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6 Types of Altcoins and Their Use Cases
May 24, 2023

(Dinarian Note: This article was written by my broker Caleb and Brown. I created an account with them in case shit hits the fan and exchanges go down. They will still be able to transact and exchange cryptos into silver, into other cryptos, into FIAT(NOT RECOMMENDED) as it's devaluing or transfer wealth wherever you wish. I highly recommend setting up an account NOW, so its there and waiting when you need it. Dont wait until its too late!)

There’s a whole world beyond Bitcoin.

Bitcoin remains the largest and most well-known digital asset, but it’s joined by thousands of other coins in the crypto ecosystem known as (alternative coins) Altcoins.

Any coin other than Bitcoin goes by this classification – from ETH to the likes of DOGE and XRP – so it's an incredibly diverse space with a large number of coins presenting vastly different use cases to investors and holders.

According to CoinMarketCap, close to 22,000 cryptocurrencies were in circulation at the end of 2022. To help you sift through the sea of altcoins, keep reading to learn all about these unique cryptocurrencies and their functions.

What Are Altcoins and Why do They Exist?

Altcoin is an umbrella term applied to any cryptocurrency other than Bitcoin. Understandable given Bitcoin’s dominance – the first ever cryptocurrency accounts for around 40% of the crypto market (by capitalisation). Altcoins’s share now stands near 60% of the total crypto market cap demonstrating strong growth since 2019 when Bitcion’s market cap made 70% of the market. It’s worth noting that Ethereum makes up 20% of the crypto market cap.

Although some altcoin projects share similarities with Bitcoin, many are altogether different in various ways from their consensus mechanism, to use case, or a combination of both.

Some altcoins have been developed to solve a problem with unique functions; others simply exist to rally and gather a community of investors and often speculators. The levels of adoption and network effects for each project vary.

Types of Altcoins and Their Use Cases

The 6 common types of altcoins are:

Stablecoins

As the name suggests, Stablecoins attempt to offer relative price stability. Their market value is usually pegged to the value of a stable asset, like USD or gold.

This design characteristic lends resistance to (price) volatility, keeping the price as close to equal that of the asset it is pegged to. For example, USDC is pegged to the US Dollar and the price of 1 USDC should be equal to 1 US Dollar at any given time.

Typically, Stablecoins are backed by a reserve asset, as is the case with USDC & USDT – both are backed by and redeemable against the US Dollar. Algorithmic stablecoins are also out there; their smart contracts constantly adjust the supply of the stablecoin to maintain a price as close to a peg as possible. Algorithmic stablecoins, though, are yet to take-off following the collapse of the Terra Luna project.

In effect, stablecoins function more like a fiat currency within a crypto space. They are often traded at high volumes, similar to cash in a traditional market, and are used as vehicles to park funds in crypto.

Meme coins

Meme coins are cryptocurrencies inspired by the social currency of the internet: memes. They could be directly inspired by a meme, like the dog-themed projects Dogecoin (DOGE) and Shiba Inu (SHIB).

Anyone with an internet connection can fabricate and distribute a meme. And with the right technical knowledge, anyone can create and distribute a meme coin, too. Every so often you’ll find celebrity-inspired coins in the market, like this Will Smith-themed coin.

Meme coins typically have a massive or unlimited supply, which accounts for their comparatively low per-unit price.

While meme coins may lack any value beyond a cultural ideal, those invested get the feeling that they're involved in something greater This community of coin evangelists help to grow or maintain interest in the asset through storytelling and social sharing.

Utility Tokens

This type of altcoin functions to provide a service within a network. They could be used as a means to gain access to a service, facilitate transactions, or earn rewards on a network. One example is XRP, a token designed to minimise the friction involved in cross-border transactions.

Another is TFuel, a coin that transfers value between users and providers on the Theta’s peer-to-peer video streaming service.

MATIC, the native token of the Polygon network has a variety of uses. Itmaintains network security through staking and is used as a gas token for transaction fees.

Investors usually invest in utility tokens because they believe in the potential of the underlying project. In a way, the token’s price value is a reflection of the value the project could provide to a wider audience.

Image: Shutterstock

Play-to-Earn Tokens

This type of altcoin exists within the ecosystem of a game or network of games. Users who play the game can earn cryptocurrency rewards in the form of a native token. This can then be used to make in-game purchases (e.g. game-inspired NFTs), swapped into other cryptocurrencies or cashed-out into fiat currencies.

Governance Tokens

Governance tokens give investors a say in how the project they are investing in is run. This democratised approach emphasises the decentralised nature of the project. Token owners not only use the protocol, they own it and shape it, too. Decisions are not made through a top-down, centralised hierarchy. A community votes together on any major platform changes.

Governance tokens usually exist as part of a DAO, or “decentralised autonomous organisation”. DAOs are not run by one central figure, rather users of the protocol abide by rules written into the code of the network, via smart contracts.

The level of sway investors have in a project is usually proportional to the size of their holding. An example would be Maker (MKR), which allows investors to vote on the operation of the MakerDAO platform.

Security Tokens

Security tokens are often seen as the cryptocurrency equivalent to traditional stocks, whereby investors are entitled to dividend payouts as a share of the platform’s earnings.

Investors are attracted to these altcoins thanks to their value generating properties, which investors are familiar with given the stock market. However, these tokens have been subject to regulatory scrutiny , XRP in particular, due to their profit distribution mechanisms, which demands strict regulation according to senior officials such as the SEC’s Gary Gensler.

Why Are Altcoins Important?

Altcoins provide alternative use cases and applications to Bitcoin. As the cryptocurrency market matures, altcoins will continue to gain real-world utility beyond what we’ve described in this article.

Altcoins are important because:

  • Through the use of stablecoins, investors are able to easily access the DeFi market.
  • Through the use of governance tokens, investors can have a say in the direction of the projects they have a stake in.
  • Through the use of play-to-earn tokens, communities in developing countries have found alternative ways to engage and benefit from the crypto ecosystem.
  • Their varying use cases are helping the late majority of adopters understand that cryptocurrency is not limited to the utility of Bitcoin or Ethereum.

Deciding What to Invest in

At present there are over 22,000 cryptocurrencies in existence. Getting decision anxiety?

It doesn’t mean you’ll have to review each one before you enter the market. There are ways to help inform your process of drawing up a shortlist of options.

What is the project solving? Is there utility?

A coin may be performing well right now, but is it worth your time and money? Take time to research the underlying project associated with a coin. What blockchain is it on? What are the use cases for the coin?

Is the coin displaying valuable utility now and will it be sustained? Understanding the goals of the project can provide insight into the potential value for investment.

Do the values of this project align with your values?

At the end of the day, you want to see your investments grow. Within that, some investors might feel more inclined to put their money into causes or projects they believe in, rather than just look to profit from alone. Think about your values. Are you eco-conscious? Are there any social causes that you already support? Chances are there is a project out there that aligns with your principles.

Outside of your values, also consider your current investing habits. What are your investment goals? What is your risk appetite or profile? Over what period are you looking to generate returns?Keep these things in mind when building your portfolio.

Do the values of this project align with your values?

At the end of the day, you want to see your investments grow. Some might feel more inclined to put their money into causes or projects they believe in. Think about your values. Are you eco-conscious? Are there any social causes that you already support? Chances are there is a project out there that aligns with your principles.

Outside of your values, also consider your current investing habits. What is your risk appetite or profile? Do you err on the conservative side? Keep these things in mind when building your portfolio. 

What is the asset’s overall ranking?

The crypto market could change overnight, a relatively unknown cryptocurrency could shoot up to the top 10 just from a tweet. Realistically, the top cryptocurrencies are ranked as such for a reason. Look at these projects and the value they are offering to investors. It may give you some insight into the types of projects you should invest in across the wider crypto universe.

CoinMarketCap ranks all cryptocurrencies and provides useful information on each asset. Image: coinmarketcap.com
CoinMarketCap ranks all cryptocurrencies and provides useful information on each asset. Image: coinmarketcap.com

Read the project white paper

The white paper is a key document for all cryptocurrency projects. Without it, prospective investors wouldn’t have a means to understand a project and its goals.

While reading the white paper, highlight any red flags such as: a lack of real-world utility, issues with legality, token emissions models or a team that operates anonymously.

Price History

Even for a seasoned trader, it can be difficult to spot and identify historical trends. But some of the original projects (e.g. Bitcoin) have a longer history that can be leveraged in your decision making.

Liquidity

Liquidity, or the ability for an asset to be quickly converted into cash or another asset without major price fluctuations, is something else to consider when investing. Larger cap coins (like Bitcoin, Ethereum, or Solana) tend to be more liquid than smaller cap coins.

In the case of stablecoins, their price remains (relatively) constant, so the growth potential is negligible. They are mainly used as a highly liquid trading pair and an entry point into decentralised finance (DeFi), everyday currency, or lending and borrowing.

Volume

Volume is often used to gauge interest in a particular cryptocurrency. When assessing this measurement for a particular coin, weigh up the volume against a select time period. Trending coins could have a high volume one day and see a drop in trading once public interest dies down.

Further Reading: How to Invest in Crypto

FAQs

Where can I buy altcoins?

Through an exchange (centralised or decentralised), or through a broker like Caleb & Brown. You may discover that certain altcoins live on different exchanges, which makes creating trading pairs extremely difficult. If you’re looking for access to multiple exchanges with institutional liquidity across a variety of cryptocurrencies, consider investing through a personal broker at Caleb & Brown.

What is the top altcoin by market cap today?

At time of writing (May 15, 2023), Ethereum is the top altcoin with a market cap of $225 billion.

What consensus mechanism do altcoins use?

Each altcoin is unique. Some may use Proof of Work (PoW), Proof of Stake (PoS), or even Proof of Capacity.

Dive Into the World of Altcoins

Altcoins are showing us how cryptocurrencies can be used and applied across a variety of circumstances. They are building upon what Bitcoin created, innovating, and iterating along the way.

Top Ten Altcoins Supported by Caleb & Brown (as at May 15, 2023)

  • Ethereum (ETH)
  • Tether (USDT)
  • Binance (BNB)
  • USD Coin (USDC)
  • XRP (XRP)
  • Cardano (ADA)
  • Solana (SOL)
  • Dogecoin (DOGE)
  • Polygon (MATIC)
  • Polkadot (DOT)

View each altcoin's market cap by visiting CoinMarketCap.

If you’re ready to dive in and make your first altcoin purchase, Caleb & Brown is here to help.

Trusted by over 23,000 investors across 100 countries, our dedicated team of experts works around the clock to carry out all your crypto trades.

We make investing in altcoins easy, allowing you to buy, swap and sell hundreds of altcoins for one low, transparent fee per transaction.

Get set up with a personal broker today and you’ll receive a free security consultation, along with support to help you execute your first altcoin investment.

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BlackRock’s Fink pumps tokenization in annual letter

Larry Fink, CEO and Chairman of the world’s largest asset manager BlackRock, touched on three blockchain related topics in this year’s annual letter. The first part of his letter was about how private markets have been out of reach for most investors and BlackRock is in the process of changing that. For the same reason, the digital assets sector often sees private assets as low hanging fruit for tokenization, as illustrated in this State Street survey.

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Japanese banking giant SMBC plans Avalanche stablecoin – report

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SMBC’s other blockchain initiatives

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Two years ago, our sources told us that SMBC had joined Partior, the cross border blockchain payment system co-founded by DBS, JP Morgan and Temasek. Partior combines a permissioned blockchain with correspondent banking, removing the typical delays and enabling instant cross border payments. SMBC has not yet confirmed it will participate in Partior. However, the other bank we reported simultaneously – Deutsche Bank – recently said it invested in Partior, highlighting the accuracy of the report.

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Hashgraph to launch permissioned DLT, HashSphere

Hashgraph (formerly Swirlds Labs), the founder of the Hedera Hashgraph distributed ledger, is expecting to launch a permissioned DLT, HashSphere, in Q3. One of the current beta testers is Australia Payments Plus, which operates key Australian payment infrastructures and is a long standing governing council member of Hedera.

The DLT company sees a gap with the current permissionless and permissioned offerings. On the one hand, the challenge with permissionless chains for institutions is the need to repeat KYC and compliance steps that their clients have already done internally. Additionally, institutions want greater privacy and control. At the same time, many are looking for a path to interoperability with the permissionless world and stablecoins, an area where HashSphere is positioned as a good example.

There was much excitement when Australia’s eftpos joined Hedera years ago, with the hope of bringing regulated payments to DLT. Eftpos merged with other Australian payment infrastructures which are part of Australia Payment Plus. With stablecoins now on the cusp of going mainstream, perhaps that time has come. Hedera developed various solutions to make onboarding with stablecoins simple. Filipino banks plan to launch the PHPX stablecoin on Hedera this year.

Rob Allen from Australia Payment Plus commented, “As a Hedera Governing Council member, we are interested in HashSphere primarily for its enhanced privacy and regulatory compliance, while also needing network interoperability for the seamless and transparent interchange of stablecoins between public Hedera and private HashSphere, and other Layer1 protocols.”

HashSphere versus incumbent permissioned chains

The arguments about compliance, privacy and control are for those firms not comfortable with permissionless chains. But without additional details (which we don’t have yet), it’s less clear how HashSphere will compete with the existing permissioned chains, although we can make some guesses.

Hyperledger Besu is currently doing well in the institutional space because it offers a path to integration with the Ethereum mainnet. HashSphere can potentially compete because of its EVM (Ethereum) compatible smart contracts. Assuming HashSphere performs similarly to Hedera, it will have a speed and scalability performance advantage over Besu. HashSphere will use many of the features of Hedera, including its consensus, token service and the Ethereum compatible smart contract service.

However, both Besu and HashSphere have a disadvantage compared to some of the other permissioned DLTs on privacy. Canton and Corda were both designed as privacy first and only share data with those that need to know. It’s unclear whether HashSphere takes this approach, but we suspect not. So the options for Besu and HashSphere is Zero Knowledge Proofs or something similar. While that’s progressing, there is no definitive solution so far. For example, Brazil’s central bank wants to go this route with Besu, but is waiting for a solution that is good enough.

Digital Asset will argue that the Canton Network is permissionless, although we consider it a work in progress. We classify public Hedera as partially permissioned because the nodes with write permissions are still controlled by governing council members, although that is evolving. However, all transactions are viewable by anyone.

Hashgraph returns to its roots

In many ways, for Hashgraph this is a return to its roots. Hashgraph was previously known as Swirlds Labs, which started out with a permissioned ledger, including partnering with credit union startup CULedger in 2018. However, at the time Swirlds’ solution was not compatible with other technologies, whereas the Ethereum compatible smart contracts make it more open.

The news comes as the enterprise world seemed to be coalescing around three DLTs: the Ethereum compatible Hyperledger Besu blockchain, Digital Asset’s Canton, and R3’s Corda. Yet in the past week we’ve seen two new permissioned distributed ledgers, the other being Google Cloud’s Universal Ledger. On the one hand, fewer options make for simpler choices. But competition will keep the leading three on their toes.

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