What Are Altcoins?
If you have started your crypto journey, probably you have already heard about the term altcoin. But, do you really know about them? It’s a deeper concept than you expected.
Let’s begin with the basics. When is a cryptocurrency categorized as an altcoin? An Altcoin is any digital cryptocurrency that is not Bitcoin. Although they are not Bitcoin, they are similar to it. Big names you might have heard from are Ethereum, Ripple, and Litecoin. However, Altcoins come in all sorts of shapes and sizes. There are endless small currencies you've probably never heard of, and new ones pop up every week.
Even though there are hundreds of altcoins out there, they can have totally opposite functions and purposes.
Until today, there are four main types in which we can divide most altcoins. These are utility tokens, security tokens, non-fungible tokens and stablecoins. Would you like to know more about them? Read on.
Utility tokens
Utility Tokens give the holder the right to participate in its network in some way.
Such tokens could, for example, give the holder the right to use the network and take advantage of its services to vote on the governance of the network and its upgrade.
They are often used as a fundraiser and in that case, represent future access to a company's product. By creating utility tokens, a startup can sell "digital coupons" for the service it is developing.
Once the fundraising is completed and their service fully developed, the users can spend their tokens on the newly built service.
Security tokens
Security Tokens are similar to utility tokens. However, they have to be issued in compliance with laws regulating traditional securities like stocks and government-issued bonds, while utility tokens are not subject to the same regulatory procedure.
They usually represent one's investment in a project and take value from the startup behind the project. They don't give the holder actual ownership in that startup.
Non-Fungible Tokens (NFT's)
Non-Fungible Tokens or NFT's are a special type of token. They represent something unique and are, therefore, not interchangeable.
This means that an NFT will always stand for the same individual item.
For example, let's take CryptoKitties, an online virtual pet keeping game. Each token represents a unique CryptoKittie, It doesn't matter how often it is traded, that token still represents the same CryptoKittie.
Opposed to all non-NFT tokens, where after being traded, they are still the same token.
Stablecoins
Stablecoins are designed to minimize the volatility of the price.
This is achieved by pegging it to another Cryptocurrency, fiat currency or to exchange-traded commodities such as precious- or industrial metals.
As we have previously mentioned, Altcoins come in all sorts of shapes and sizes. Each of them is a completely different project and is intended for one of the four functions described above.
From a trading point of view, these coins/tokens are very interesting due to their lack of capitalization and, usually, high volatility.
Somehow they are similar to penny stocks. An asset that is sometimes targeted by traders to try to skyrocket the value of their portfolio with double-digit percentages. This is one of the key factors that make them so attractive and, therefore, give them more volume and liquidity.
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