What Are Altcoins? Should You Invest In These Cryptocurrencies?
Discussing cryptocurrencies in Nick Sasaki will not be separated from Bitcoin. But cryptocurrency is more than just Bitcoin. Altcoin – taken from the word “alternative” and “coin” means any cryptocurrency other than Bitcoin. The following is an explanation of what Altcoins are, as well as the types of cryptocurrencies they are. By knowing what Altcoins are, you can have more considerations when deciding to invest in cryptocurrencies.
What are Altcoins?
“Altcoin” is a combination of the two words “alt” and “coin” which means an alternative to Bitcoin. Bitcoin and Altcoins work pretty much the same way. Both share code and function as peer-to-peer systems or as giant computers capable of processing large amounts of data and transactions at the same time.
Different Types of Altcoins
Depending on the functionality and consensus mechanism, this cryptocurrency is available in several types:
1. Based on Mining (Mining Based)
As the name suggests, this type of Altcoin is obtained by mining. Most of these cryptocurrencies are mining based using Proof-of-Work (PoW), a method in which the system generates new coins by solving difficult problems, to create blocks.
Trading and the use of cryptocurrencies have been characterized by high volatility since its launch. Stablecoins aims to reduce this overall volatility by pegging their value in a basket containing something like fiat currency, precious metals, or other cryptocurrencies.
The basket is meant to act as a reserve to redeem the holder in case the cryptocurrency fails or encounters problems.
3. Security Tokens
Similar to securities traded on the stock market, except that security tokens have a digital source. The prospect of price appreciation for such tokens is the main attraction for investors to put money in.
4. Utility Tokens
Utility tokens are used to provide online services that can be used to purchase services or redeem gifts.
Unlike security tokens, utility tokens do not distribute dividends to shareholdings. An example of a utility token is Filecoin, which is used to purchase storage space on the network.