What are altcoins?

Altcoins are a relatively new asset in the financial landscape. The term is shorthand for alternative coins. 

In the cryptocurrency markets, bitcoin (BTC) is the largest (by market capitalisation) and most dominant player in the space. It was the first cryptocurrency to ever be created. Alternative coins or “altcoins” are cryptocurrencies other than bitcoin. Since BTC was first developed in 2009, a large number of altcoins designed to do specific tasks and solve specific problems have been launched. For instance, some altcoins use a different consensus mechanism to produce blocks or validate transactions. Others distinguish themselves by providing new or additional capabilities, such as smart contracts.

Where have you heard of altcoins?

The term “altcoin” has only existed since 2011, so many investors who are not involved in cryptocurrency markets may never have heard of one. However, active crypto investors or those interested in the market are definitely familiar with the term. 

The earliest notable altcoin was known as “Namecoin” and was launched in April 2011.

What do you need to know about altcoins?

There are plenty of examples of altcoins but it’s rather hard to compile a comprehensive list as, according to CoinMarketCap, there were more than 11,300 cryptocurrencies in circulation in August 2021. Some of the types of altcoins include mining-based cryptocurrencies like litecoin (LTC), zcash (ZEC) and monero (XMR); stablecoins like tether (USDT), USD coin (USDC) and dai (DAI), plus utility tokens like filecoin (FIL), vechain (VET) and chainlink (LINK). 

As of 19 August 2021, the five largest altcoins, by market capitalisation, were:

1. Ethereum (ETH)

2. Binance Coin (BNB)

3. Cardano (ADA)

4. Tether (USDT)

5. Ripple (XRP)

Many young cryptocurrency investors are tempted by the potential upside of investing in altcoins. The comparatively low market capitalisations and bold promises make them exciting investment opportunities where investors have the possibility of increasing their initial investment by 100x. 

However, investing in altcoins, especially newer projects with lower market capitalisations, is incredibly risky and there is a very realistic prospect of your initial investment losing most of its value in a short amount of time. Anyone considering an investment into cryptocurrency markets should be extremely cautious and manage their risk accordingly.