Altcoins (Alternative Coins) is a phrase used to describe cryptocurrencies other than the widely utilised Bitcoin. The fact that these coins exist as an alternative to the world's largest cryptocurrency, as well as common fiat currencies, is reflected in their name.
Altcoins exist in a variety of flavours and categories, depending on their functions and consensus procedures. The following are the types/categories of altcoins.
Mining-based altcoins are created through the process of mining. To utilise the blockchain network, majority of mining-based cryptocurrencies use Proof-of-Work (PoW), a process in which systems generate new currency by solving challenging problems. Litecoin, Zcash, and Monero are examples of mining-based altcoins recognized in the global community.
Within a network, utility tokens are utilised to deliver services. They could be used to buy services, pay network costs, or redeem prizes, for example. Utility tokens, unlike security tokens, do not pay dividends or require an ownership investment. A utility token is something like Filecoin, which is used to buy network storage space.
Since its inception, cryptocurrency trading and usage have been distinguished by volatility. By pegging their value to a basket of goods such as precious metals, fiat currencies, or other cryptocurrencies, stablecoins lessen the overall volatility of the total crypto market. They are arguably one of the best altcoins available.
Security tokens are similar to stock market securities, with the exception that they have a digital origin. Security tokens are similar to traditional equities in that they frequently promise holders equity in the form of ownership or a dividend payout.
Meme coins, as their name suggests, are based on a joke or a witty parody of other well-known cryptocurrencies. They usually gain popularity in a short time, with renowned crypto influencers and ordinary investors aiming to profit from short-term gains brought about by hyping them online. Dogecoin is the most popular meme coin.
As of November 2021, some of the best Altcoins with a highest market cap are:
Altcoins present an opportunity because they have a considerably larger percent gain potential. On the other side, they also pose a significantly higher risk.
The mistake that new investors make is jumping on a coin that is pumping because of FOMO (fear of missing out). They see green and end up buying when the charts are high. When the coin inevitably corrects and loses value (all coins including Bitcoin do this), they end up selling out of fear and essentially losing a large portion of their investment.
It's best to invest in an altcoin when you have done your research and believe in long term results rather than riding along with something that has gained quick popularity. Going with the latter puts you at risk of losing a lot of money when a pullback occurs.
The trick is to do your homework – learn everything there is to know about altcoins and other virtual currencies before investing.