What Are Altcoins? An Explanation of Crypto Beyond Bitcoin

If you’re interested in getting involved with cryptocurrency, you have a wide range of options to explore. While Bitcoin is the first-established and most widely recognized cryptocurrency, thousands of other digital assets — known as altcoins — make up the broader crypto landscape.

What is an altcoin? In simple terms, an altcoin is any cryptocurrency that is not Bitcoin. There are many different types of altcoins you might consider, depending on your needs and goals, but it’s important to understand the risks involved. Below, we take a closer look at what altcoins are, why they were created, the major types you’ll encounter, along with the benefits and risks associated with them.

While SoFi members may be able to buy, sell, and hold a selection of cryptocurrencies, such as Bitcoin, Solana, and Ethereum, other cryptocurrencies mentioned may not be offered by SoFi.

What Does “Altcoin” Mean?

The word “altcoin” is short for “alternative coin” and refers to any cryptocurrency that is not Bitcoin. Since Bitcoin launched in 2009, a large number of other cryptocurrencies have entered the market, each with different goals, features, and use cases. Today, more than 6,000 digital currencies (or altcoins) exist.

Why Were They Created?

Altcoins have emerged for several key reasons:

•  To improve upon Bitcoin’s limitations: The Bitcoin network and protocol are considered highly secure, but it does have limitations — such as relatively slower transaction speed and restricted programmability. Many newer cryptocurrencies were created to offer faster, more scalable, or more flexible alternatives.

•  To introduce new use cases: Bitcoin was designed primarily as a digital form of payment. Altcoins expanded the possibilities of blockchain technology into areas like decentralized finance (DeFi), non-fungible tokens (NFTs), gaming, and global payment systems.

•  To compete and innovate: New cryptocurrencies drive experimentation and technological progress across the entire crypto market, offering alternatives to older networks.

The Difference Between a Coin and a Token

The terms “coin” and “token” are often used interchangeably, but they have important distinctions:

•  A coin runs on its own independent blockchain. Examples include Bitcoin (BTC), Ether (ETH), and Solana (SOL).

•  A token runs on top of an existing blockchain, most commonly Ethereum. Examples include Uniswap (UNI) and Chainlink (LINK).

Coins are typically used for payment or crypto staking (locking up your crypto to secure the network and earn rewards) within the blockchain they power. Tokens, by contrast, often represent access to a service, a governance right, or a role within a decentralized application.

The 5 Main Categories of Altcoins

Although there are thousands of Altcoins, they generally fall into a few broad categories based on their purpose.

1. Stablecoins: Digital Dollars Designed for Stability

Stablecoins are cryptocurrencies designed to maintain a stable value, usually pegged 1:1 to the U.S. dollar. They aim to combine the benefits of crypto (speed, global access, low fees) with the stability of fiat (government-backed) currency. However, stablecoins are generally not as safe as traditional currency.

Stablecoins are commonly used in trading, payments, and DeFi because they allow users to move money quickly without worrying about extreme price swings.

Examples include:

•  USDC (USDC)

•  Tether (USDT)

•  Dai (DAI)

•  PayPal USD (PYUSD)

•  PAX Gold (PAXG)

2. Smart Contract Platforms: Blockchains That Power Apps and DeFi

Smart contract platforms provide the infrastructure for creating and running decentralized applications (dApps). Smart contracts are self-executing programs that automatically run when certain conditions are met, eliminating intermediaries and making agreements transparent and secure.

These platforms function like operating systems for dApps, powering everything from NFT marketplaces to decentralized crypto exchanges, and each has its own native coin.

Examples include:

•  Ethereum (ETH)

•  Solana (SOL)

•  Cardano (ADA)

•  Avalanche (AVAX)

•  Stellar (XLM)

3. DeFi Tokens: Used for Lending, Borrowing, and Trading

DeFi aims to replicate traditional banking services (such as lending, borrowing, and earning interest) without necessarily needing a central intermediary. Platforms operate through smart contracts, allowing users to interact directly with the protocol.

DeFi tokens allow you to participate in DeFi platforms. For example, they can be used for lending and borrowing, earning rewards, and gaining the right to participate in governance of the platform.

Examples include:

•  Chainlink (LINK)

•  Stellar (XLM)

•  Dai (DAI)

•  Uniswap (UNI)

•  Aave (AAVE)

4. Meme Coins: Community-Driven and Highly Speculative

Meme coins are altcoins that originate from internet jokes, popular cultural references, or online communities. They often start out as community experiments, but some have grown into large highly traded assets. However, they are generally known for extreme volatility and tend to rise or fall based on hype and social media trends rather than technology or fundamentals.

Examples include:

•  Shiba Inu (SHIB)

•  Dogecoin (DOGE)

•  Pepe (PEPE)

•  MemeCore (M)

•  Bonk (BONK)

5. Utility Tokens: Provide Access to a Specific Service or Product

Utility tokens act as “access passes” to a product, service, or feature within a blockchain ecosystem. For example, they may be used to pay network fees, earn rewards, unlock premium features, or access internal services.

Utility tokens are native to their ecosystem and their price tends to be intrinsically tied to the success and adoption of the network.

Examples include:

•  Ox (ZRX)

•  Augur (REP)

•  Golem (GNT)

•  Basic Attention Token (BAT)

•  Theta Fuel (TFUEL)

Are Altcoins Good to Have?

Like any emerging technology, altcoins come with both potential rewards and significant risks. It is important to understand both sides before buying an altcoin.

The Pros

•  Potential for growth: Many altcoins represent early-stage technologies. If a project becomes widely adopted, early investors may see prices increase over time.

•  Innovative technology: Altcoins explore cutting-edge concepts such as smart contract, dApps, tokenized assets, and more. This can make them attractive to users who believe in the long-term potential of blockchain technology.

•  Lower cost of entry: The lower price per coin makes altcoins more accessible to users who might not be able to afford more expensive cryptocurrencies.

The Cons

•  High risk and volatility: Altcoins generally experience larger price swings than Bitcoin due to their smaller market capitalization, lower liquidity, and greater sensitivity to trends and market sentiment.

•  Potential for failed projects and scams: Because some types of cryptocurrencies can be relatively easy to create, the market has seen a flood of projects, many of which lack solid fundamentals or dedicated development teams. Altcoins are also frequent targets and vehicles for crypto scams.

•  Low liquidity and market manipulation: Because altcoins often trade in thin markets, even relatively small trades can cause price swings. Small, illiquid markets are more susceptible to manipulation schemes like “pump and dump” (a coordinated effort to artificially inflate the price of an altcoin before the manipulators sell off their holdings).

Recommended: The Pros and Cons of Cryptocurrency

How to Approach Altcoins

If you’re thinking of buying altcoins, it’s important to take a careful and strategic approach due to the risks involved.

Why Research Is Absolutely Critical

Before purchasing any altcoin, it’s a good idea to review:

•  The project’s purpose: What problem does it solve?

•  The team and leadership: Are the developers reputable?

•  The whitepaper: Is the project technologically sound?

•  Community and developer activity: Is the ecosystem active and growing?

•  Tokenomics: How is the supply structured? Are there inflation risks?

Research doesn’t eliminate risk — it’s possible to lose your entire crypto investment. However, it may help you separate serious projects from hype.

Understanding the High-Risk Nature of the Market

Because altcoins are inherently speculative, it’s wise to:

•  Only buy altcoins with money you can afford to lose

•  Expect significant volatility

•  Prepare for the possibility of project failure

•  Avoid emotional decision-making during price swings

How to Buy and Store Altcoins

The process typically includes:

1.   Choose a reputable platform: You can buy altcoins on most of the major crypto exchanges. In addition, online brokers and other financial institutions are increasingly adding support for select cryptocurrencies, including some popular altcoins.

2.   Create and verify your account: You will likely need to complete a Know Your Customer (KYC) process by providing personal information and identification to verify your account. This is a security measure and is required by most platforms to comply with regulations.

3.   Fund your account: You can typically use a bank account or debit card to add funds to your account, enabling you to buy crypto with fiat currency.

4.   Make your purchase: Search for the specific altcoin you want to buy on the platform and place an order. You may be able to choose between a “market order” (buy immediately at the best available current price) or a “limit order” (buy only at your specified price or lower). Note that SoFi Crypto only supports market orders at this time.

5.   Consider how you’ll store your crypto. You may be able to keep private keys (the codes that give you access to your altcoins) on the platform/exchange in a custodial wallet. Or, you might choose to move them to a personal (self-custody) wallet. With a custodial wallet, you’re putting trust in a third party to manage your keys and keep your crypto safe on your behalf. With a self-custody wallet, you’re in charge of security, giving you more control but more responsibility.

Recommended: How to Send Crypto to Another Wallet

The Takeaway

Altcoins represent the large universe of cryptocurrency beyond Bitcoin. They include stablecoins designed for everyday interactions, innovative DeFi token, speculative meme coins, and utility tokens that power decentralized services. Like all crypto assets, they carry significant risks, including risk of total loss. If you choose to explore altcoins, make sure you stay informed, cautious, and prepared for volatility.

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FAQ

What are the main types of altcoins?

The main altcoin types include stablecoins (pegged to stable assets), utility tokens (used to access services/fees), and meme coins (internet culture). Categories like decentralized finance (DeFi) and smart contract platforms are also common ways to classify altcoins. Different altcoins serve many functions beyond Bitcoin’s store-of-value role.

How do I choose which altcoin to buy?

Choosing an altcoin requires careful research, as they are high-risk and speculative. It’s important to consider the project’s fundamentals — what real world problem does it solve? It’s also wise to investigate the development team’s background, review the project’s whitepaper for technological soundness, and assess the ecosystem’s activity. Ultimately, only buy altcoins with money you are prepared to lose, as volatility and the risk of project failure are high.

Can altcoins surpass Bitcoin in market dominance?

It’s possible, but unlikely in the near future. Bitcoin currently holds the largest market capitalization and is the most recognized cryptocurrency, making it the dominant player. While some altcoins, like Ether, have greater utility in powering decentralized applications and have seen significant growth, surpassing Bitcoin’s market dominance would require a major, sustained shift in the crypto ecosystem.

How do altcoins impact the overall cryptocurrency market?

Altcoins significantly impact the overall cryptocurrency market by driving innovation and expanding blockchain’s utility beyond Bitcoin’s original purpose. They introduce new features like smart contracts and decentralized finance, increasing the total market capitalization, and offering diverse use cases. Altcoins contribute to market volatility, but they also increase user choice and technological progress, making the crypto ecosystem more dynamic and competitive.

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