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What Are Altcoins? Guide to Bitcoin Alternatives

By Samuel Becker · April 13, 2021 · 4 minute read

We’re here to help! First and foremost, SoFi Learn strives to be a beneficial resource to you as you navigate your financial journey. Read more We develop content that covers a variety of financial topics. Sometimes, that content may include information about products, features, or services that SoFi does not provide. We aim to break down complicated concepts, loop you in on the latest trends, and keep you up-to-date on the stuff you can use to help get your money right. Read less

What Are Altcoins? Guide to Bitcoin Alternatives

There are many alternative investments available for people who hope to grow their money—from age-old collectibles like baseball cards, to new and somewhat confusing assets, like NFTs. Another alternative investment is cryptocurrency—and within that category falls another “alt”: alt coins, better known as altcoins.

Altcoins are crypto coins that are an alternative to Bitcoin, the original cryptocurrency and reigning crypto leader. There are many different altcoins—different types, and within those categories, different specific products.

This article covers everything you need to know about altcoins, including what they are, where to buy them, and examples of the more popular coins on the market. Familiarize yourself with altcoins here, then check out the top things you should know before investing in any cryptocurrency.

What Are Altcoins?

Bitcoin is just one of the myriad coins and tokens that comprise the cryptocurrency space. You’ve likely heard some of their names—such as Ethereum, Ripple, and Litecoin. These coins and cryptos are, in effect, alternatives to bitcoin.

“Altcoin” is a catch-all term for alternative cryptocurrencies to bitcoin. They’re altcoins. It’s that simple. Currently, there are more than 9,000 cryptocurrencies in existence. That’s a lot of altcoins.

How do Altcoins Work?

Like Bitcoin, altcoins rely on blockchain technology, which allows for secure, peer-to-peer transactions. But each altcoin operates independently from the rest, and each has its own sets of rules and uses. For example, cryptocurrencies like Bitcoin and Ethereum are mineable, whereas Ripple and Stellar are not.

That said, in general, most altcoins operate in much the same way: They’re traded among investors, with transactions recorded via blockchain in a distributed ledger.

Different Types of Altcoins

Most altcoins can be slotted into a few different categories, which can help potential crypto investors get a better grasp of the field. This is not an exhaustive list, as categories and subtypes are always changing. But here are some of the most prevalent types of altcoins:

Digital currencies

The digital currency category comprises most of the cryptocurrencies that investors are familiar with, including Bitcoin. They’re exactly what they sound like: currency in digital form. They can be acquired as a form of payment, through trading on an exchange, or through mining (when applicable), and are generally used to conduct transactions.

Tokens

Unlike crypto like Bitcoin or Ethereum, which can be used on any platform, tokens are tied to their parent platform. For example, Tether and Golem are tokens used only on the Ethereum platform.

A utility token provides holders with some sort of service. BAT (Basic Attention Token) is an example of a utility token, meant to be used specifically as a method of payment on the Brave open-source browser.

Stablecoins

Stablecoins are built to be stable—they are pegged to an existing asset like the Euro or the U.S. dollar. The logic is that by pegging the asset to an existing one, it should help stabilize value and reduce volatility.

In contrast, consider Bitcoin: while its value has risen substantially in recent years, its price is highly volatile. Values have dropped to less than $6,000 per coin to more than $60,000—all within a couple of years. Stablecoins are designed to reduce those wild fluctuations, and allow holders to sleep at night.

An example of a stablecoin is Libra (aka Diem), which is being developed by Facebook, and pegged to the dollar.

Common Altcoins

There are seemingly more and more altcoins hitting the market every day. Here are a few of the more common altcoins:

Ripple: Also known as “XRP,” this altcoin is used primarily on its namesake, the Ripple currency exchange system. It was designed for use by businesses and organizations, rather than individuals, as it’s most often used to move large amounts of money around the world.

Ethereum: Ethereum is a programmable internet platform used to build decentralized programs and applications, and its native currency, Ether (ETH), is the altcoin in question that can be traded by investors.

Litecoin: Litecoin is another popular altcoin, which is often referred to as “Bitcoin lite,” hence the moniker. It’s one of the largest and most popular cryptocurrencies on the market, and operates in a very similar way to Bitcoin.

Dogecoin: There are a bunch of “joke” altcoins that are on the market, and Dogecoin is perhaps the most recognizable right now. Dogecoin started as a joke (its genesis is actually an internet meme), although it has gained value in recent months.

Cardano: Cardano (ADA) allows developers to use the Cardano blockchain to write smart contracts and decentralized applications (dApps). ADA crypto is required to run programs like dApps. Cardano is also used as a medium of exchange.

Where to Buy Altcoins?

Looking to buy altcoins? They’re available on most any cryptocurrency exchange, like Coinbase or Binance. You can even trade cryptocurrencies with SoFi Invest® (if you live in an eligible state). Not all altcoins may be available on every platform, so interested investors should do their research before choosing an exchange.

In terms of actually trading for coins, the process can be as simple as depositing money into an account on your preferred exchange, and then trading either dollars or crypto for a targeted altcoin.

The Takeaway

Altcoin is a catchall term for cryptocurrency other than Bitcoin, the original crypto. There are a variety of different altcoins—from tokens to stablecoins—but many are available for interested investors.

If you want to get your feet wet, you can get started trading certain cryptocurrencies and altcoins using SoFi Invest. You can get started with just $10, manage your transactions in the SoFi app, and rest assured that your holdings are securely protected against fraud and theft.

Find out how to get started with SoFi Invest.


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