What is an Altcoin?

An altcoin is a term that describes all cryptocurrencies other than Bitcoin (BTC). Some people also include Ethereum (ETH) in this definition, as most cryptocurrencies are forked from one of these two.

Altcoins use different consensus mechanisms to validate transactions, open new blocks, or offer additional capabilities or purposes to distinguish themselves from Bitcoin and Ethereum. These cryptocurrencies are often designed and released by developers with a specific vision or use for their tokens.
There are tens of thousands of altcoins on the market, with various types based on their intended use or purpose. It is impossible to predict the future value of altcoins, but if the blockchain they were designed for continues to be used and developed, the altcoins will likely continue to exist.

Understanding Altcoin

Altcoin, a combination of the words “alternative” and “coin,” refers to any cryptocurrency or token that is not Bitcoin. These coins belong to the blockchains they were designed for; many are forks (splits) of Bitcoin or Ethereum. Some altcoins are created by developers who disagree with others and create their coins, while others are designed to raise funds for specific projects.

Altcoins attempt to address perceived limitations in the cryptocurrency or blockchain they are forked from or competing with. The first altcoin was Litecoin, which was forked from the Bitcoin blockchain in 2011 and used a different proof-of-work consensus mechanism. Ether, another altcoin, was designed to support the Ethereum blockchain and is used to pay network participants for transaction validation work.

Altcoin types

Payment Token

Payment tokens, as their name suggests, are meant to be used as currency for exchanging value between parties. The most well-known payment token is Bitcoin.

Other examples of payment tokens include Litecoin, Dash, and Monero. These cryptocurrencies are designed to be used as a medium of exchange, similar to traditional fiat currencies such as the US dollar or Euro.

Payment tokens can be used to purchase goods and services online or in person and can be traded on cryptocurrency exchanges for other cryptocurrencies or fiat currencies. Some payment tokens, such as Bitcoin, have gained widespread adoption and are accepted by many merchants and businesses as a form of payment. Others may have more limited use or acceptance. It is essential to research and carefully consider the potential risks and benefits of using payment tokens before making any investment decisions.


Cryptocurrency trading can be volatile, but stablecoins aim to reduce this volatility by tying their value to a basket of goods. These baskets can include fiat currencies, precious metals, or other cryptocurrencies and serve as a reserve to redeem holders in case of failure or problems. Stablecoins are designed to have minimal price fluctuations within a narrow range. Some notable stablecoins include Tether’s USDT, MakerDAO’s DAI, and the USD Coin (USDC).

Security Tokens

Security tokens are digital assets representing ownership in a physical asset, such as real estate or stocks, and are offered on stock markets.

Tokenization involves transferring the value of an asset into a token, which investors can then purchase. The Securities and Exchange Commission regulates these tokens as securities.

Utility Tokens

Utility tokens serve a specific purpose within a network, such as providing access to services, paying fees, or redeeming rewards. One example of a utility token is Filecoin, which is used to purchase storage space on a network and secure information.

Ether (ETH) is another utility token used to pay for transactions on the Ethereum blockchain and virtual machine. The stablecoin USTerra also uses utility tokens to attempt to maintain its value relative to the dollar. Utility tokens can be bought and held on exchanges, but they are typically intended to be used within the blockchain network to facilitate its functioning.

Meme Coins

Meme coins, as their name suggests, are cryptocurrencies inspired by jokes or silly takes on other well-known cryptocurrencies. They often gain popularity quickly due to online hype by influential investors or influencers who hope to exploit short-term gains.

Governance Tokens

Governance tokens give holders certain rights within a blockchain, such as voting for protocol changes or influencing decisions of a decentralized autonomous organization (DAO).

Although these tokens are utility tokens, native to private blockchains and used for blockchain purposes, they have become recognized as a distinct type due to their unique function.

Future of Altcoins

Discussions about the future of altcoins and cryptocurrencies often draw comparisons to the history of currency in the United States. In the 19th century, various local currencies circulated, each with its characteristics and backing. Local banks also issued currency, sometimes backed by fictitious reserves.

This diversity parallels the current situation in altcoin markets, where there are thousands of altcoins available, each claiming to serve a different purpose and market. It is unlikely that the altcoin market will consolidate into a single cryptocurrency, but it is also likely that many of the thousands of altcoins listed will not survive. The market will likely coalesce around a few altcoins with robust utility, use cases, and a solid blockchain purpose.

Suppose you are interested in diversifying within the cryptocurrency market. In that case, altcoins can be less expensive than Bitcoin, but it is vital to approach all cryptocurrencies cautiously due to the young and volatile nature of the market.

Should You Invest In Altcoins?

While Bitcoin and Ethereum are the most well-known cryptocurrencies, altcoins like Tether, Cardano, and others have also gained popularity. However, experts caution that these altcoins, and Bitcoin itself, are highly speculative and risky investments.

Nelson Merchan, CEO of blockchain events firm Light Node Media, advises investors to view crypto as an opportunity to learn about a new asset class rather than a quick way to make money. He suggests keeping crypto holdings to under 5% of your portfolio and only investing after building an emergency fund and considering your long-term financial goals.

If you’re not ready to buy and hold crypto directly, there are also ways to invest in it through passive means. The Biden administration has also indicated its intention to regulate cryptocurrency, which may increase its stability and potential for long-term growth.