What is Altcoin?
When investors dive into the cryptocurrency industry, there is a term known as altcoin to refer any other cryptocurrencies types beside Bitcoin. Since Bitcoin’s meteoric rise in 2013, there have been tons of other cryptocurrency’s project created in order to compete with Bitcoin. Data from CoinMarketCap shows there are more than 17.000 altcoins projects in circulation from around the world, from meme coins to stablecoins.
Bitcoin is the first successful cryptocurrency that was discovered in 2009. Learn from Bitcoin’s success and failure, tons of other cryptocurrency projects were created. Bitcoin back in 2011 lacked utility beside its function as a digital electronic peer-to-peer payment system, to tackle this lack of utility, other computer scientists created different types of cryptocurrency, to solve problems which Bitcoin does not.
As time progresses, there are already many cryptocurrency projects being developed, either to compete with Bitcoin or even as a complement project to Bitcoin itself.
These other cryptocurrency projects are called Altcoin. “Alt” is an abbreviation for the word alternative, while “coin” means a cryptocurrency or Bitcoin. Altcoin can be either an alternative cryptocurrency other than Bitcoin and also can be an alternative Bitcoin.
Ethereum is the largest altcoin in terms of market capitalization, and always rank the number two spot on cryptocurrency ranking since 2015.
Altcoin and Bitcoin Difference
▪ Market capitalization and dominance over entire crypto market
The most striking differentiator from Bitcoin and the rest of altcoins is the market capitalization. According to Coingecko, currently Bitcoin dominates as much as 38% of all cryptocurrency market cap. While in the past, Bitcoin dominated the whole cryptocurrency market as much as 90% back in 2014.
Bitcoin dominance over altcoin in history
Many international institutions consider only Bitcoin eligible to be called ‘digital gold’ because of its dominance over crypto industry and its survival since 2011. Many other crypto projects fail before materializing their ideas and purposes.
▪ Price volatility
While Bitcoin can be very volatile, most altcoins are extremely volatile. Bitcoin is indeed very volatile in terms of its price when compared with other asset classes, however as the market matures and the market becomes larger in terms of its value, Bitcoin volatility spike gets normalized, except when the bull run or market crash kicks in.
Altcoin on the other hand, with a smaller market cap can be very volatile, especially for the less-known altcoin with a market cap below $1 billion. It is easy for bad actors to disrupt altcoin with smaller market cap and cause its value to crumble.
However, altcoin also poses a better profit target, because its value can rise dramatically. For example Shiba Inu increased its value more than 2 million percent (2,000,000%) back in 2021’s bull run. There is also Luna Classic (formerly LUNA) which saw its value drop by 99,9% during the 2022 market crash.
▪ Technology, utility and tokenomics
While Bitcoin was created back in 2009, it is far from perfect and usable. Currently, Bitcoin is still facing similar issues of scalability and utility. This is why certain altcoins work on scalability problems and create a layer-2 project. As for the utility, there are exchange tokens which can be used to facilitate trader needs within centralized or decentralized exchange. This is part of the technological difference between Bitcoin and altcoins.
While every altcoin’s tokenomics are varied, nowadays there are less and less altcoin that use the mining activities to produce blockchain’s blocks.
Types of Altcoin
1. By how it created, PoW and PoS altcoins
There are 2 types of altcoin based on how they are created, the proof of work coins which requires it to be mined, and the proof of stake coins which require a stake or a lock up asset to produce another coins
Example of PoW altcoins are: Litecoin (LTC), Dogecoin (DOGE) and Ethereum Classic (ETC) which all of them still requires mining rig to produce blocks on the blockchain
Example of PoS altcoins are: Ethereum (ETH), Cardano (ADA), and Solana (SOL)
There are different types of altcoin known for its stable value, which is the stablecoin. The stablecoin value is pegged or tied with another asset value such as world currency, stocks or commodities. This made stablecoin’s value less volatile compared to other altcoin types
Example of stablecoins are: USDT, USDC, DAI and AMPL
3. DeFi Altcoin
Can also be called as DeFi tokens. These altcoin did not have their own blockchain network, in fact they can live on multiple blockchains. This altcoin types are usable for decentralized banking activities such as savings and borrowings within the smart contract protocols.
Example of DeFi altcoin are: Uniswap (UNI), Lido (LDO) and AAVE
4. Layer-2 Altcoin
While Bitcoin and Ethereum face scalability issues such as high transaction fees, network speed and number of blocks produced, there are several altcoins that help to solve these problems, and they are called layer-2 solutions. There are layer-2 projects with their own token or altcoin, and there also layer-2 projects without the presence of token/altcoin.
Example of layer-2 altcoin: Polygon (Matic), Loopring (LRC) and OMG Network (OMG)
5. Meme Coin
Even though it is created as a joke and has no or bare minimum utility. Meme coin is one of the types of altcoin. This in fact because of the support from the communities within meme coin projects.
Example of meme coins: Dogecoin (DOGE), Shiba Inu (SHIB), Baby Doge and many others.
Altcoin season is an event or time period when many altcoins increase significantly in value.
During an altcoin season, many altcoin surpasses Bitcoin in terms of the amount of price increase or the percentage. In some other cases, the price of Bitcoin did not volatile at all, while the majority of altcoin’s prices are increasing rapidly.
In the crypto bull run, altcoin season can be identified when Bitcoin dominance is decreasing on the entire crypto market cap and the altcoin index is increasing its dominance. During the bull market, when Bitcoin dominance falls more than 5%, it is safe to say that the altseason is coming.