what is an altcoin 
altcoins are generally defined as all cryptocurrencies other than bitcoin btc however some people consider altcoins to be all cryptocurrencies other than bitcoin and ethereum eth because most cryptocurrencies are forked from one of the two some altcoins use different consensus mechanisms to validate transactions open new blocks or attempt to distinguish themselves from bitcoin and ethereum by providing new or additional capabilities or purposes most altcoins are designed and released by developers with different visions or uses for their tokens or cryptocurrency learn more about altcoins and what makes them different from bitcoin investopedia michela buttignolunderstanding altcoins altcoin is a combination of the two words alternative and coin the term generally includes all cryptocurrencies and tokens that are not bitcoin altcoins belong to the blockchains for which they were explicitly designed many are forks creating a blockchain from another chain from bitcoin and ethereum these forks generally have more than one reason for occurring most of the time a group of developers disagree with others and leave to make their own coin many altcoins are used within their respective blockchains to accomplish something such as ether which is used in ethereum to pay transaction fees some developers have created forks of bitcoin and re emerged as an attempt to compete with it as a payment method like the fork that created bitcoin cash others fork or are developed from scratch attempting to create a blockchain and token that appeals to a specific industry or group such as ripple s attempt to use the xrp ledger and xrp to attract the banking industry with a faster payment system dogecoin the popular meme coin was apparently created as somewhat of a joke it was forked from litecoin which itself was forked from bitcoin in 2011 whatever the intent behind its creation it was still designed to be a digital payment method altcoins attempt to improve upon the perceived limitations of whichever cryptocurrency and blockchain they are forked from or competing with the first altcoin was litecoin forked from the bitcoin blockchain in 2011 litecoin uses a different proof of work pow consensus mechanism than bitcoin called scrypt pronounced ess crypt which is less energy intensive and quicker than bitcoin s sha 256 pow consensus mechanism ether is another altcoin however it did not fork from bitcoin it was designed by vitalik buterin dr gavin wood and a few others to be used in ethereum the world s largest blockchain based virtual machine ether eth is used to pay network participants for the transaction validation work their machines do it is also used as collateral called staking for the privilege of becoming a validator and block proposer types of altcoinsaltcoins come in various flavors and categories here s a brief summary of some of the types of altcoins and what they are intended to be used for it is possible for an altcoin to fall into more than one category such as terrausd which was a stablecoin and utility token as the name implies payment tokens are designed to be used as currency to exchange value between parties bitcoin is the prime example of a payment token cryptocurrency trading and use have been marked by volatility since its launch stablecoins aim to reduce this overall volatility by pegging value to another asset this is accomplished by holding assets in reserve some of the assets held by stablecoin creators are fiat currencies precious metals or investment assets price fluctuations for stablecoins are not meant to exceed a very narrow range notable stablecoins include tether s usdt makerdao s dai and the usd coin usdc in march 2021 payment processing giant visa inc v announced that it would begin settling some transactions on its network in usdc over the ethereum blockchain with plans to roll out further settlement solutions 1security tokens are tokens that represent fundraising efforts or ownership they could also represent tokenized assets tokenization is the transfer of value from an asset to a token any asset can be tokenized such as real estate or stocks for this to work the asset must be transparently secured and held otherwise the tokens are worthless because they wouldn t represent anything security tokens are regulated by the securities and exchange commission because they are designed to act as securities in 2021 the bitcoin wallet firm exodus successfully completed a securities and exchange commission qualified reg a token offering allowing for 75 million shares of common stock to be converted to tokens on the algorand blockchain 2 this historic event was the first digital asset security to offer equity in a united states based issuer utility tokens are used to provide services within a network for example they might be used to purchase services pay network fees or redeem rewards filecoin which is used to buy storage space on a network and secure the information is an example of a utility token 3ether eth is also a utility token it is designed to be used in the ethereum blockchain and virtual machine to pay for transactions the former stablecoin usterra used utility tokens to attempt to maintain its peg to the dollar which it lost on may 11 2022 by minting and burning two utility tokens to create downward or upward pressure on its price 4utility tokens can be purchased on exchanges and held but they are meant to be used in the blockchain network to keep it functioning as their name suggests meme coins are inspired by a joke or a silly take on other well known cryptocurrencies they typically gain popularity quickly often hyped online by prominent influencers or investors attempting to exploit short term gains many refer to the sharp run up in this type of altcoins during april and may 2021 as meme coin season with hundreds of these cryptocurrencies posting enormous percentage gains based on pure speculation 5an initial coin offering ico is the cryptocurrency industry s equivalent of an initial public offering ipo a company looking to raise money to create a new coin app or service launches an ico to raise funds governance tokens allow holders certain rights within a blockchain such as voting for changes to protocols or having a say in the decisions of a decentralized autonomous organization dao because they are generally native to a private blockchain and used for blockchain purposes they are utility tokens but have come to be accepted as a separate type because of their purpose 6pros and cons of altcoinsimprove upon another cryptocurrency s weaknesseshigher survivabilitythousands to choose fromlower popularity and smaller market capless liquid than bitcoindifficult to determine use casesmany altcoins are scams or have lost developer and community interestfuture of altcoinsdiscussions about the future of altcoins and cryptocurrencies have a precedent in the circumstances that led to a federally issued dollar in the 19th century various forms of local currencies circulated in the united states each had unique characteristics and was backed by a different instrument 8local banks were also issuing currency sometimes backed by fictitious reserves that diversity of currencies and financial instruments parallels the current situation in altcoin markets there are thousands of altcoins available in the markets today each claiming to serve a different purpose and market the current state of affairs in the altcoin market indicates that it will unlikely consolidate into a single cryptocurrency however it is likely that most of the thousands of altcoins listed in crypto markets will not survive the altcoin market will probably coalesce around a few altcoins those with strong utility use cases and a solid blockchain purpose which will dominate the markets if you re looking to diversify within the cryptocurrency market altcoins can be less expensive than bitcoin however the cryptocurrency market regardless of the type of coin is young and volatile cryptocurrency is still finding its role in the global economy so it s best to approach all cryptocurrencies cautiously 