Depending on the definition, altcoins are all coins other than Bitcoin or Bitcoin and Ethereum. Since most cryptocurrencies are forked from one of the two, altcoins would be an alternative to it.
Some altcoins are used to validate and process the transaction, open new blocks, or add to cryptocurrency value in another way. The main point is to oppose Bitcoin and show that the crypto market can be diversified.
Altcoins were invented to oppose Bitcoin. Once this cryptocurrency gained popularity, there were many critics, including the limited number of blocks, slow validation, etc. Altcoins were made to solve all the Bitcoin issues and improve cryptocurrency transactions.
Many altcoins have the same main purpose as a Bitcoin – a peer-to-peer system transferring large amounts of data. However, while BTC can only be mined, altcoins can be created in alternative, energy-efficient ways. This is what makes them popular and valuable.
As mentioned, altcoins serve to resolve the main BTC issues. We have 3 categories.
- Mining-Based Altcoins
These altcoins are created the same way as BTC – by mining. Some examples are Litecoin, ZCash, and Monero.
- Security and Utility Tokens
Security coins are similar to shares. Once you invest in them, you can expect a return on investment in the form of dividends. Unlike BTC, they have larger price stability. Utility tokens are made as a payment method for one specific company. Using them, you can pay for goods and services. Some examples are Binance Coin, Polygon, and Chainlink.
- Stable Coins
Since we already discussed the issue of the BTC volatility, you can already see where we go. Stable coins are created as a complete opposite, made to stabilize the crypto market and provide some security. The best example is USDT, tied to USD.
While most scams are focused on Bitcoin, you would be surprised to see the number of complaints about altcoin fraud. Scammers don’t choose the means or the opportunity when it comes to extorting funds. People are convinced to change their cryptocurrency to a stable coin or to purchase utility tokens to fund their long-term wishes. In reality, they end up sending funds to fraudsters’ wallets.
Be quite careful and ensure to work with legitimate, regulated crypto trading providers.