Altcoin can be seen as Bitcoin Alternative or Alternative Cryptocoin, referring to all cryptocurrencies other than Bitcoin. The Chinese name for it, '山寨币', derives from the fact that most early cryptocurrencies were forks (copies) of Bitcoin's code.
As the concept and projects of blockchain technology mature, unique ecosystems have developed. Many emerging public chains and new tokens with significant development potential have emerged, showcasing technological innovations that are distinctly different from Bitcoin and Ethereum. The usage of altcoins has decreased, replaced by the term 'mainstream coins' to refer to them.
In addition, when we refer to Altcoin, we usually mean 'Token' rather than 'Coin'. The reason is that Token means a token, which indicates that it does not function like a 'Coin' solely for payment, trading, or value storage. The characteristics of a Token can vary due to the team's smart contracts, thus having more diverse functions.
The most important standard among tokens is ERC-20. Due to the open-source nature of ERC-20, the threshold for issuing altcoins is very low, with over 20,000 altcoins registered on CoinMarketCap.
Types of altcoins
Stablecoin
Stablecoins are a type of cryptocurrency pegged to fiat currency prices, commonly used for payments, collateral for loans, or as a settlement currency for transactions. The largest stablecoin by market cap and trading volume is USDT, which is pegged to the US dollar, with 1 USDT = 1 USD.
Apart from USDT, investors now have more choices they are willing to trust, such as USDC and BUSD; in addition to the aforementioned 'real asset-backed' stablecoins, there are also new types of stablecoins like 'crypto asset-backed' and 'algorithmic stablecoins' that are new applications based on blockchain.
Meme Coin
The birth of meme coins stems from meme culture; most of the time, they simply represent memes on the internet (things that are heavily promoted and broadcasted in a short time), with the biggest difference from other cryptocurrencies being the lack of applicability in meme coins.
Since meme coins represent a form of internet humor, their prices are more easily driven by community sentiment and are subject to greater price volatility compared to mainstream coins like BTC and ETH. The reason is that their prices are more affected by community emotions and social media, leading to more speculation and FOMO (Fear of Missing Out). In the crypto space, when prices continue to rise, this 'fear of missing out' mentality is quite common.
Governance Token
Governance tokens usually represent the decision-making rights of decentralized protocols. Holders can decide the protocol's development through proposals or voting, including new product development, whether to use treasury budgets, integration with third-party projects, and various cooperation decisions.
Utility Token
Utility tokens serve as a medium for accessing blockchain services or as a settlement for transactions within the blockchain. While we can use utility tokens as investment targets on exchanges, their purpose is to maintain the operation of the blockchain network.
Common utility tokens: ETH used for paying transaction fees on the Ethereum blockchain and virtual machine, SOL on the Solana blockchain known as the Ethereum killer, and MATIC used on Ethereum sidechain Polygon.
Several altcoins you should know
USDC
USDC, also known as USD Coin, is issued jointly by blockchain payment company Circle and cryptocurrency exchange Coinbase, with each USDC backed by one dollar as a reserve.
In the current cryptocurrency market, they have become an indispensable presence, widely used in spot trading, lending collateral, or instant payment scenarios in both centralized and decentralized exchanges.
Doge
Dogecoin, born in 2013, is based on the technology of Litecoin. It was inspired by the most famous meme ever. Notably, its humorous nature has not undermined its survival capability in the digital currency space, and Dogecoin's biggest characteristics are its 'low price' and 'unlimited supply'. Due to its low price, it was used as a tipping tool by investors in its early years.
UNI
UNI is the token issued by the top decentralized exchange Uniswap. It initiated an airdrop to early users in 2020, and its unique trading mechanism, AMM (Automated Market Makers), is one of the key drivers for the rapid development of DeFi. The UNI token is the purest governance token; holding UNI allows voting on governance issues of Uniswap.
ETH
ETH is the essential utility token for accessing the Ethereum blockchain. Ethereum is known as Blockchain 2.0, ushering in the DeFi era, and the demand for accessing various DeFi protocols on Ethereum continues to rise, causing its price to increase. Besides being used for paying network transaction fees, ETH is often used as a medium for trading NFTs and pricing goods.
AAVE
Aave is a decentralized lending protocol and currently the largest lending protocol by locked assets in the DeFi world, with its governance token being AAVE. Holding AAVE tokens allows one to participate in governance, and if staked, to enjoy platform revenue. However, the staked AAVE tokens must serve as guardians of the AAVE protocol; in the event of significant bad debts, some staked tokens will be used to repay debts.
The performance time of altcoins
Typically, the start of a bull market is often led by 'mainstream coins' BTC and ETH, followed by a rise in other lower market cap altcoins; a reasonable explanation is that the rise of mainstream coins often brings new incremental funds into the market. When these funds make profits, holders may reinvest part of their profits into riskier targets.
Alt Seasons are often periods that can only be identified in retrospect, during which various new tokens emerge, and news of hundred-fold investment profits flood the internet, attracting investors with numerous wealth myths; notable opportunities occurred during the 2017 ICOs, 2020 DeFi Summer, and the 2021 Memecoin and GameFi tokens.
However, after Alt Seasons end, the market often experiences significant pullbacks; due to their small market cap and high volatility, altcoins can change trends rapidly, requiring investors to keep their eyes open and carefully manage risk during trend reversals.
The risks of investing in altcoins
Small market cap, high volatility
Most altcoins experience larger daily fluctuations compared to mainstream coins like BTC or ETH. In a bull market, the right direction can yield extraordinary returns; however, investing heavily in altcoins during a bear market can lead to substantial losses for investors.
Countless scams and rug pulls
With the rise of DeFi and Dex, anyone can provide liquidity for tokens on Dex. Therefore, investors should be more vigilant against scams and rug pulls. The former refers to fraud that gradually makes you trust the team, but as the project stagnates, investors realize they have been deceived; the latter refers to price attacks on tokens, deceiving investors by draining liquidity or absconding with funds.
Some projects seem safe and trustworthy, but after investing money, one finds that the team's communication in the community gradually decreases, and the spokespersons shift from the project team to just a few administrators responding to questions, leading to a quick drop in interest, and investors realize it was a scam.
There are also teams that abscond with funds after many investors enter the market. A well-known incident is Squid Coin, which rug pulled after its price reached 3,000, plummeting 99% to 0.0033. The official announcement stated that the project had been hacked, but subsequent actions involved shutting down all communities and no longer responding to investors.
These altcoins, which have no value, are often derogatorily referred to as Shitcoin, directly pointing to projects that lack applications, have vague ideals, are unrealistic, and have no prospects.
Summary
There are many people online who advocate for Bitcoin supremacy, believing that current altcoins distort the essence of Bitcoin. However, looking at the proportion of altcoins in the total cryptocurrency market cap—from 6% in 2014 to 58% in 2022—it is evident that our demand for altcoins is rapidly growing. Cryptocurrencies that were originally simple means of peer-to-peer payment or value storage can no longer meet our needs.
Altcoins developed from Bitcoin, and because of this, they can look towards a further future by standing on the shoulders of their predecessors and developing more timely applications.
Stablecoins allow us to use familiar payment methods or settle transactions, while governance tokens enable investors to personally participate in the planning and future development of protocols. Although meme coins lack practical applications, their power to unite community awareness is very strong. The emergence of these innovative applications allows us to access a more diverse blockchain and experience better decentralized financial services. Many teams have also open-sourced their product codes, not only out of confidence in their projects but also to accept external feedback to improve their products.
Although altcoins seem appealing, their significant daily fluctuations are also something we must pay attention to as investors. Even if we are optimistic about specific altcoins, we should adjust our asset allocation according to the level of risk we can accept.
