Crypto

Understanding Altcoins in Just 3 Minutes – The ₿log

There are currently over 6,000 existing altcoins in the cryptocurrency market. Covering a very diverse range of projects in the world’s top 10 by market capitalization, the main altcoins are: BNB (binance), XRP (Ripple), ADA (Cardano), SOL (Solana), DOGE (Dogecoin), DOT (Polka Dots).

What are altcoins?

This term corresponds to all cryptocurrencies, except for the main one, which is bitcoin. Thus, there are tens of thousands of such “alternative currencies” currently in circulation in the crypto ecosystem.

Stablecoins (such as USDT Tether) are a separate category within the altcoin nomenclature as they are cryptocurrencies whose only function is to replicate the value of a fiat currency such as the US dollar.

How do these altcoins work?

Despite the diversity of these alternative cryptocurrencies and the projects built around them, their operation remains relatively similar to Bitcoin. Some may “stake” them, “farm” them, speculate on their value, transfer them to “wallets” or “exchanges”.

In addition, altcoins are regulated by the blockchain, which ensures registration and transactions, so that exchanges cannot be changed, rejected, or even falsified.

Different types of altcoins?

Even if an altcoin can belong to several categories at the same time, the following categories can be distinguished:

  • Payment token: serves as a currency for trading and transfer. Bitcoin is a prime example of this.
  • Governance Token: These altcoins offer their holders certain rights on the blockchain. Often this is the right to vote on protocol modifications or to participate in decentralized autonomous organization (DAO) decisions.
  • Utility token: designed to provide services on the network to pay fees or even exchange rewards. These tokens are used in the blockchain network to make it work. For example, ether (ETH) is specifically designed to pay for transactions.
  • Security Token: These are regulated by the Securities and Exchange Commission (SEC) because they are designed to operate as securities. These altcoins are widely used in Initial Coin Offerings (ICOs).
  • Stablecoin: These are cryptocurrencies pegged to the value of a currency (dollar) or a precious metal (gold). They help avoid market fluctuations.
  • Meme Coin: These are joke-inspired cryptocurrencies that usually have no real intrinsic value. Profits and losses on these altcoins can be staggering. Doge or shiba are examples.

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What are the advantages and disadvantages of altcoins?

Like the reference cryptocurrency, bitcoin, these alternative currencies have many advantages:

  • These currencies serve a purpose or serve a well-defined project.
  • These altcoins make it possible to overcome the shortcomings of bitcoin by improving the crypto ecosystem.
  • Being associated with decentralization and blockchain, altcoins do not depend on a financial authority or institution.

However, these altcoins have several disadvantages:

  • Thousands of launched altcoins also led to the fact that many projects never appeared.
  • Alternative currencies are traded on unregulated markets. As such, the investor is vulnerable to price manipulation, scams, and scams.
  • Altcoins often have a particularly low market cap compared to the ubiquitous bitcoin.

Conclusion: what is the future of these alternative currencies?

The vast majority of these alternative currencies will disappear in a few years. The best blockchain projects, the strongest communities will ensure the survival of some.

Moreover, the future of altcoins still depends on the emergence of international regulation both at the level of states and central banks. All this will contribute to greater market concentration.

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