Altcoin is an abbreviation of ‘Alternative Coin’ and is used to refer to all cryptocurrencies and tokens other than bitcoin and Ethereum.
There are those who also consider Ethereum to be an altcoin and Bitcoin, as the original cryptocurrency to be the only true cryptocurrency. Originally, altcoins were created as alternative cryptocurrencies, with some creators developing their altcoins as a joke, such as was the case with Dogecoin. But this changed when developers began seeing the potential for other use cases. Oftentimes, altcoins will have additional functions beyond serving as an alternative to fiat currency.
An example of this is Ethereum itself. Although there are many who trade Ethereum as a regular cryptocurrency, most of its value and functionality stems from its ability to act as a basis for creating blockchain-based applications, otherwise known as decentralized applications (dApps), with their own tokens. These dApps are built on the blockchain and can therefore never be destroyed, and extremely difficult to tamper with, which is why there is an increasing interest in developing applications and projects on them.
One of the most common uses for altcoin is as a tool for raising funds for a dApp or other alternative blockchain-based application. These are done via initial coin offerings (ICOs,) whereby the potential investors are provided with whitepapers to read through to decide whether the project is worth investing in. In these instances, the altcoins are therefore used in place of shares, and the holder usually does not possess the same rights and benefits as a shareholder would, unless that is one of the functions of using the altcoin on the platform.
Types of Altcoins
Alternative cryptocurrency
Otherwise known as ‘payment’ tokens, there purpose is to act as an alternative currency to fiat. Its primary value is to act as an exchange value, meaning that it is exchanged either for another currency, product or service.
Stable coins
Due to the volatility of cryptocurrencies, many see the need for a resizable cryptocurrency whose value is tied to a more stable asset. An example is the Tether, which is meant to remain at an exchange rate of 1 Tether to $1 USD. However, there have been times where it has slipped below that exchange rate.
Meme coin
A meme coin is a type of cryptocurrency that was inspired by a meme. As it sounds, the earlier ones were initially intended as a joke. The most famous, ironic and valuable meme coin is the dogecoin which was originally created to poke fun at cryptocurrencies. I was based on the still famous doge meme. They are generally used for value payments.
Utility token
These are tokens that have some sort of use either within a particular platform or across various platforms. These uses include purchasing power, platform access, and many others.
Security token
This is a type of cryptocurrency that represents ownership or other rights of the holder towards a certain digital or real-world asset. When exchanged, they also demonstrate the transfer of the asset that they represent from the previous owner to the new owner.