Before introducing several cryptocurrencies known collectively as Altcoins, there was only one cryptocurrency existing, Bitcoin. As of this article's writing, the altcoin library has grown to over 8000 different coins, with new coins being introduced daily.
In a report by coinmarketcap, it is estimated that Altcoin constitutes about 40% of the crypto market, constantly reducing the dominance of the first cryptocurrency, Bitcoin.
This article will discuss altcoins, what they mean, the different types available, reasons you should invest in them, and give our top picks on the top altcoins to buy in 2021.
The term "altcoin" was obtained by the combination of two words, "alternative" and "coin," and what the term means is any coin created that is not Bitcoin. Bitcoin innovation was the catalyst to the development of the crypto space. It provided a platform for which several altcoins were created as a medium for transactions between people, to provide variety, and also provide solutions and improvements based on the shortcomings of Bitcoin.
To properly understand the inception of altcoins, let us briefly take a look at that of Bitcoin. Bitcoin was introduced by the still unknown creator Alias Satoshi Nakamoto in 2009 to revolutionize the flawed financial system and make finance truly decentralized.
Upon the gaining momentum of Bitcoin by people, new ideas for alternatives were created utilizing the innovation from Bitcoin but improving on features that limited it from achieving its full potential.
The first Altcoin to be created was Namecoin (NMC), two years (2011) after the release of Bitcoin and was derived from the Bitcoin source code (forked). It has several similarities to Bitcoin, such as having an equal number of max coin supply (21,000,000), the block creation time of 10 minutes, etc.
Although NMC never experienced as much growth as Bitcoin (NMC has an all-time high of $13, compared to Bitcoins $60,000), it didn't hinder the introduction of other altcoins such as Litecoin, Ethereum, Ripple, etc.
As of 2021, the altcoin market has achieved dominance of about 40%.
Despite the increasing number of alternative coins in the market that sometimes have similar features, there are significant differences between altcoins, bringing us to the major categories of altcoins.
As earlier mentioned, different altcoins were created to provide different services and benefits to their users. Therefore, there are four main classifications of altcoins, altcoins obtained by mining, stablecoins, securities, utilities. However, there are several other categories of tokens that can be subcategorized under these four main types.
Cryptocurrency mining is how new coins are brought into circulation. It is a process by which powerful computers are used to provide solutions to mathematical equations of varying difficulty; when the solution to a problem is arrived at, new coins are given as a reward to the miner. Therefore, powerful computers have a higher probability of solving due to the number of calculations they can carry out simultaneously.
Such a method of coin acquisition is called the proof of work mechanism, with the work being the power put in by miners to provide a solution to the problem.
Take note: although the utilization of powerful computers increases the likelihood of arriving at a solution, one computer can not always provide the solutions.
Like Bitcoin, several altcoins are obtained through mining, making this the category under which most altcoins fall. Examples of altcoins utilizing the proof of work mechanism include; Ethereum ( beginning to adopt the proof of stake mechanism as an alternative to the power-intensive proof of work), Monero ( a privacy coin),
A unique set of altcoins created to provide stability to an unpredictable market, these coins have their value fixed to that of an underlying asset, commodity, or currency. An underlying asset does not back some [stablecoins](https://remitano.com/forum/ng/post/7676-what-are-the-different-types-of-stablecoins0 but maintains a stable value by altering the number of coins in circulation based on the demand and supply of the stablecoin.
The utilization of stablecoin also provides a tool to hedge a portfolio, maintaining gains made during a cycle
.
To better understand how stablecoins function, let us take an example, the Pax standard stable crypto coin has a value fixed to that of the US Dollar in a ratio of 1:1, and this means that 1 Pax standard = $1
The above value remains fixed; therefore, in a volatile market or between cycles of the crypto market, investors or traders utilizing such assets will always have the value of their funds intact irrespective of the crypto cycle period.
A security is defined as an asset serving as a representation of a commodity with monetary value. Individuals can then trade these securities on the crypto or stock market. However, Regarding cryptocurrencies, security is a cryptocurrency that has links to a business or venture; these sets of cryptos often act as a stock to that business. Securities can therefore be viewed as a form of contract signifying investment in a company.
Cryptos offered as securities are mostly presented to the public through an initial coin offering (ICO); this allows investors and traders worldwide to purchase coins offered by the business with the realized funds used to improve the business. For a crypto asset to be considered a security, there are criteria that it has to fulfill, and these criteria are collectively called the Howey test.
An example of a security token is Ripple (XRP). However, there is still a debate about the categorization of XRP, with the development team insisting that it is not a security, while the SEC was insisting it is a security. To learn more about ripple and its controversies, [read this article.](https://remitano.com/forum/ng/post/7598-ripple-xrp-a-complete-guide0
These are a set of four criteria required before an asset is considered an investment, and therefore a security. Howey criteria were developed regarding a case brought to the US supreme court in 1946 concerning an agreement between Howey company and its buyers where sold units of citrus grooves were leased back to the company and profits divided between the respective parties.
However, due to such arrangement not being registered with the SEC, the court set in place four rules which would qualify any purchase as an investment, and they include;
Cryptocurrencies are a source of continuous debate as to how individuals should be categorized, Utility or security?
There are several crypt projects which fulfill certain criteria of the test, such as the exchange of funds with the expectation of making a profit. However, most of these cryptocurrencies are decentralized (Bitcoin), therefore, are not regulated and can't be considered a security.
In the SEC's view, funds are invested (through the exchange of Fiat currencies for the tokens) in a common business or crypto, thereby fulfilling both criteria easily. Distinguishing such assets falls on the project's expected gains and how the project will achieve these gains.
The acknowledgment of an asset to be security also has its consequences, such as the SEC having the authority to determine the sale and distribution of crypto tokens to investors residing in the united states; these further forces companies and exchanges issuing securities to register with the SEC.
An example of implementing such a test was in the ruling of DAO token sales for Eth as a violation of the securities law. As a result of such limitations, it is observed that most initial coin offerings are most likely not available to investors in the United States.
As the name "utility" implies, these are cryptocurrencies offered to the public to provide access to certain services, just like securities utilities can also be made available to the public via initial coin offerings.
To better understand how a utility coin functions, let's take filecoin. Filecoin is a utility token that provides its users with access to a decentralized space to store data. Although similar to securities, some differences exist between these two types of altcoins. Let us discuss the differences between a security coin and a utility coin.
| Parameter | Security coin | Utility coin |
|---|---|---|
| Aim | Acts as contract signifying investment in a business. | Grants its users access to the utilization of services offered by the token’s platform. |
| Regulation | Security tokens are regulated. The issuing company provides information regarding the company and requires KYC and AML, therefore preventing anonymous security sales. | Utilities are mostly decentralized and therefore lack regulation. Supports anonymous sale of utility tokens. |
| Valuation | The value of the token reflects the current state of the issuing company. | The value of the token is not related to the company’s current state. |
| Howey test | Fulfills all criteria of the test. | Does not fulfill the criteria of the test. |
| Tokens | Securities reflect a share of the company, and investors gain dividends in the form of free tokens. | Utilities do not reflect a share of the company or profits. |
As earlier mentioned, these four main categories of altcoins can further be subcategorized, there are several niches in the cryptocurrency market, and they include;
Now that we comprehend the various types of altcoins, let us discuss the factors to consider before choosing an altcoin.
There are several factors to consider before choosing a cryptocurrency to invest in. Due to the abundance of several altcoins, it is essential to perform adequate research before selecting a cryptocurrency for your portfolio. Factors to consider include;
How much adoption the coin has: Bitcoin's long-term growth in its value can be attributed to its adoption for businesses and users. Therefore, an altcoin that has widespread adoption and use cases provide good long-term investment potential. individuals can measure coin through
Market capitalization (provides a rough picture of adoption).
Companies and businesses that accept that cryptocurrency as a payment channel.
Developments and news concerning the coin that provides a fundamental analysis of the currency.
How secure the coin is: the idea of decentralization provides Bitcoin and most other cryptocurrencies with security. When a network is decentralized and has widespread adoption, it is likely to be secure due to the number of individuals and miners involved. Decentralization can be estimated by;
Accessibility of the source code of the token.
The number of active miners and nodes on the network.
Future development: a development team has as much effect on a token's success as others involved. Therefore, the team must have a plan for updates that will improve the functionality and use cases of the token.
Benefits and incentives: before choosing an altcoin, it is important to understand the benefits it offers to you and the plan on the company's distribution of incentives.
Choosing an exchange: choosing the appropriate cryptocurrency exchange to purchase your altcoins of choice is essential. There are currently available exchanges, each having a varying number of coin libraries, fees, and transaction speeds.
An example of a cryptocurrency exchange with a feature specifically for intending investors is Remitano via its Remitano invest platform.
We've covered a lot of ground discussing altcoins. To conclude, we will be giving our top picks on the best altcoin investments in 2021.
As of this article's writing, we are amidst a bull run which is expected not to end until late this year. Already major altcoins are experiencing massive gains, but here are our top picks of altcoins set for massive gains this year.
Ethereum is a decentralized cryptocurrency that utilizes smart contracts for its functionality. It is also a platform on which other cryptocurrencies are built.
2020 has seen Etheruem make significant gains to surpass its previous all-time high of about $1,188 per coin to a new all-time high of $2,200 per coin.
As a platform on which new cryptocurrencies are created, ethereum still has enormous potential for gains in 2021.
Cardano (ADA) was created to provide a solution to the limitations experienced by Ethereum. It functions as an open-source smart contract platform with new coins being obtained via a proof of stake mechanism.
Currently, ADA ranks 6th on coinmarketcap with a value of $1.19 and is currently one of the leading crypto coins for massive returns since the onset of the bull run. With more time left in this bull market, it is expected that ADA will be the recipient of huge gains and is a recommended pick for any portfolio.
Currently ranked 5th by market capitalization on coinmarketcap, DOT is an open-source, decentralized cryptocurrency worth keeping an eye on.
Also created and functioning through the use of smart contracts, it also corrects the limitations of Ethereum.
Dot currently has a value of $43, which translates to high yields from a price less than $10 at the start of the year.
Also known as the Binance coin, it is issued by the cryptocurrency exchange, Binance. Several native coins belonging to exchanges experienced massive gains during this bull run, with the BNB being at the top.
BNB currently sits at the number 3 spot on coinmarketcap with a value of $369.26 ( a 24-hour increase of 7.75%).
Binance has been involved with several ICOs, which require users to buy and hold BNB. With the current bull cycle, more gains are expected of the cryptocurrency.
As stated above, altcoins provide a means to quick gains on investments. However, some altcoins never realize their potential and result in losses. Therefore, adequate research into the vision and plan of an altcoin is important.
This article extensively discusses alternative cryptocurrencies to Bitcoin. Altcoins present a huge potential for [making money with crypto],(https://remitano.com/forum/ng/post/8821-10-ways-to-make-money-with-crypto) and with the extensive number of coins available, individuals can still get into this market. However, it is important to adequately research an altcoin before giving it a portion of your portfolio. To learn more about altcoins with potential, read this article by Remitano.
