Cryptocurrency is still a relatively new technology, and with any innovation you can expect new terminology to pop up around it. Cryptocurrency certainly has its fair share of lingo, and one of the most common new words you’ll see thrown around in the crypto world is “altcoin”. But what exactly is an altcoin and how do they fit into the cryptocurrency landscape?
Bitcoin is of course the most well-known and biggest cryptocurrency currently out there. This is largely due to its status as the first cryptocurrency, invented back in 2009 by Satoshi Nakamoto (a pseudonym for a person who has yet to be identified). Bitcoin has basically been synonymous with cryptocurrency since its inception, but of course today it’s not the only cryptocurrency out there, even if it’s still the most popular.
Altcoins, at their most basic, are any cryptocurrency tokens other than Bitcoin. Solana, Ethereum, Litecoin, Dogecoin, etc. are all considered altcoins. (Sometimes the word is broken into two: alt coins.)
The word altcoin is a portmanteau of “alternative” and “coin”, so appropriately an altcoin is a cryptocurrency coin that is an alternative to Bitcoin. However, there can be some nuance here in certain niche communities, particularly among enthusiasts of a particular altcoin. Because altcoin implies taking a backseat to Bitcoin (and being lumped in with a very broad range of cryptocurrencies from legitimate and highly valued tokens like Ethereum all the way to short-lived meme tokens like POOP), some fans of cryptocurrencies that could possibly overtake or at least be on par with Bitcoin someday don’t necessarily like the term. For example, Ethereum enthusiasts might prefer people think of the cryptocurrency market as consisting of Bitcoin, Ethereum and various altcoins.
As one Redditor put it:
“I never understood the point of the word altcoin in the first place. Would you call every car that isn’t the first one an altcar?”
For now, though, Bitcoin is top dog and everything else is still just an altcoin. (Though there is another term to differentiate legitimate altcoins from stupid memes or outright scams, the latter being referred to colloquially as “shitcoins”.)
Being an altcoin doesn’t mean you don’t have value, though! Some popular altcoins are extremely popular. Ethereum alone has a market cap of close to $400 billion, and the very existence of altcoins shows that Bitcoin alone can’t do all things. There is a lot of room to play in Bitcoin’s shadow.
It’s Not Just about Being Different
While simply being “not Bitcoin” is the technical definition, the reasons for the creation of altcoins go beyond mere distinction. Early altcoins often aimed to address perceived shortcomings of Bitcoin, such as:
- Scalability: Bitcoin’s network can only process a limited number of transactions per second, leading to slow transaction times and high fees. Many altcoins explore alternative mechanisms to achieve faster and cheaper transactions.
- Energy consumption: Bitcoin’s proof-of-work consensus mechanism, while secure, carries a significant environmental cost due to its high energy requirements. Some altcoins employ different consensus mechanisms that are considered more energy-efficient.
- Privacy: Bitcoin transactions, while pseudonymous, are not entirely private. Some altcoins prioritize user privacy and anonymity by implementing specific functionalities.
Ultimately the underlying blockchain technology is incredibly versatile, and can be used in a lot of different applications. As such, altcoins may exist for very broad or very specific reasons, and many new ones are popping up all the time.
However, for investors or people who actually want to use cryptocurrency as currency, the vast majority of altcoins are not of importance. The larger and more serious altcoins are typically the ones on their radar, such as Ethereum, Solana or Litecoin.
Beyond the Basics: A Spectrum of Innovation
The landscape of altcoins is remarkably diverse. While some aim to improve upon Bitcoin’s core functionalities, others venture into entirely different territories. Here’s a glimpse into the diverse categories within the altcoin space:
- Utility tokens: These tokens grant access to specific features or functionalities within a particular ecosystem or platform. They are often used to pay for services within a decentralized application (dApp) or for participation in a specific network.
- Security tokens: These tokens represent ownership of real-world assets, such as stocks, bonds, or even real estate, on a blockchain platform. They offer the potential for increased transparency, security, and fractional ownership of these assets.
- Stablecoins: These tokens are pegged to the value of a stable asset, such as the US dollar or gold, to maintain price stability and mitigate the volatility often associated with cryptocurrencies. They aim to provide a more reliable store of value within the cryptocurrency ecosystem.
Are NFTs Altcoins?
No. An NFT isn’t cryptocurrency exactly. It’s sort of something else entirely, built on the same underlying technology. You can learn more about NFTs here. Even though NFTs aren’t technically altcoins because they aren’t “coins” or crypto*currency*, they are a kind of alternative asset on the blockchain and can be used for the same kinds of utility purposes, as well as investment, that people might use altcoins for. Maybe you can think of them more as a non-liquid asset, like real estate or artwork. You could own a house, and that house would have value and count toward your net worth, but your house isn’t currency. If Bitcoin is like the US dollar, alt coins are other countries’ money, and NFTs are a random slew of physical assets you can buy with money.
Diversifying with Altcoins
For investors, diversification is always an important strategy, and that’s true in crypto investing as well. Even though Bitcoin is the most valuable and most popular cryptocurrency on the market, savvy investors tend not to put all their eggs in one blockchain. For long-term investors, a cryptocurrency IRA makes a lot of sense because it offers tax advantages for crypto investments, and with BitIRA we offer a variety of altcoins, along with Bitcoin, for our customers to invest in. If you’re interested in crypto investing, you can request a free insider’s guide to crypto IRAs here.
The Future of Altcoins
The future of altcoins remains uncertain. While some may struggle to gain traction and fade into obscurity, others have the potential to revolutionize specific industries or even reshape the financial landscape as a whole.
As the cryptocurrency space continues to evolve, ongoing regulatory frameworks, technological advancements, and user adoption will significantly influence the trajectory of altcoins.
Maybe one day a current altcoin or two will gain enough popularity and mainstream usage that it gets promoted out of the altcoin category to join alongside Bitcoin (or even replace it) as the world’s “maincoin”. The world of cryptocurrency changes quickly, and the language will adapt to keep up.