A cryptocurrency that is not Bitcoin is often called an "altcoin". The term "alternative currencies" indicate these funds' differentiation from Bitcoin and other fiat currencies.

In 2011, the first alternative cryptocurrencies appeared online; today, there are dozens. Several of the earliest forks of Bitcoin attempted to address issues with the Bitcoin network, such as transaction times and power consumption. More modern cryptocurrencies have a wide range of uses, dependent on the intentions of their creators.

Any cryptocurrency trader should know the fundamentals of altcoins due to their prevalence in the market. Read on to find out about the many applications of altcoins and their advantages and disadvantages.

What Are Alternative Cryptocurrencies?

To refer to all digital coins that are not Bitcoin is to use the simple phrase "Altcoins," which dates back to the beginning of the cryptocurrency industry.

The many forms of alternative cryptocurrencies

Stablecoins, coins based on mining, currencies based on staking, and governance tokens are all examples of altcoins. How and why an altcoin is used determines what kind it is. Here are the most common categories you may encounter.

Stablecoins

Stablecoins are digital currencies pegged to a particular item. Most popular stablecoins are dollar-backed or try to mirror the dollar's value. The coin's creator will take action to stabilize the price if it ever fluctuates.

Stablecoins, which aim to keep their value steady, are not typically picked as an investment in the cryptocurrency market. Stablecoins are a substitute for traditional currencies that may be used to save and send money. Stablecoins may be lent out and earned interest on using specific savings protocols.

Mining-based

Mining is how bitcoin transactions are validated, and new currencies are issued. Miners use devices to tackle complex mathematical problems. The first miner to solve the equation usually gets to confirm the transactions in the block. In exchange for their work verifying blocks, miners are given cryptocurrency incentives.

Mining was the first way to process crypto transactions since Bitcoin is a cryptocurrency built on the mining model. The high energy costs of mining are a significant drawback of this industry.

Staking-based

These cryptocurrencies use staking to validate transactions and increase the supply of coins. When cryptocurrency owners that rely on stakes decide to "stake," they commit to having their coins used to validate incoming transactions. The cryptocurrency's blockchain system selects a participant to verify a batch of transactions. In exchange, they are rewarded in cryptocurrency.

Peercoin

One of the earliest alternative cryptocurrencies, was the first to implement the idea of staking. Staking, which uses less energy than mining, has gained popularity even if Peercoin has yet to become well known.

Governance

Cryptocurrencies known as "governance tokens" grant their owners the power to vote on the project's development. You may use these tokens to make and vote on cryptocurrency-related proposals. This ensures that all cryptocurrency holders have a voice and that decisions aren't decided by a single entity, which is critical to the cryptocurrency's goal of being a decentralized initiative.