Every alternative cryptocurrency—altcoin—has a unique history and community of users. There are many altcoins, but not all are good for investment purposes. There is a possibility that some will prove beneficial and desirable for a variety of projects, which may, in the long run, result in a huge price increase. However, some others may turn out to be useless or even fraudulent.
What exactly are altcoins? How do you decide which one to invest in? Keep reading if you want to find out!
What Is an Altcoin?
Altcoin is a contraction of “alternative coin.” It refers to cryptocurrencies other than Bitcoin (BTC)—it is as simple as that. If it is not BTC, then it is an altcoin. Ethereum, Cardano, Shiba Inu, Polkadot, Avalanche, Solana, and the thousands of other cryptocurrencies are all altcoins.
Altcoins are typically created to achieve specific goals within their blockchain community. Some are used for transactional and payment purposes, just like Ether in the Ethereum ecosystem. Some cryptocurrencies, such as Trumpcoin and Bananacoin, were developed to raise donations for philanthropic causes.
The 6 Types of Altcoins
The thousands of altcoins in the cryptocurrency market can be categorized into various groups. Though other variants exist, these are six of the most common altcoin types.
Security Tokens
These tokens confer ownership rights to the company that owns them. Holding them grants the bearer the ability to acquire a certain number of shares in the company that is the legal owner of the token. Security tokens are considered securities by regulatory agencies, just as stocks, ETFs, bonds, and other types of securities.
According to the Howey Test, a token can be classified as a security or not if it replies ‘yes’ to the following questions.
- Is there a monetary investment?
- Was the money put into a joint venture?
- Were you hoping to make a profit?
- Is the profit generated by the…
