The cryptocurrency market is still dominated by bitcoins (BTC), but there are many other competitive digital assets, called alternative coins, or altcoins. With so many alternatives, investors need a clear idea of how each altcoin differs from Bitcoin and what it can offer in a portfolio.
Altcoins can be thought of as a variant of Bitcoin. In other words, developers create altcoins to improve functionality or to add features that are not present in bitcoin. But not all cryptocurrencies are created equal. While there are alternative coins that may qualify for investors, there are some that go beyond pure hype and thrive on speculation.
Just as the bitcoin has risen sharply this year, so too has it risen more than 110% as of November 15, with many altcoins rising sharply. Ethereum (ETH), Bitcoin’s top competitor, is up nearly 500% to date, while upstart Shiba Inu Coin (SHIB) has added a staggering 380,000% in one year.
Such numbers may entice investors looking to strike it rich. But altcoins carry several unique risks investors need to understand. Here’s what you need to know when comparing digital assets in the crypto market:
What are altcoins?
Differences between Bitcoin and altcoins.
Investing in altcoins.
What Are Altcoins?
Altcoins are an alternative cryptocurrency to Bitcoin. But altcoins use Bitcoin as a benchmark because it was the first cryptocurrency and has dominated the market, which is the majority of market capitalization of all cryptocurrencies.
“For the first time as a cryptocurrency, Bitcoin has established a model of how cryptocurrency projects should work,” says Colin Pepe, founder of Preserch, a search engine that, like cryptocurrencies, blocks China is driven by technology.
While both altcoins and Bitcoin use blockchain technology, these digital assets can vary in their purpose, features and operation. There are thousands of altcoins, but some of the most popular are:
Shiba Inu Coin.
Alternative coin creators and developers wanted to create different versions of Bitcoin, which they believe is missing from the Bitcoin platform.
Ethereum, for example, is a technology that allows users to send cryptocurrency to each other, but another purpose of Ethereum is to be used as a tool in application development where new tokens can be created on the network.
Like Ethereum, Cardano aims to offer peer-to-peer transactions, and it allows developers to create applications on the network. But Cardano’s platform takes a research approach to building its blockchain network.
Litecoin also has different features. First and foremost, Litecoin has more supply than Bitcoin, and transactions on the Litecoin network are faster. Litecoin aims to be a substitute for silver, just as some people see Bitcoin as a substitute for gold.
There may be an endless list of altcoins, but they do not necessarily compete with Bitcoin. Rather, Pape says, “altcoins are aimed at projects that build on top of the open source blockchain technology, providing alternative access to traditional financial systems and large tech companies – think DeFi (decentralized finance). Or NFTs (non-technical tokens)