Category: Learn

What is an Altcoin? 

The word “altcoin” is an abbreviated term meaning “alternative coin”. Altcoin is simply the name given to all the cryptocurrencies that aren’t Bitcoin.

Altcoins typically form in two ways. Either an independent developer pursues their own vision and develops a new cryptocurrency from the ground up or there’s developmental disagreement among the creators resulting in some deciding to split off to make their own. 

For example, Litecoin splintered off from Bitcoin in 2011, believing that greater transaction speeds were the way forward.

This led to many of the established cryptocurrencies and altcoins sharing similar characteristics and operating systems – like Arbitrum using the Ethereum blockchain ledger and Solana using the same proof-of-work technology as Bitcoin — growing the number of alternative variants.

Types of Altcoin 

There are many types of altcoins used for a variety of purposes. As some creators tried revolutionizing payments and increasing transaction speeds, others developed altcoins and cryptocurrencies for more niche functions.

The main types of altcoins are:

Mining-based coins

Bitcoin is a mining-based coin. This means that a team of professional miners use software to solve mathematical equations to verify blocks of transactions — when a block is verified, the miner receives a small part of a bitcoin as a reward. 

As well as the two giants, Bitcoin and Ethereum, many other altcoins — like Litecoin, Dogecoin, ZCash, and Monero — also follow this verification strategy. Unfortunately, it is time-consuming, costly, and uses a lot of energy to mine.

Stablecoins

Stablecoins are a type of cryptocurrency that have their price fixed through either an artificial algorithm or by linking them to a fiat currency or commodity to uphold its value and prevent wild fluctuations.

For example, Tether — a stablecoin based in the United States — is bound to the US dollar. This means Tether’s price can only follow the natural market value of the currency and isn’t at the mercy of supply and demand.

Although typically a safe investment, problems can arise when the company or issuer of the coin doesn’t have sufficient reserves to justify its value.

Staking-based

Some altcoins have a different consensus mechanism for verifying block transactions. While most cryptocurrencies, tokens, and altcoins approve blocks using a proof-of-work consensus mechanism, some coins use what’s known as a proof-of-stake mechanism.

Holders of stake-based coins have options to stake their coins — this means offering their coins to a third-party reviewer for transaction processing. With each verified block, the participants are rewarded with small portions of the coin as a reward. 

Altcoins like Cardano, Toncoin, and Polkadot are all examples of proof-of-stake currencies. 

Governance

Some currencies give investors “voting rights” to have a say in the future direction of the cryptocurrency by voting on proposals and suggesting ideas for improving the blockchain project.

The idea behind these coins is to decentralize decision-making and allow the investors a chance to have a say on how to improve the operating systems and blockchain infrastructure and give hands-on feedback to developers.

How many altcoins are there? 

Because of the popularity of cryptocurrency and how it’s proven to be a lucrative money-making opportunity – even after the 2013 crypto boom – there are thousands of different coins, each with their own unique blockchain infrastructure and consensus mechanisms.

It’s estimated that there are just over 17,000 types of altcoins available on the market.

Are altcoins a good investment?

For investors looking to add cryptocurrency to their portfolio, altcoins are a great diversifier. Just like a stock, a cryptocurrency can appeal to investors and perform well on exchanges if it has strong market and technical fundamentals. 

Factors such as whether an altcoin has a positive technical trajectory — like rapid transaction technology, desirable, secure blockchain infrastructure, and a strong demand for supply — can make it a desirable investment opportunity for long-term investments and traders.

However, it’s important for investors to research the coins before committing large amounts of capital to them, as the market is still in its infancy.

What to consider before buying altcoins 

Evaluating an altcoin for investment is more complex than just watching candlestick charts and trying to jump in at the right time. Some of the things investors need to know when investing in altcoins and cryptocurrency include:

Market capitalisation

The market cap of a cryptocurrency is calculated by multiplying the number of coins in circulation by the value of the coin. Typically, the higher the market cap, the higher the value of the cryptocurrency and the potential price fluctuations of each coin – making it an integral metric for deciding whether or not to invest.

Trading volume

Trading volume is the number of cryptocurrency tokens or coins being bought and sold over a specific time frame. The higher the volume, the more desirable the currency, as it shows there’s significant interest — indicating periods of rapid growth or decline.

Historic and current price trends

Although not guaranteed to yield results, looking at historic pricing — as well as more recent charts — can help investors paint a picture of the general pricing trends of a cryptocurrency.

Market sentiment

Keeping informed of crypto news is paramount to making an investment. Because cryptocurrencies are still in their infancy, much of their value is derived from consumer hype and faith in a cryptocurrency’s infrastructure. 

Therefore, news is likely to have a dramatic effect on the pricing of each token or coin — this is especially true for smaller altcoins that aren’t as established as giants like Ethereum, Ether, and Litecoin.

Social media sentiment 

Just like mainstream news can govern market sentiment, social media can too. Positive social media attention can cause the price of a coin or token to skyrocket, as investors swarm to claim a share of the profits. 

However, it’s important to practice caution when considering social media opinions for many reasons. Although they’re a good source of information, it could potentially be wildly inaccurate. Even worse, social media hype has the potential to be part of a pump-and-dump scheme where influencers and public figures artificially inflate currencies only to release their own holding when it reaches the peak.

Future trends in altcoins 

As technology, consumer sentiment and currency users change, altcoins must adapt to keep pace with new requirements. 2023 is a new year for altcoins and many changes are around the corner. 

Some of the key anticipated changes are:

Addressing crypto’s environmental impact

Proof-of-work systems use exorbitant amounts of energy and require expensive, high-power computers to uthorizes blockchains, green-light payments, make transfers, and mine currency quickly.

It’s such an expense that Ethereum is moving to a proof-of-stake consensus mechanism to create new blocks in its blockchain. This not only speeds up payment times for consumers but reduces overhead costs and is kinder on the environment — setting the precedent for many altcoins to do the same.

Reviewing how new and existing coins are valued

A recent string of proposed government ICO clampdowns in countries like the USA, UK, and Sweden may trigger a change in how new coins are valued at market entry.

One of the main issues is that they are completely unregulated, allowing scams to ravage investors’ portfolios without any recourse for repayment. 

With some governments worldwide forcing cryptocurrency developers to disclose information about the coin, registering it in an index, and implementing investor protection strategies to compensate consumers, this could affect the cryptocurrency landscape — forcing crypto developers into creating coins with real-world utility and avoiding the meme route.

A potential boom in the second half of 2023

As investors fled the markets at the start of the year in the wake of a weakened economy and rising interest rates, the start of 2023 saw the cryptocurrency market begin to bear. 

However, some analysts speculate that the value of some cryptocurrencies — namely, Ethereum, XRP, and Solana — are expected to see sizeable gains, with some others expected to follow suit.

Frequently Asked Questions (FAQs)

What are the top 3 altcoins?

The cryptocurrencies expected to make substantial gains towards the end of 2023 are, Ripple (XRP), Binance Coin (BNB), and Solana (SOL), while Ethereum (ETH) has already made substantial gains this year.

What is the most famous altcoin?

While the first altcoin, Namecoin, holds the title for being the original, Ethereum is arguably the most famous altcoin on the market, being the only alternative coin coming close to rivaling the historic highs of Bitcoin.

What are the disadvantages of altcoins?

While altcoins are a great diversifier for a portfolio — allowing investors to stake money on emerging assets while being protected by historic hedges like precious metals and commodities — investing in them does come with an inherent set of problems.

The main problems with altcoin investments are:

• They’re incredibly volatile, and therefore, high-risk.
• Some cryptocurrencies oversupply the demand — stagnating the price.
• The value of an altcoin is almost solely based on speculation and hype and can be overvalued.
• There is always a risk with altcoin investments that they’re pump-and-dump schemes — meaning investors have to be careful when researching altcoins and be wary of those with low liquidity.

How do altcoins gain value?

Altcoins gain value like any other stock, cryptocurrency, or commodity — through increased demand.

When news breaks that an altcoin has made a significant step to boosting its real-world utility or investors are swarming to it, the price of the coin will rise as demand increases and supply falls.

What is Dogecoin?

Dogecoin is an alternative coin — more commonly known as an Altcoin — that was established by co-founders Jackson Palmer and Billy Markus in 2013. It was initially created as a joke — based on the well-known “Doge” meme.

Each coin has its own blockchain infrastructure and operating system. Dogecoin runs on the same blockchain infrastructure and uses similar proof-of-work operating systems — a mathematical security system used to verify transactions and approve task execution — as Litecoin and Ethereum, with small modifications.

How is Dogecoin different from Bitcoin?

Bitcoin and dogecoin are extremely different cryptocurrencies.

Bitcoin is a widely-used, reputable coin that acts as legal tender in many countries across the world, as well as in transnational markets and industries. Dogecoin lacks the legitimacy and global infrastructure to reach the heights of Bitcoin.

They also differ drastically in market share. With Bitcoin, there’s a finite number of coins available, creating a limited supply. Dogecoin has an endless supply of tokens, meaning supply can never outpace demand, leaving it in a permanently deflationary state.

Both Dogecoin and Bitcoin also run on different blockchain networks — and different advancements in blockchain technologies are one of the determining factors of market fluctuations.

Bitcoin runs on its own blockchain network, whereas Dogecoin piggybacks off the Ethereum blockchain, but with its own slight changes to transaction tracking and payment recording.

Is Dogecoin better than Bitcoin?

Deciding which cryptocurrency is better will ultimately come down to what a user is looking for from their coin.

If users are looking for transaction speeds and lower fees, Dogecoin is superior due to the Ethereum-based blockchain, being designed specifically for rapid, seamless transactions.

However, if it’s accessibility, usability and value that users are looking for, Bitcoin outperforms Dogecoin because it’s more widely-used and available — meaning users have more options when it comes to making and receiving payments.

From an investment standpoint, Bitcoin stands head and shoulders above Dogecoin. While Dogecoin is struggling to reach 1 cent in value, Bitcoin fluctuates on average between 27-30 thousand dollars per coin.

While Bitcoin’s value is based on quantifiable aspects — like its widespread usage, user popularity and limited circulation — Dogecoin doesn’t have too much room for growth given its endless supply and low user uptake.

Dogecoin vs Bitcoin price

The difference between the current and historical price fluctuations of the two coins couldn’t be more different.

At the height of its reign, Dogecoin peaked at 74 cents, having opened on the market at 0.017 cents per coin — meaning its value went up by over 9000% during the cryptocurrency boom.

In that same period, Bitcoin had a meteoric rise — peaking at over $61k and opening at $327 — growing at a percentage rate of over nine million percent from opening.

Both coins have historically reached dizzying heights — allowing those traders who were hot on the trends to see staggering profits.

However, the popularity, accessibility and user uptake of Bitcoin means it’s the more valuable coin by a wide margin.

Dogecoin mining vs Bitcoin mining

“Crypto mining” is a common way for users to get hold of valuable coins.

The process of mining involves using powerful computers and high-speed internet connectivity to automatically solve a series of complex puzzles and algorithms to validate transactions and secure small portions of coins.

With enough portions, miners begin to accrue enough value to make the long process of mining worthwhile.

Despite the popularity of Bitcoin, it’s much more time-consuming to mine than its Dogecoin counterpart.

Bitcoin miners typically take around ten minutes to approve transaction blocks, whereas Dogecoin miners can approve them ten times faster, with a block every minute. Because Dogecoin runs on an adaptation of the Ethereum blockchain — which can be mined at a rate of 13 million blocks for every 700,000 Bitcoin blocks — it’s significantly easier to mine.

Frequently Asked Questions (FAQs)

Can Dogecoin grow like Bitcoin?

It’s extremely unlikely that Dogecoin will ever reach the value of Bitcoin for three key reasons.

The primary reason is popularity. Because of Bitcoin’s widespread usage and popularity, it’s infinitely more sought-after than Dogecoin.

Secondly, the circulation of Dogecoins doesn’t allow it to grow in the same way Bitcoin did. There is an unlimited number of Dogecoins, meaning the number will always be higher than demand. There is only a finite number of Bitcoins in circulation — meaning that demand will likely always outstrip supply, increasing its value.

Comparatively speaking, Dogecoin is an inflationary coin and Bitcoin is a deflationary coin, meaning Dogecoin can never grow in the same way.

Lastly, many reputable investors believe that the primary “crypto booms” are over. Only the longstanding, widely used coins like Bitcoin and Ethereum will see substantial gains whereas meme tokens like Dogecoin and Shiba Inu will never see these highs again in the eyes of many reputable traders.

Is Dogecoin still a good investment?

Despite it being a meme coin that is taken less seriously than other big players, many investors still hold Dogecoin in their portfolios.

Because you can buy a significant number of Dogecoins for incredibly low prices, even minor fluctuations can land quick profits.

However, the risk of another cryptocurrency crash — and the volatile nature of crypto in general — means that most investors will only hold a small percentage of the coin in their portfolio to mitigate against risks like the crypto crash of 2018.

What is the disadvantage of Dogecoin?

Despite it being a well-known cryptocurrency, Dogecoin has its disadvantages — both as a cryptocurrency and an investment.

Some of the disadvantages to consider when investing in Dogecoin include:

• Lack of utility — Despite being the tenth-highest cryptocurrency in terms of value, it has almost no real-world utility. Because its value is entirely based on speculation and hype derived almost entirely from its meme background, Dogecoin is inherently unstable. It also lacks the real-world use and user uptake of larger, more practical coins like Bitcoin and Ethereum.
• No supply cap – Because the supply of Dogecoin is endless, it can never outpace demand — ultimately limiting its potential for growth.
• Little supporting metrics — It historically has not been a big grower. Despite booming significantly during the crypto boom of 2017, it never exceeded a value of more than 61 cents per coin — making it an incredibly low-value asset, even at the height of its power.

Is Dogecoin a good long-term investment?

Unfortunately, without a significant shift in either how it functions as a cryptocurrency, market shifts or investor interest, it’s unlikely investors will see long-term gains on the asset.

Like all cryptocurrencies, it can act as a strong diversifier for short-term gains — given the volatile nature of the crypto market. However, its potential for long-term gains compared to established coins and tokens like Ethereum, Bitcoin and Solana, is slim.