What is Altcoin?
Altcoin is an abbreviation for Alternative + coin, which refers to cryptocurrencies other than Bitcoin (BTC). Altcoins can be alternative digital assets from the second popular coin, Ethereum (ETH), to one of thousands of coins with very low market value.
Types of Altcoin
Depending on function and consensus mechanism, altcoins are divided into 4 main categories:
- Underlying coins
Underlying coins is a term used to refer to cryptocurrencies that have a long-standing reputation and a great influence on the financial market. These coins are built on its own separate blockchain network and do not depend on any blockchain.
In other words, each underlying coin will have its own blockchain network. The underlying coins are not affected or dependent on other coins in the market. They are considered a valuable and safe coin, suitable for both centralized and decentralized platforms. In cryptocurrency market, there are a small amount of underlying coins.
Stablecoins are digital assets for the purpose of price stability. The price of stablecoins is usually pegged to the value of a certain currency. Using stablecoins as an alternative to fiat currency will help users reduce transaction fees due to fast revenue and no dependence on banks.
Stablecoin have 3 features: decentralized transactions, price stability, high security, and scalability.
Some popular stablecoins that have high market capitalization can be mentioned as USDT, DAI, MKR, USDC, etc. Over the years, altcoins have gained more and more attention and support from investors.
- Security Tokens
It is a digital asset, issued on a blockchain, representing shares of the underlying stock market. These are shares that are tokenized on the blockchain network, providing assets in the form of payment to owners of stocks, bonds, or assets.
The value of the security token is anchored based on the value of the respective underlying security. This means that if the value of the underlying stock goes up, so does the price of the security token.
Security tokens are typically issued through initial exchange offerings (IEOs) or security token offerings (STOs).
- Digital Tokens
Digital tokens are launched and issued as an ICO on the Blockchain. They will be used to pay service fees in the network platform they launch.
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Advantages and disadvantages of altcoins
- Improve Bitcoin’s downsides
Altcoin projects are designed to improve the limitations of Bitcoin, add many benefits such as cheaper transaction fees, faster transaction speed, higher usability,…
- Diversify your portfolio
It’s not just Bitcoin, when it comes to Altcoin, you will have new options. Just by selecting potential altcoins, you can make great profits in the future.
- Potential investment channel
Many altcoins have strong growth potential and are likely to reach x5, x10 values in the short term – that’s not a small profit. Therefore, this will be a potential investment channel that many investors should consider.
- ICO scams
Although newly launched altcoins are very cheap, give a great opportunity to make profits and attract investors, many altcoins are scams or lost developer and community interest. According to a Bloomberg study, more than 80% of ICOs are scams and it is considered the most common scam in the cryptocurrency market today. Many ICOs launched with nothing but a project team with no experience or knowledge of the field paved the way for multi-million dollar scams.
- Pump and Dump
This is the form that the sharks use to manipulate the market. Many investors often pump large sums of funds into low-priced altcoins to push them up. When the price goes up, they sell that coin to make a big profit. This made many players inexperienced and lost confidence, resulting in losing entire assets.
- Strong price volatility
There are many altcoins in the market that are highly volatile and one of them has a very short lifespan.
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