The term "altcoin" refers to any cryptocurrency that is not bitcoin. The most popular altcoins include Polkadot (DOT), Ripple (XRP), Cardano (ADA) and many more. These projects promise a variety of innovative functionalities, from intelligent contracts to improving the speed of transactions.
The difference between Altcoins and Bitcoin
Bitcoin (BTC) was the first decentralized cryptocurrency, launched in 2009 by Satoshi Nakamoto - a pseudonym for a person or group whose real identity remains unknown. The main purpose of its creation was to allow direct digital payments, from peer-to-peer), without depending on financial intermediaries (such as banks or governments).
Altcoins are all other cryptocurrencies that occur after Bitcoin, created to provide various functionalities, from platforms for decentralized applications to coins related to real assets.
Types of altcoins
Altcoins varies greatly in structure, purpose and utility. Below are some of the most common categories:
Payment tokens
Payment tokens are created to be used in financial transactions, often in more centralized systems. Examples include ripple and stellar.
Utilitarian tokens
They are used for specific functionalities, such as gas payment on blockchain platforms. Think of Ethereum as a remarkable example.
Tokens of governance
Used to vote decisions in blockchain projects. The holders of such tokens directly influence the structure of the taxes or the direction of the project development.
Memecoins
Cryptocurrencies such as Dogecoin or Shiba Inu were initially created as jokes, but they caught the attention of investors and gathered large communities.
Stablecoins
Stable coins retain their value by reference to Fiat currencies, such as dollar. Are less speculative and more used for saving.
Protocoles Layer 1 and Layer 2
They improve the scalability and performance of the basic blockchain. For example, Sola and Arbitrum facilitate faster and cheaper transactions.
Active tokenized from the real world (RWAS)
This category brings tangible goods, such as real estate or bonds, on blockchain for visibility and liquidity. Innovative projects such as Centrifuge are leaders in this segment.
The advantages of Altcoins
1. Extended functionalities and innovation
Bitcoin is excellent as a valuable deposit or payment method, but many altcoins are built for much more. Altcoins such as Ethereum transform blockchain into a smart contracts (DAPPS) applications (DAPPS). They also support growing sectors, such as Defi and Blockchain games.
Example:
- Ethereum offers the opportunity to develop applications on its main chain.
- Polygon offers scalable solutions for developers.
- Axie Infinity has created an ecosystem dedicated to blockchain -based games.
In short, altcoins open a universe of possibilities beyond the simple transactions.
2. Trading speeds and low costs
One of the disadvantages of Bitcoin is limited scalability, which leads to high taxes and long times for processing transactions. Instead, altcoins are designed to be much faster and more efficient.
Notable examples include:
- Litecoin offers four times faster transactions than Bitcoin.
- Solana can process up to 65,000 transactions per second.
- Stellar is ideal for fast and cheap international transfers.
This makes them suitable for frequent uses or applications that require a high flow.
3. Accelerated growth potential
Altcoins, especially those with a smaller market capitalization, often offer spectacular growth potential. Although they come at a higher risk, innovative projects that capture interest can bring impressive profits.
Examples:
- Explosive growth of Shiba Inu in 2021.
- The growing popularity of the Avalanche due to the short times to complete the transactions.
Investors that identify these pearls can benefit significantly, provided they do a careful analysis.
4. Diversification of the portfolio
Diversification is one of the most important strategies for minimizing investment risk. Because the performance of Altcoins is not always directly correlated with that of Bitcoin, they can provide opportunities to win even in a market in correction.
The advantage of diversification:
- Balance of risk by including several types of crypto assets.
- Access to specific niches, such as confidentiality (MONERO) or decentralized governance (MAKERDAO).
A well -structured portfolio can bring long -term stability and opportunities at key moments.
5. Increased energy efficiency
The high energy consumption of Bitcoin, caused by the proof-office mechanism (POW), attracts criticisms. In contrast, many altcoins adopt more sustainable systems, such as proof-of-stake (POS).
Energy effective examples:
- Cardano works on the basis of a complete POS protocol.
- Tezos emphasizes the saving of resources, being ideal for those concerned about the environment.
These alternatives help reduce carbon fingerprint and promote sustainable blockchain technology.
6. Specialized use cases
Altcoins are not just general platforms. Many are designed to solve specific problems or to support separate niches:
- Monero and Zcash improve the confidentiality of transactions.
- Chainlink connects blockchain with the real world by using external data.
- Enjin provides support for communities and gaming ecosystems.
The diversity of cases of use means that there is a solution for almost any imaginary challenge.
The disadvantages of Altcoins
1. Extreme volatility
Altcoins are famous for their dramatic price fluctuations. Unlike Bitcoin, which has a relatively higher degree of stability, many altcoins can experience price variations of 20% or more in a single day. This can be particularly risky for new investors or for those who cannot constantly monitor the market.
2. Lack of liquidity
Why does liquidity matter? Low liquidity means that you will have difficulty finding a buyer at the requested price. In addition, large transactions can lead to "price skids", which means you will get a lower price than desired for your coins. Less known altcoins often suffer from low liquidity. In other words, it can be difficult to buy or sell them quickly, especially if the market is saturated or inactive. Practical tip: checks the daily trading volume of a Altcoin before investing.
3. Rig Pull risk and scams
The space of the altcoins has become a fertile ground for the "Rug Pull" type schemes, where the developers abandon the project and disappear with the investors' funds. This is one of the biggest risks that investors face in altcoins. How can you protect yourself?
- Check the team behind the project (transparency is the key).
- Are looking for independent technical audits of intelligent contracts.
4. Bitcoin addiction
Even though altcoins bring diversity, most of them still follow their price movements according to bitcoin. If Bitcoin decreases, altcoins tend to follow the same direction, often with more dramatic variations. Basically, the success or failure of Bitcoin has a strong impact on the altcoins. This makes diversification less effective than it seems at first sight.
5. Risk of failed projects
Many altcoins fail or are abandoned due to intense competition, lack of adoption, unrealized promises or insufficient financing. This means that you can lose the entire invested capital. A recent study has revealed that over 90% of altcoins launched over the last 5 years are no longer active on markets.
Whether you want to expand your digital portfolio by purchasing Altcoins with growth potential or to make a profit by strategic sale, the Abarai offers you a secure environment, an intuitive interface and the possibility to perform safe transactions and instances!
