Altcoins (alternative coins) is a term used to describe all cryptocurrencies except Bitcoin (CRYPTO: BTC). They get their name from the fact that they are an alternative to bitcoin and traditional fiat money.
Altcoins were first introduced in 2011, and, so far, number in the thousands. Early altcoins aim to improve aspects of Bitcoin such as What are the types of altcoins? transaction speed or energy efficiency. More recent altcoins serve different purposes depending on the developers’ goals.
Since altcoins are such a big part of the market, every crypto investor should understand how they work. Keep reading to learn about what altcoins are used for, their pros and cons, and much more.
What are the types of altcoins?
There are many different types of altcoins, including stablecoins, mining coins, staking-based coins, and governance tokens. The type of altcoin depends on how it works and what its purpose is. Here are the main types of cryptocurrencies that you will find when researching altcoins.
Stablecoins are cryptocurrencies created to follow the value of another asset. Most of the largest stable coins are denominated in US dollars and try to mimic its value. If the price fluctuates, the issuer will take steps to correct it.
Because stablecoins are intended to maintain the same value, they are generally not selected as cryptocurrency investments. Instead, people use stablecoins to save or send money. It is also possible to earn interest by lending to stablecoins or through some savings protocol.
This type of cryptocurrency uses a process called mining to verify transactions and add more coins to the supply. Miners use tools to solve mathematical equations. In general, the first miner who solves the equation verifies the transaction block. In return, miners who verify blocks receive corrupt rewards.
Because bitcoin is a mining-based cryptocurrency, mining was the first method used to process crypto transactions. One disadvantage of mining is that it requires significant energy.
These cryptocurrencies use a process called stacking to verify transactions and add more coins to the supply. Holders of cryptocurrencies based on stacking can choose to place their coins at stake, meaning they are committing to using the coins for transaction purposes. Cryptocurrency blockchain protocol selects a partner to verify the block of transactions. In return, participants receive corrupt rewards.
An early reverse coin called Peercoin (CRYPTO: PPC) was the first to introduce the concept of stacking. Although Peercoin has not become a household name, stacking has become popular because it saves more energy than mining.
Governance tokens are cryptocurrencies that give holders voting rights to help shape the future of the project. In most cases, these tokens allow you to create and vote on cryptocurrency suggestions. This helps make cryptocurrency a decentralized project, as all stakeholders say, and decisions are not made by a single central authority.
Examples of altcoins
The crypto market includes thousands of altcoins. Here’s an early example and a couple of the top altcoins:
Namecoin (CRYPTO:NMC): Released in April 2011, Namecoin is the first notable altcoin. It’s similar to Bitcoin since it’s based on Bitcoin’s code and has the same maximum supply of 21 million coins. Namecoin is known for introducing .bit web domains, which offer anonymity and resistance to censorship.
Ethereum (CRYPTO:ETH): Released in July 2015, Ethereum was the first cryptocurrency to offer a programmable blockchain for developers to use. It quickly became the second-largest cryptocurrency behind Bitcoin.
USD Coin (CRYPTO:USDC): Released in September 2018, USD Coin is a stablecoin pegged to the U.S. dollar. It’s under governance by Centre, a consortium that includes Coinbase Global, Inc. (NASDAQ:COIN).