Bitcoin is the original cryptocurrency and the largest by market capitalization at over $1.3 trillion, according to CoinMarketCap. It was created by Satoshi Nakamoto, a person or group of people whose identity remains a mystery. Nakamoto envisioned bitcoin as an alternative version of virtual cash that wouldnât rely on a government or financial institution, such as a bank, to function and facilitate payments.
Like many cryptocurrencies, bitcoin is powered by blockchain technology, which works as a digital, decentralized ledger that keeps track of transactions made within the network.
Bitcoin also has a built-in limited supply of 21 million coins. This means no new bitcoins will be issued after 21 million coins have been mined. The scarcity is on purpose; the supply limit ensures that bitcoin remains a scarce asset so that, theoretically, as demand increases and supply remains the same, bitcoinâs value increases as well.
Altcoins, also known as alternative coins, refers to any cryptocurrency thatâs not bitcoin. Although some of these digital tokens may operate similarly to bitcoin, they are built on different blockchain networks.
There are thousands of altcoins, which are typically created with a specific purpose in mind. Take stablecoins, for example. A stablecoin is a type of altcoin that pegs its value to another asset, such as gold or the U.S. dollar, with the goal of stabilizing its price.
Outside of stablecoins, many altcoins derive their value from market demand and tradersâ preferences. However, that can make them particularly vulnerable to rapid and unexpected changes in price, says James Royal, Bankrateâs principal investing and wealth management analyst.
Under the umbrella of altcoins are meme coins. These virtual tokens are usually created for fun and named after internet memes or pop culture references. And although every meme coin is an altcoin, every altcoin isnât necessarily a meme coin.
Although all cryptocurrency carries risk, meme coins can be especially treacherous for traders, Royal says.
