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Bitcoin is the oldest, most established, and, by extension, the most popular cryptocurrency out there. However, anyone knows that there are many other cryptocurrencies existing besides BTC.
These are most commonly referred to as altcoins (‘alts’), or alternative cryptocurrencies. In this guide, we’ll take a look at what altcoins are, which are some of the most popular ones, what are the risks around them, and a brief overview of everything you need to know.
- What are Altcoins?
- A Brief History of Altcoins: How it Started and How it Goes
- Top 5 Most Popular Altcoins
- Investing in Altcoins: Risks and Opportunities
- Where to Buy Altcoins?
What are Altcoins?
The term “altcoin” is actually short for “alternative cryptocurrency (coin).” It describes all cryptocurrencies apart from Bitcoin. The idea behind most of them is to be an alternative to Bitcoin or to provide something else that the primary cryptocurrency cant offer. The truth is that each one of them, in its own way, bears at least one characteristic of Bitcoin’s technology.
Some altcoins bring forward new consensus algorithms, others aim at improving transaction processing, scalability, speed, token distribution methods, and so forth.
Despite the comparatively short history of the cryptocurrency industry, tens of thousands of altcoins are already invented.
The popular data aggregator, CoinMarketCap, shows that there are 8,200 cryptocurrencies listed, at the time of this writing. This is following a continuous delisting over the years of many ‘dead’ altcoins that are not traded anymore.
Needless to say, not a lot of these cryptocurrencies have an actual real-world application or any inherent value, and most of them have a comparatively short life cycle. We’ll discuss this further in the risks section.
A Brief History of Altcoins: How it Started and How it Goes
While Bitcoin’s network came to life in 2009, the first altcoin was Namecoin (NMC). Namecoin went alive in 2011, and its main objective was to assist the decentralization of online identities with the goal of making censorship harder to implement and enforce.
You must be wondering where Namecoin is these days. At the time of this writing, NMC is being traded on some rather unpopular exchanges. Its value is minimal, and the trading volume is also insignificant.
Nevertheless, the altcoin landscape has changed substantially throughout the past decade. Let’s have a look at how the top cryptocurrency ranking looked like in 2014, 2017, and 2021 (present time of this writing).
2014 – A Different Landscape
Those who hadn’t been involved in the market back in 2014 would surely be surprised to see how the top cryptocurrencies looked like back then.
First was Bitcoin – no surprises there. The second was Ripple’s native cryptocurrency XRP and after that came Litecoin (LTC) – a project created by Charlie Lee and commonly referred to as “the silver to Bitcoin’s when referred to as gold.”
This is where things start to change dramatically. Subsequent in the list were cryptocurrencies like Peercoin, the popular meme coin Dogecoin, Mastercoin, Namecoin, ProtoShares, Primecoin, and so forth. These are all cryptocurrencies that are far outside of the top now, some are even non-existing.
2017 – Ethereum Has Joined the Party
The chart from 2017 shows how quickly the altcoin landscape changes. There are almost no coins that were present in 2014 to have preserved their value for the three years up to 2017, which was a very significant year in the history of crypto – namely because of the December peak of nearly $20K for Bitcoin.
Instead – there were new coins on the market that overtook them substantially. Ethereum had already taken off, Bitcoin Cash (BCH) had been created through a fork of the original Bitcoin network, and privacy-oriented cryptocurrencies such as DASH and Monero had also been on the rise.
This is how the top cryptocurrencies looked like in 2017:
As you can see, the landscape was completely different.
2021 – How The Future Turned Out?
The cryptocurrency market seems much more mature now. For once, it managed to cross the $1 trillion total market valuation, which is a major milestone, showing that cryptocurrencies are here to stay.
In 2021, the top cryptocurrencies included some of those from 2017, though things have definitely changed substantially.
Ethereum continues to occupy the second spot, but it’s followed by Tether’s USDT – a stablecoin that grew in popularity tremendously over the past few years.
Other additions to the top 10 are Polkadot – a network that competes with Ethereum for dApp development, Stellar, and Chainlink’s LINK – an oracle provider. This is how the top 10 looks like in 2021:
As mentioned above, the most important thing to consider since cryptocurrencies were invented and tracked, there has been only one constant – Bitcoin. It has always been the primary cryptocurrency in terms of market capitalization.
There hasn’t been a point in time where another cryptocurrency had the highest share relative to that of the entire market other than Bitcoin, as seen in the below chart:
However, back in June 2017, Ethereum came really close to it in what may have triggered a “flippening.” This is a market event where a cryptocurrency “flips” Bitcoin as the predominant coin. On June 19th, 2017, BTC accounted for 37.8% of the total market, while ETH came to 31.17%. This is the peak of ETH’s dominance in terms of relative share, and it hasn’t come close to it since.
The Most Popular Altcoins And What They Do
We’ve taken a pick of some of the most popular altcoins. These are cryptocurrencies that have stood the test of time and that have massive communities behind them.
We will skip Tether’s USDT, even though, technically, it’s an altcoin. However, it’s a cryptocurrency that’s pegged to the USD in a 1:1 fashion and doesn’t function like other altcoins.
Ethereum (ETH)
Unlike Bitcoin, Ethereum is a platform designed to allow developers to build decentralized applications (dapps) using smart contracts.
A smart contract is a protocol between two (or more) parties with predefined conditions that executes automatically when those conditions are met. If there’s a failure to meet the requirements, the contract will not go into effect.
This eliminates the risk of failure that’s presented in traditional contracts, and it allows for the creation of decentralized applications that are governed by a protocol instead of a central authority, making them both (in theory) more secure and transparent.
ETH is the native token of the Ethereum network.
It’s worth noting that Ethereum, like Bitcoin, uses the Proof-of-Work consensus algorithm. However, the team is working to transition to Proof of Stake through the launch of Ethereum 2.0, and we’ve already seen Phase 0 of ETH 2.0 (Beacon Chain) go live.
Ripple (XRP)
Ripple Labs is the company behind the XRP cryptocurrency. It’s one of the oldest and, historically, one of the most consistent cryptocurrencies by market cap.
The idea behind it is to be used by banking and financial institutions for quicker and more secure transaction settlement. Unlike traditional transactions, sending XRP happens in a matter of seconds.
However, in 2020, the company was slammed with a lawsuit by the United States Securities and Exchange Commission (SEC). The watchdog alleges that XRP is a security and that Ripple Labs has conducted an unregistered securities offering worth $1.3 billion. The market value of the cryptocurrency has shrunk by 70% shortly after, and its future is currently uncertain.
Litecoin (LTC)
On the surface, LTC and BTC have a lot in common. Litecoin was founded back in 2011 by Charlie Lee, who announced its debut as the “lite version of Bitcoin.”
Both cryptocurrencies use the Proof of Work consensus algorithm. However, Bitcoin is created in a way where there will never be more than 21 million BTC in existence. Litecoin, on the other hand, has increased this cap to 84 million.
It’s also worth noting that Bitcoin uses the long-standing SHA-256 hashing algorithm, whereas Litecoin uses the comparatively newer one called Scrypt.
TRON (TRX)
TRON was launched by the TRON Foundation, which was founded by Chinese entrepreneur Justin Sun. The project aims to deliver a blockchain-based decentralized platform that wants to build a global, free, and digital content entertainment system that also comprises distributed storage technology, easy and cost-efficient sharing of digital content.
Its native cryptocurrency is TRX. Justin Sun has done everything he can to promote TRON as a competitor to Ethereum, boasting its higher transaction processing capabilities and whatnot.
Up to this moment, however, the platform has a long way to go in terms of usage and development before even coming close to Ethereum’s size in any aspect.
Polkadot (DOT)
Polkadot is a relatively new blockchain-based platform that also competes with Ethereum. Essentially, it enables cross-blockchain transfers for data and assets beyond just tokens. It’s also highly scalable and allows users to create custom blockchains using their Substrate framework.
In addition, it has a sophisticated governance system where all the stakeholders have a voice. Polkadot saw massive growth in the past years and became particularly popular.
Its native cryptocurrency is the DOT token, which is now one of the top 10 coins by means of market capitalization. There are lots of projects which are being built on top of the Polkadot blockchain.
Chainlink (LINK)
Chainlink is the most popular and largest oracle provider. In order for blockchains to acquire third-party information outside of their ecosystem, they have to rely on oracles – secure and decentralized data feeds that enable blockchains to rely on accurate data.
Chainlink does that, and its native cryptocurrency is called LINK. In the past few years, the project managed to establish itself as one of the leading in the space by popularity among the crypto community, and it’s growing continuously, with more and more blockchains relying on Chainlink’s oracles to gather data.
Binance Coin (BNB)
BNB is a representative of a relatively new asset class in cryptocurrencies – exchange-owned coins. This is the native cryptocurrency of the world’s largest exchange – Binance.
At first, the main idea behind BNB was to enable users to use it and reduce their trading fees. However, as Binance continues to develop and advance, so do the use cases for BNB.
Users can now take advantage of their BNB holdings to stake it and receive passive income, to farm various DeFi coins, to participate in IEOs via the Binance Launchpad, to use it as part of Binance’s own blockchain – the Binance Chain.
It’s the biggest exchange-owned cryptocurrency in terms of market capitalization as of now.
This concludes our list, but it’s worth noting that there are many more reputable projects out there and putting them on a single list is simply impossible.
Investing in Altcoins: Risks and Opportunities
Investing in altcoins is a big question for many newcomers. The main stimulus is that they are generally a lot cheaper than Bitcoin and might appear more attractive as they “have more room to grow.”
However, there’s a reason they are a lot cheaper – or better defined as having a lower market cap than Bitcoin, and there’s a reason Bitcoin is leadingin terms of market capitalization. Bitcoin is the most established network. By extension, this also makes it the most secure. It’s the one that everyone is looking to, including major institutional investors. It’s highly unlikely that you will hear a major hedge fund to invest in a cryptocurrency other than Bitcoin.
As you can see from the above historical CoinMarketCap charts, altcoins can come and go. Even though there are some established ones, the risk with them is generally a lot higher. This doesn’t mean that they don’t provide opportunities, of course, so let’s break these down.
Risks
- Investing in altcoins is incredibly risky, especially for the long term, as most of the altcoins will lose value over time.
- Their smaller market cap, as well as lower trading volumes, makes them susceptible to pump and dumps.
- They are easier to manipulate by whale (large) investors and bag holders.
- The technology they provide might become obsolete once something better comes up.
- They are largely impacted by Bitcoin’s price and momentum.
Opportunities
- Higher risks can also mean higher rewards. However, there are big “if-s” here.
- You can get in early on a reputable project that is going to grow immensely in the future. It’s not odd to find altcoins with ROI’s of 100x in a matter of months.
Investing in altcoins, though riskier, can also be profitable. However, before putting your money into some random cryptocurrency, make sure to research everything about it and treat it as a serious investment.
Do not put money into something just because “it’s $0.01, and if it hits “only” $0.1, I can make a fortune of an easy 10X.” There are thousands of altcoins that are no longer with us because they don’t provide any real-world value.
If you’re looking for guidance on the matter, we’ve compiled a very comprehensive guide on how to create a balanced long-term crypto portfolio.
Where to Buy Altcoins?
As a general rule of thumb in terms of security, you should never store your investments on a cryptocurrency exchange. As soon as you buy some coin that you want to hold for the long-term, you should always use cold storage and follow our security tips.
However, when it comes to buying, you’d have to rely on an exchange unless you have an OTC (over-the-counter) opportunity.
Generally speaking, the most established and trusted exchange out there is Binance. Luckily, they support hundreds of different cryptocurrencies with huge amounts of trading volume and liquidity. We have created a detailed guide on how to open an account and start using the platform.
Of course, there are other well-known exchanges out there, such as Coinbase, Bitfinex, Huobi, OKEx, and so forth.
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