terms of market capitalization. The top 5 altcoins after Bitcoin are described below.
Ethereum is the Altcoin with the highest market capitalization.
Ethereum is a decentralized open-source system with its cryptocurrency, ether. Ethereum (ETH) functions as a platform for numerous other cryptocurrencies and executes decentralized smart contracts.
The project launched in 2015 aims to become a global platform for decentralized applications. Users of this platform should be able to develop, change and execute software that can be used in various areas from finance to art and is resistant to manipulation or fraud.
Binance Coin (BNB)
Binance Coin takes second place among Altcoins after Ethereum in terms of market capitalization.
Binance Coin (BNB) was launched in 2017 and was originally supposed to run on the Ethereum blockchain with 200 million coins and 100 million BNB offered in the ICO.
In 2019 the BNB coins were exchanged. Previously, these were tokens based on the ERC20 protocol. These were exchanged for BEP2 tokens at a ratio of 1: 1 in 2019. ERC20 is a technical standard for smart contracts on the Ethereum blockchain. BEP2 is also a protocol that contains certain rules and predefined criteria for the Binance chain. From a transaction cost and speed perspective, BEP2 is considered a better alternative to ERC20 because the system is faster and more efficient.
In parallel, there is the BEP20 standard, which applies to the Binance Smart Chain.
Tether (USDT) is a digital currency that represents the value of the US dollar.
The project was launched in 2014. The project aimed to develop a stable cryptocurrency used as a Stablecoin. In contrast to Bitcoin with its high volatility, USDT is anchored to the US dollar and relatively stable.
Because Tether is stable, it can be used to hedge against crypto market fluctuations. Tether (USDT) is therefore suitable as a store of value.
The stablecoin tether is now available on various blockchains, such as Ethereum, Tron, Avalanche, Binance Smart Chain, etc.
With regard to Tether, the fact that a large part of Bitcoin trading is traded in the currency pair BTC-USDT is particularly interesting. Tether is therefore essential for trading Bitcoin (BTC).
Solana is an open-source project to offer scalable, decentralized financial solutions (DeFi).
The project was launched in early 2020. In addition to proof-of-stake, it also relies on proof of history. Proof-of-Stake (PoS) is a consensus algorithm in which the consensus is linked to the units of the cryptocurrency that are visible and verifiable in the network. Proof-of-history is used to prove that an event took place at a specific point in time. The combination of the two mechanisms ensures, among other things, more security and better scalability of the protocol.
Due to the hybrid consensus model, Solana is popular not only with small investors but, above all, with institutional traders.
The USD Coin is a stablecoin that is linked 1: 1 to the US dollar. Each unit of the coin is deposited with one US dollar. The deposited US dollars are held in reserve in a mix of cash and short-term government bonds.
The stablecoin was launched in September 2018. The aim is to promote cashless transactions. Compared to the USDT, the USD-Coin (USDC) is issued by CIRCLE, a company supported by Coinbase.
What categories of altcoins are there?
Altcoins can have different functions and be broken down into four broad categories described below.
Defi tokens are traded on decentralized finance markets ( DeFi for short) with the long-term goal of revolutionizing the traditional banking and financial sector.
In contrast to Bitcoin, Defi tokens serve as a digital currency and are based on smart contracts.
This has the advantage that digital solutions can supplement or replace entire services in the real world.
Defi-Coins also include, for example, the possibility of generating passive income through staking. When staking, users withhold their tokens and make them available to the blockchain to validate new blocks. As a reward, they receive rewards.
NFT and Metaverse Coins
NFT is the abbreviation for Non-Fungible Token (German: non-replaceable digital objects). They are used wherever digital goods such as art objects, music or games are collected or traded. The blockchain most commonly used for NFTs is Ethereum.
Metaverse coins also fall into this category. The term metaverse comes from science fiction and describes a virtual world into which protagonists go to escape the real world. Similarly, in the crypto metaverse, users should shop, play, and communicate to be connected to one another in a variety of ways in this virtual world.
Examples of metaverse coins are MANA (Decentraland) , SAND (Sandbox) or ENJ (Enjin Coin).
Stablecoins are cryptocurrencies whose price is linked to real assets.
Such assets can be precious metals, raw materials, or real estate. The best-known stablecoin is Tether, which is pegged to the US dollar and is therefore subject to minimal fluctuations.
The claim of stablecoins is therefore to be stable in value. The aim here is to facilitate transactions in the cryptosystem. Stablecoins can be used for trading on crypto exchanges and for payments abroad or as a bridge between the digital and real financial world.
Anonymous altcoins and privacy coins
Privacy coins are cryptocurrencies that focus on user privacy. Similarly, the user’s anonymity is in the foreground with anonymous altcoins.
With this form of altcoins, no user data is stored, transactions remain anonymous. Typical coins in this category are, for example, Monero (XMR) and ZCash (ZEC).
How to Buy Altcoins in 2022
If you actually want to have access to your cryptocurrencies, you should first use the corresponding client software and have a wallet. An altcoin wallet is a type of electronic wallet that stores coins. In addition, the owner’s public and private keys are stored in the wallet.
In traditional banking, the keys correspond to the IBAN or personal PIN and allow transactions to be identified.
The most famous Altcoins can be purchased as follows:
- Ethereum: Since Ethereum is the second-largest cryptocurrency after Bitcoin, it can be traded on numerous crypto exchanges. The largest exchanges include Binance, Coinbase Pro, and Kraken. Ethereum can also be bought on crypto brokers such as Binance, Coinbase, eToro, Bitpanda.
- Binance: BNBs can be traded on the Binance exchange by making an electronic transfer. This can be done by bank transfer or by credit or debit card.
- Tether: Tethers can be purchased on any exchange that carries digital currencies.
- Solana: Solana can be purchased on most exchanges. The highest SOL-USDT trading volume is available on the Binance exchange. Further options are eToro, Bitpanda, Kraken or Coinbase.
- USD Coin: USD Coins can mainly be traded on Coinbase but are also available on other exchanges such as Poloniex, Binance, OKEx and Uniswap.
What is an altcoin? – Summary
The term Altcoin is made up of the words “alternative” and “Coin” and describes cryptocurrencies that are considered an alternative to Bitcoin.
From a technical perspective, altcoins are not necessarily based on a blockchain. The actual purpose of use also varies from case to case and, in some instances, differs significantly from Bitcoin.
In this context, you should keep in mind that the term altcoin is very generic and includes a variety of cryptocurrencies. Therefore, it makes sense to categorize cryptocurrencies further and speak of specific altcoins such as Defi, NFT, or stablecoins.
Frequently asked questions (FAQ) about Altcoins
This section provides answers to the most important questions about altcoins.
What problem does an altcoin solve?
The processing of data on older blockchains like that of Bitcoin leads to the problem that more and more coins come into circulation and more transactions have to be processed. However, since the size of the data blocks is limited, there is a processing backlog, long waiting times and rising energy and transaction costs. Younger altcoins act more flexibly and efficiently than the original Bitcoin blockchain.
Are Altcoins Better Than Bitcoin?
Altcoins are better than Bitcoin in certain ways. Subsequent changes are not possible with the Bitcoin blockchain, but with altcoin blockchains, they are. There is better scalability, i.e. more efficient adaptation of a coin to new challenges or requirements.
What are the best altcoins?
It depends on the benefit with which Altcoins are acquired, particularly whether the benefit of the coin or its investment purpose is in the foreground. When it comes to profiting from price developments, volatile altcoins are preferred when trading. If the system is to be as secure as possible, Stablecoins make more sense.