Altcoins: What Are They And Why Do We Need Them

Written by: smm

on: 22/05/2023

Altcoins currently account for more than half of the cryptocurrency market.

Altcoin, short for “alternative coin,” is essentially any cryptocurrency that is not Bitcoin. We can say that altcoin is Bitcoin’s improved version. The basic structure of Bitcoin and altcoins is the same as they share a common code. That being said, despite being a market leader, Bitcoin still has certain drawbacks.

Let’s say Bitcoin creates new crypto blocks based on the Proof-of-Work (PoW) consensus algorithm. For this to happen the computer has to solve a puzzle. Since millions of code combinations must be looked through, this process can be extremely energy-consuming.

Altcoins use either Proof-of-Stake or another algorithm. That’s what makes them more competitivemuch less energy is needed to mine altcoins, with the transaction verification time being also shorter as well.

The decentralization and blockchain enable us to create loads of various altcoins.

However, it stands to mention that there are many coins that have neither real value nor actual purpose. They are typically created for the sake of speculation or fraud, and are known as “shitcoins.” These cryptocurrencies may not be too different from each other, yet each new coin that aspires to bring some type of value should be useful and address certain problems.

Types of altcoins:

For convenience, all altcoins can be broken down into several categories based on the principle of their creation and operation, and other distinctive features.

— Stablecoins

These are cryptocurrencies whose value is pegged to other less volatile assets, such as fiat currencies, gold, etc.

— Meme coins

These digital currencies are based on popular Internet memes, with the largest one being Dogecoin (DOGE) included in the list of top 10 cryptocurrencies by market cap.

— Private cryptocurrencies

These altcoins aim to ensure a high degree of anonymity and transaction confidentiality. Monero (XMR), Zcash (ZEC), and Dash (DASH) belong to this category of altcoins.

Altcoins can also be divided by type of token.

— Native tokens

In essence, these are internal cryptocurrencies of blockchain platforms that ensure the operation and maintenance of the network while remaining an integral part of the blockchain ecosystem. BTC and ETH are one of these native tokens.

— Utility tokens

Used within a specific cryptocurrency platform or ecosystem, these assets enable access to the products, services, or features of a project. Binance Coin (BNB) is an example of this type of altcoin.

There are also governance tokens, security tokens, DeFi tokens, credit tokens, commodity tokens, other types of tokenized assets, and a variety of other digital assets that can be referred to as altcoins.

Benefits of altcoins:

The creators of altcoins aim to fix the shortcomings of Bitcoin which is why they are regarded as an enhanced version of the first cryptocurrency.

What makes altcoins so eye-catching is that you won’t have a hard time mining them. If they use an algorithm other than the PoW, you will need much fewer resources to mine one. Transaction fees are lower, too.

The features of each altcoin are not the same, making them truly one-of-a-kind.

Aside from that, there are over 20 thousand altcoins, so investors have a bunch of options to choose from. The price of altcoins price may vary. There are even those whose value is less than $1. Now if you wish to buy Ethereum, you will have to plunk down about $2,000.

Drawbacks of altcoins:

The biggest flaw of altcoins is that their impact is insufficient. Bitcoin basically has the upper hand in the market, followed by Ethereum which is the second-largest cryptocurrency in the world.

The source code of other coins is often copied to quickly create altcoins. Such cryptocurrencies are obviously poorly developed. This means that not all altcoins can be decentralized and therefore their creators will be in charge of their control.

The majority of altcoins are limited in use since, unlike Bitcoin, they are not globally accepted as a payment method.

First Altcoin:

Having emerged in 2011, Namecoin became the first altcoin. Interestingly, it remained the only alternative to Bitcoin for only a short while. 

Namecoin’s developers unveiled the concept of merged mining which enabled minersthose who mine cryptocurrencyto work on more than one blockchain simultaneously. Earlier, that was not possible.

The cornerstone of Namecoin is the same code Bitcoin is based on, with some minor modifications made to it.

That being said, the first altcoin, unlike Bitcoin, can store information within its own blockchain transaction database. What’s more, Namecoin has an identification system enabling people to use the blockchain to store information about an individual or a website.

The most popular altcoins:

Now let’s take a closer look at popular altcoins and their key features.

1. ETH

On the Ethereum platform, just like on any other networks based on the Proof-of-Stake (PoS) consensus algorithm, the altcoin is staked by validators to give them the right to process transactions, create and validate blocks. On top of that, the token is used to pay fees within the network while acting as the key token for many decentralized apps.

2. BNB

This is a main token within the Binance cryptocurrency ecosystem used for staking, paying fees on a cryptocurrency exchange, partaking in Initial Exchange Offerings (IEO), and other Binance services.

3. ADA

This altcoin of the Cardano blockchain and cryptocurrency project is used for staking, paying fees for transactions within the network, and partaking in the platform’s management processes.

4. DOT

The Polkadot multi-chain protocol token is used for staking, ensuring network security, taking part in voting on project management, and creating new parachains.


Chainlink is a decentralized oracle providing smart contracts with access to real-world data and different APIs, while the LINK token is used to pay fees for the provision of information, staking, and participating in voting on project development.

6. UNI

Being used to manage the Uniswap decentralized cryptocurrency exchange operating on the Ethereum blockchain, this token gives the right to vote on platform development proposals and earn rewards for providing liquidity.


Altcoin enables you to partake in the management of the Aave decentralized crypto lending platform, stake, and earn rewards for providing liquidity or loans.

As you can see, all altcoins that have at least some value serve as a payment and exchange option. They are also used for speculations in the cryptocurrency market.


Each altcoin has a number of advantages over other coins. That being said, Bitcoin continues to maintain a dominant position as far as popularity, community trust, and market cap go.

This is mainly explained by historical reasons as BTC remains a market pioneer, an undeniable trademark many people immediately think of whenever they hear the word  “cryptocurrency”.

However, existing altcoins or those that are already underway are likely to catch up with BTC in terms of popularity and demand, thus becoming worthy competition in the cryptocurrency market in the coming years.