Ever since the inception of Bitcoin in 2008, everyone has been looking to take a piece of the industry’s most well-known cryptocurrency. But, what are these alternatives to Bitcoin, and why should you consider buying them?
What is an “Altcoin?”
An altcoin is any cryptocurrency that is an alternative to Bitcoin. Altcoins are built using distributed ledger technology, which most often takes the form of blockchain networks. This broad term represents a wide range of digital assets, some of which seek to dethrone Bitcoin as more sustainable forms of peer-to-peer cash. Others have vastly different goals, like creating a global network for decentralized cloud computing, decentralized gaming, and infinitely more applications.
A Brief History of Altcoins
In 2011, three years after the Bitcoin whitepaper was released, altcoins started bursting onto the scene. The first iteration of altcoins — like Namecoin and Litecoin — were clones of the original Bitcoin protocol, with their own variations. For instance, Litecoin decided to increase the total number of coins that could be created from Bitcoin’s initial 21 million to 84 million. Altcoin creators hoped that the changes made to the protocol would create more efficient forms of digital cash.
By 2015, there was a wave of new altcoins entering the scene that were drastically different than Bitcoin. These included Ethereum, Stellar, and Cardano, to name a few. Programmers took blockchain technology and created additional layers of functionality, which made for groundbreaking new digital assets. These altcoins began to look drastically different from their predecessors and could be used not just as forms of currency, but to trigger smart contracts and decentralized applications.
By 2018, the altcoin industry was booming, with thousands of altcoins coming out of the woodwork regularly. Some of these altcoins — like Ethereum and Ripple — continue to be major players in the industry today, while others did not have a strong enough technological backbone or user base to interest investors.
Size of the Altcoin Market
What started as a small market with only a few digital assets has grown into a multi-billion dollar per year industry. As of the beginning of December 2020, altcoins were valued at close to $220 billion in market capitalization, accounting for about 38% of the total share of the entire cryptocurrency industry. All told, there are currently over 3,500 active altcoins on the market, with new altcoins being developed regularly.
This is still less than half the value that the altcoin market garnered during the industry’s boom in early 2018 when these assets collectively were valued at $550 billion. Because altcoins fluctuate in price more drastically than other investments, there is no telling where the altcoin market could go from here.
5 of the Most Important Altcoins Today
There are thousands of altcoins on the market today, many of which aren’t a threat to dethrone Bitcoin, but some of which have become big players in the industry. Here are five of the most important altcoins that you should know about:
- Ethereum (ETH) – A decentralized, cloud computing network that allows developers to design and run smart contracts and applications.
- Ripple (XRP) – Creates a global payments network for any asset by partnering with banks and financial institutions.
- Litecoin (LTC) – A fork of the Bitcoin protocol with slightly different technological parameters. Litecoin is often referred to as the “silver” to Bitcoin’s “gold.”
- Bitcoin Cash (BCH) – A fork of Bitcoin which increased the size limit of each block on the blockchain. Doing so, in theory, allows Bitcoin Cash to process more transactions in a shorter period of time.
- Stellar (XLM) – A blockchain network to store and transfer assets, similar to Ripple. The Stellar network can be used in conjunction with any fiat or cryptocurrency.
Why Buy Altcoins?
Even if you think that Bitcoin is the next revolution in currency, consider these reasons as to why altcoins would make an excellent addition to your portfolio.
If you were investing in stocks, you wouldn’t simply buy one stock or stocks within one industry for your portfolio because it creates a high level of risk. The same goes for cryptocurrencies. Even if you believe in Bitcoin as the king of this asset class, it still makes sense to consider diversifying your cryptocurrency holdings with altcoins. By holding altcoins, you would be diversified against a negative event or problem that causes Bitcoin to decline in price.
Many altcoins don’t compete directly with Bitcoin
There’s a fallacy that all cryptocurrencies are competing with one another. Yet, this couldn’t be further from the truth. While Bitcoin is designed for cross-border payments, many altcoins have vastly different goals. Altcoins like Ethereum seek to create a platform for decentralized computing, while altcoins like Ripple are used to facilitate a global payments network for other assets. Therefore, you can invest in altcoins without investing in assets that are in direct competition with Bitcoin itself.
Altcoins improve upon Bitcoin’s technology
Altcoins have their own set of web-based protocols, which are different from Bitcoin. Each of these come with their own set of rules and technological capabilities, and some of which claim to improve upon the Bitcoin protocol. For instance, altcoins utilize a proof-of-stake (PoS) consensus that requires significantly less electricity to function than Bitcoin’s proof-of-work (PoS) mechanism, which has been called into question for excessive energy consumption.
Potential Altcoin Drawbacks
Altcoins might sound like an excellent investment, but there are drawbacks to consider before investing:
- Propensity for fraud – Altcoins are notorious for being used as vehicles in money-making scams. This makes it all the more important to do your research before investing in any altcoin.
- Volatility – If you thought the price of Bitcoin was volatile, altcoins could fluctuate even more drastically. It’s not uncommon for small altcoins to have their price swing more than 100% in a single day.
- Security – Altcoins that lack proper security measures run the risk of having their network hacked. The result of a malicious attack on an altcoin could either significantly reduce the value of the asset, or even worse, lead to theft.
As most investors already know, investing via an IRA is an excellent way to save for the long term. That’s why BitIRA gives its customers a way to invest in altcoins in any type of IRA they want, thereby making the most out of their altcoin investments.
With an altcoin IRA, investors take advantage of:
- Tax-free growth
- Growth potential
- Cutting out central banks
Currently, BitIRA offers IRA investing options in eight different altcoin options. Only cryptocurrencies with the best potential for investment and sound technology have been selected as altcoins for BitIRA investors to choose from. Additionally, BitIRA maintains the highest level of cryptocurrency security and storage. This gives investors peace-of-mind that their altcoins are always safe and can be accessed when needed.
A New Investment Frontier
Altcoins present investors with many alternatives to Bitcoin, whether these alternatives serve different functions or utilize other technological parameters. Buying altcoins is a vote of confidence for blockchain technology, and the limitless potential decentralized technologies represent in the new, digital economy.