The Complete Altcoin Guide 2022
Here’s everything you should know to get started investing in altcoins.
If you’ve been reading about crypto investing, you’ve probably run across the term “altcoin.” You may have heard that altcoins tend to outperform Bitcoin or have read stories of people who’ve gotten rich from altcoins. But what exactly is an altcoin anyway? And how can you get started investing in one?
In this guide, I’m going to answer these questions and more. I’ll go over the different types of altcoins that are available, and I’ll even touch on some security risks to be aware of.
Let’s begin with the basics.
What Is an Altcoin?
The term “altcoin” is a bit of a misnomer today. By definition, an “altcoin” is any coin that is not Bitcoin. This is because it’s an alternative (or “alt”) to Bitcoin.
But Bitcoin represents less than 50% of the crypto market today. So it can seem strange to describe the majority of the crypto market as “alt.”
There is a reason why this term exists, though.
Prior to 2017, Bitcoin represented more than 90% of the entire crypto market cap.1 Most crypto exchanges weren’t even called crypto exchanges; they were called “Bitcoin exchanges.” You could buy Bitcoin with cash at a Bitcoin exchange. But if you wanted a coin other than Bitcoin, you usually needed to buy it at a separate “altcoin exchange.”
And altcoin exchanges generally did not accept cash. In order to make a deposit to them, you needed to have Bitcoin already, which you could then swap for whatever coin you wanted.
Today, this system has almost completely gone away. Many crypto exchanges now carry hundreds of different cryptocurrencies, and you can buy the vast majority of them with cash.
But the term “altcoin” is still used today to represent the non-Bitcoin part of the crypto market. So that’s the way I’m going to use the term in this article.
Pro Tip: If you’re just getting started with crypto, there are a lot of tricks you can use to help keep your crypto protected and secure. We’ve published a complete guide to investing in crypto safely that explains it all.
Now let’s talk about the first altcoins that were created, which are still used by many people today.
The first generation of altcoins was created by people who wanted to improve Bitcoin. The developers of these coins agreed that there needed to be a new currency and payment system to replace banks and debit cards, but they thought their coins could do a better job of accomplishing this goal.
Here are a few examples of first-generation altcoins that are still popular today:
- Litecoin (LTC): Litecoin was created in 2011 out of a growing fear that Bitcoin was becoming centralized through mining pools. It uses a different mining system that should require less centralization. Today, Litecoin is one of the top 20 cryptocurrencies by market cap.
- XRP: XRP was released in 2012. It was intended to be used as a “bridge currency” within the Ripple money transfer system. Ripple is essentially a new system for making cross-border fiat payments. XRP is one of the top 10 cryptos in the world today.
- Monero (XMR): Monero was released in 2014. The developers of Monero thought it was too easy to trace Bitcoin transactions. They implemented privacy features in Monero that make it nearly impossible for police or anyone else to track transactions. Monero is consistently in the top 30 coins by market cap.
- Dogecoin (DOGE): Dogecoin was released in 2013 as a joke. The developers of Dogecoin intended to use it to make fun of Bitcoin and other cryptocurrencies. The marketing for the coin features a Japanese Shiba Inu dog. Despite the project not being serious, the coin quickly became popular. Today, it is one of the top 20 cryptos in the world.
These coins are all very similar to Bitcoin. In one way or another, they are all intended to be methods of payment.
Pro Tip: To buy an altcoin, you’ll need an exchange. But not all exchanges are legitimate. We’ve published a guide to finding a safe crypto exchange to help distinguish between the real exchanges and the scams.
In the next section, I’ll talk about a category of altcoins that have a completely different purpose.
Smart Contract Platform Coins
In 2014, the altcoin market started changing radically. A bunch of programmers got together and decided to create a new type of crypto network that could run software. They called the new network “Ethereum.” Over the years, networks like Ethereum have come to be called “smart contract platforms.”
Smart contract platforms are essentially cloud-computing networks. Developers can deploy any apps to them, and users can use these apps through a web browser wallet extension.
Over the past eight years, smart contract platforms have come to dominate the crypto market. Of the top 100 coins today, the vast majority are either the native coins of these platforms or tokens that exist on them.
Here are a few popular smart contract platform coins today:
- Ethereum (ETH): This was the first and is now the largest smart contract network. It is the second largest cryptocurrency in the world by market cap.
- Cardano (ADA): Created by a former Ethereum developer, Cardano features a proof-of-stake system that eliminates mining, and it can handle more transactions than Ethereum as well. It is the sixth-largest cryptocurrency in the world.
- Binance Coin (BNB): This is the native coin of the Binance Smart Chain (BSC), which is completely “EVM-compatible,” which means that any Ethereum app can be quickly ported over to it. It can handle more transactions than Ethereum as well. Binance Coin is the fifth-largest cryptocurrency in the world.
- Solana (SOL): Solana is one of the most scalable smart contract platforms in the world. It can handle around 2,000 transactions per second. It’s the ninth-largest crypto in the world.
- Avalanche (AVAX): This is another “EVM-compatible” smart contract platform. Developers can easily port apps to Avalanche from Ethereum, and users can bridge tokens between it and any other EVM-compatible network. But its transaction fees are much lower than Ethereum’s. Avalanche is the 15th-largest coin by market cap.
FYI: Smart contract platform coins are some of the most popular cryptocurrencies around. Many of them have made our list of the best cryptocurrencies. So if you want to know more about these coins, be sure to check out that list.
In the next section, I’ll talk about stablecoins, which are some of the most used altcoins in the world.
Stablecoins are altcoins that are designed to be worth $1 a piece. They are very popular as a medium of exchange. If you use a stablecoin to make a purchase, you don’t need a debit card. Instead, you can just use a mobile wallet to make the payment.
Most stablecoins are issued by a company and redeemable for dollars held in a U.S. bank account.
Here are a few of the most popular stablecoins:
- US Dollar Tether Omni Layer (USDT): This was the first stablecoin ever. It was issued by Tether Limited. It runs on the Bitcoin network through a special piece of software called the “Bitcoin Omni layer.” In order to send USDT (Omni) to another person, both parties need an Omni layer-compatible wallet. Tether is backed by cash, U.S. Treasury bills, and commercial paper.
- US Dollar Tether Ethereum (USDT): This is the Ethereum version of USDT. Can be sent with any standard Ethereum wallet. This version of USDT is the third largest crypto in the world by market cap.
- US Dollar Coin (USDC): This is an Ethereum stablecoin created by a joint partnership between Circle and Coinbase. USDC is preferred by users who want greater transparency and safer backing. USDC is backed by cash and short term U.S. T-bills. It’s the fourth-largest crypto in the world.
- DAI: DAI is an Ethereum stablecoin preferred by people who feel other stablecoins are too centralized. DAI is not backed by cash. Instead, it’s borrowed into existence by users who provide Ethereum as collateral. DAI doesn’t hold its peg to the dollar as well as other stablecoins. But for users who fear government regulation of stablecoins, it provides a decentralized alternative to USDT or USDC.
There are plenty of other stablecoin altcoins in the market. But these are the ones that are most popular. Now let’s talk about another popular category of altcoins: utility tokens.
Utility tokens are altcoins that provide some kind of useful perk to the holder. They are usually connected with a product, brand, company, or app.
Here are a few popular utility tokens:
- Basic Attention Token (BAT): Holding this Ethereum token grants you the right to advertise in Brave Browser. Brave users earn this when they view ads. BAT is one of the top 100 cryptos in the world.
- Binance Coin: I’ve already mentioned this coin in the smart contract section, but Binance Coin doubles as a utility token that gives you discounts on trades through Binance.
- Uniswap (UNI): This gives you the right to vote on issues affecting the decentralized exchange Uniswap. This is a top-50 coin by market cap.
- Curve DAO (CRV): This gives you the right to vote on proposals affecting the lending platform Curve Finance.
There is one final major category of altcoins: digital collectibles, or NFTs.
NFT stands for “non-fungible token.” But this is basically a fancy term for a digital collectible. A video game item can be an NFT. So can a piece of digital art, a music album, or a movie.
Today, most NFTs are pieces of digital art or video game items.
Here are a few popular collections of both types:
- CryptoPunks: This was one of the first digital art collections on Ethereum. It features pixelated punk characters. It was originally released for free in 2017. Anyone could mint a CryptoPunk for just the “gas fee” it cost to create it. But all 10,000 punks quickly sold out, and they are now worth a minimum of $4,000 a piece, with some selling for as much as $56,000.
- Bored Ape Yacht Club (BAYC): This is a collection of 10,000 pieces of digital art featuring apes with bored expressions on their faces. The holder of each Bored Ape owns the commercial rights to the character depicted in it. Each Bored Ape also gets access to exclusive live events and other perks provided by the developer. Bored Apes were originally sold for $190 apiece, but they are now worth a minimum of $120,000 each.
- Gods Unchained: This is a collectible trading card game from Immutable. It’s similar to Hearthstone or Magic: The Gathering Arena, but with cards that can be owned and traded by players. Prices range from $0.10 to thousands of dollars.
- Axie Infinity: This is a monster-breeding and -battling game from Sky Mavis. Each Axie is unique. Prices range from $4 to thousands of dollars.
Pro Tip: Want to take a deeper dive into the world of NFTs? You may want to read our complete beginner’s guide to NFTs.
That’s it for this rundown of the major categories of altcoins. This list isn’t exhaustive. But I’ve tried to cover all of the major categories of altcoins. In the next section, I’ll explain how to invest in altcoins.
How to Invest in Altcoins
In the early days of crypto, you had to buy Bitcoin at a fiat exchange first and then use the Bitcoin to make a deposit to an “altcoin exchange,” where you could buy the coin you wanted. But those days are long gone. Today, most fiat exchanges carry 100 or more coins, so you can usually buy the altcoin you want directly, using cash.
If the coin you want is not available on a centralized cryptocurrency exchange, you can usually buy it on the network itself, using a decentralized exchange.
FYI: A “decentralized exchange” is an exchange that runs on a cryptocurrency network itself. You can’t access a decentralized exchange without a wallet, and it doesn’t accept bank transfers or debit card deposits. It’s strictly a way of swapping one crypto for another. Uniswap, Sushiswap, and TraderJoe.xyz are examples of decentralized exchanges.
If you’re looking for a particular NFT, the best place to find it is on an NFT marketplace like OpenSea or Rarible.
Under most circumstances, you no longer need Bitcoin to buy altcoins.
If you haven’t opened an exchange account yet, we’ve published a list of the best crypto exchanges to help you narrow down your search.
So that’s how to invest in altcoins. In the next section, I’ll discuss developments that are likely to happen in the world of altcoins.
The Future of Altcoins
In the previous few sections, I’ve gone over different kinds of altcoins that exist today, but there are big changes coming to the realm of altcoins. Here are a few altcoin trends that are poised to accelerate in the future.
Decentralized finance, or DeFi, is a movement to replace traditional financial apps with blockchain-based ones. Right now, there are blockchain lending apps like Curve and Compound, which offer much higher yields than savings accounts.
But in the future, these services might expand to include decentralized stock and bond trading, precious metals investing, automated portfolio management, and other financial services. The apps that make up this new ecosystem may each have their own altcoin token that rises in value as more people use it.
Pro Tip: Want to know more about DeFi and how to get started with it? You may want to check out our decentralized finance resource.
Another recent trend in altcoins is the Metaverse, which refers to the online world becoming more immersive over time due to constant improvement in virtual reality headsets.
Virtual reality headsets are still not good enough to make the online world indistinguishable from reality, but they’re getting close. Over the next few years, we may see more and more people having business meetings in the Metaverse instead of the real world, and this may lead to people spending more time in the Metaverse overall.
Many companies are working right now to prevent the Metaverse from becoming centralized. They’re creating virtual worlds like Decentraland and Somnium Space, where the land is owned by users and is recorded on the blockchain. In these metaverses, altcoins are used as a medium of exchange, and even the plots of land are altcoins.
You can read more about the Metaverse in our crypto in the Metaverse guide.
Nonfinancial blockchain apps
The biggest change that is likely to happen in the altcoin world is the rise of nonfinancial blockchain apps.
Right now, most apps that run on a smart contract platform are financial. They’re crypto exchanges, lending apps, yield maximizers, etc. This is because crypto networks have very poor storage capacity and throughput. These networks just can’t handle a huge number of transactions or a large amount of data.
But great strides are being made to fix this problem. As blockchain technology gets better, we may start seeing more mainstream, nonfinancial blockchain apps, like instant messaging programs, social media apps, and music streaming services.
And each of these apps may have an altcoin associated with it that will rise in value as more users create accounts and start using it.
Final Words on Altcoins
In the early days of crypto, Bitcoin absolutely dominated the crypto market. And altcoins were basically an afterthought. But over the past five years, altcoins have come to represent more than half of the crypto market, making the prefix “alt” a bit misleading.
The first altcoins were attempts to improve upon Bitcoin by making a coin that is more decentralized, is faster, or has greater privacy. Then smart contract platforms were invented, and altcoins took off. There are now a huge variety of altcoins, including stablecoins, utility tokens, Metaverse coins, and NFTs.
At some point in the future, maybe the term “altcoin” will stop being used, and these coins will just be referred to as “cryptocurrencies.” But in the meantime, now you know what altcoins are and can get started investing in them.
Trading View. (2022). MARKET CAP BTC DOMINANCE, % (CALCULATED BY TRADINGVIEW).