Altcoins, short for alternative coins, are cryptocurrencies that were developed as alternatives to Bitcoin, the first and most well-known cryptocurrency. Altcoins encompass a wide range of digital currencies, each with its unique features, functionalities, and purposes. While Bitcoin remains the dominant cryptocurrency, altcoins have gained popularity and recognition in the cryptocurrency market.

Altcoins emerged with the aim of addressing certain limitations or shortcomings of Bitcoin, such as transaction speed, scalability, privacy, or smart contract capabilities. Some altcoins serve specific industries or use cases, while others aim to provide general-purpose digital currencies. Understanding the underlying utility value is required when selecting a cryptocurrency. Altcoins are classified into several groups based on their distinct features. Understanding the underlying utility value is required when selecting a cryptocurrency. Altcoins are classified into several groups based on their distinct features:

Altcoins based on mining: The classic PoW technique is used for altcoins obtained through mining. Here, computational power is devoted to decrypting and scrutinizing transaction data by solving complicated mathematical equations. Litecoin (LTC), ZCash (ZEC), and Monero are examples of mining-based altcoins (XMR).

Stablecoins: Since its debut, stablecoins have sought to alleviate the consequences of cryptocurrency volatility. The value of these Altcoins is tied to less volatile assets like metals, sovereign currencies (such as the US dollar), or other cryptocurrencies. Tether (USDT), USD Coin (USDC), and Dai are examples of stablecoins (DAI).

Security Tokens: These tokens mimic traditional securities sold on stock exchanges, as the name implies. They’re made to symbolize either the owner of a particular security or a dividend payment. Because the underlying asset is tangible, security tokens are usually particularly appealing to investors because they promise quick value appreciation.

Meme coins: They get their name from their amusing take on well-known and performing cryptocurrencies. They have no underlying principles, and their value is driven solely by celebrity endorsements or influencers. Shiba Inu (SHIB) and Dogecoin (DOGE) are two popular joke coins that rose in value due to Tesla CEO Elon Musk’s comments.

Dogecoin is the people’s crypto

— Elon Musk (@elonmusk) February 4, 2021

Tokens connected with awards, mining fees, and on-network purchases are utility tokens. These tokens, on the other hand, do not provide any security. Filecoin (FIL), for example, is a currency that can be used to acquire decentralized network storage space.

Also, read – What Are Alternative Cryptocurrencies (Altcoins)?

What method should you use to evaluate altcoins?

The importance of evaluating an altcoin cannot be overstated. It entails gathering all accessible information on the cryptocurrency and the blockchain on which it is based. When it comes to altcoins, there are a few points that investors should keep in mind:

Check out the whitepaper: When a new blockchain is formed, the team behind it publishes a whitepaper outlining the project’s goals. It uses use cases to demonstrate its objectives and growth prospects.

The Bitcoin whitepaper, for example, plainly states that it is “a decentralized digital currency, devoid of a central bank, that may be sent from user to user on a peer-to-peer network without the use of intermediaries.”

Examine demand-supply dynamics: An cryptocurrency can only appreciate over time if demand is strong and supply is constant or decreasing. It’s easy to tell whether the value offer will raise requests after investors are aware of the value and growth drivers from step 1.

In layman’s words, the cryptocurrency should give sufficient incentive to attract investors, resulting in a drop in total supply. High demand and restricted supply result in increased demand, which leads to a value increase.

Assess the developers and stakeholders: Now that you’ve learned about the most significant characteristics of altcoins, it’s time to learn about the people behind each blockchain and its native cryptocurrency. While the whitepaper is open to the public, one needs to obtain information on the developers from various credible sources.

Investors must delve deeper to learn more about the company’s history. The developers’ credentials must be trustworthy, and it’s a plus if they’ve previously worked on successful projects. 

Some well-known altcoins

Ether: It is the first altcoin that has been released. Smart contracts and dApps (decentralized programs) to the cryptocurrency world by the Ethereum blockchain.

Chainlink: This blockchain outperforms the Ethereum blockchain by making autonomous decisions based on real-time data. It enables smart contracts to interact with different application programming platforms and make decisions based on global trends.

Stellar Lumens: This blockchain was intended to bring together the world’s banking institutions. It joins multiple disconnected payment platforms such as Alchemy Pay and Single Euro Payments Area through a decentralized ledger.