Comprehensive Guide about Altcoins

Since Bitcoin's inception, numerous different coins and tokens such as Ethereum (ETH), Solana (SOL), and Toncoin (TON) have emerged, each with unique features and utilities in the digital landscape. These alternative coins are not just digital payment methods; they offer faster transaction speeds, lower fees, enhanced security, and various recreational uses. In this comprehensive guide, we will delve into the different types of altcoins, their functions, and their roles in the evolving cryptocurrency ecosystem. Moreover, we will also provide you a thorough understanding of the Altcoin Season, which can be a significantly beneficial opportunity.

What are Altcoins?

The term ‘altcoin’ was created as a combination of ‘alternative’ and ‘coin’. It refers to any coin or token which is not Bitcoin. Many altcoins have been developed since the birth of Bitcoin, such as Ethereum (ETH), Solana (SOL), Toncoin (TON), and memecoins. Altcoins come with unique features and practical utilities more than mere digital medium of payment. These alternatives can offer faster throughput, lower fees, improved security, and recreational purposes.

Different types of Altcoins

Cryptocurrencies

The initial concept of decentralised payment solutions is a distributed ledger system that records transactions’ details using a native cryptographic asset. This asset is referred to as coin and is the only one supported by the blockchain. They are the only recognised means of exchange for those who use these blockchains. For example, Solana only supports SOL, and Ethereum only endorses ETH.

These coins could be considered as a means of preserving wealth over time, facilitate cross-border transactions, pay for transaction fees, and serve as a means of value transfer within the ecosystem.

Stablecoins

Stablecoins are cryptocurrencies tied to specific assets. Most of them are actually ERC-20 tokens and do not have their own chains (built on existing blockchains). However, they are still called coins as their primary function is a medium of exchange.

Let’s take USDT as an example. It is backed by US dollars, held by the Hong Kong-based company iFinex to maintain the value of every USDT at $1 USD.

Privacy coins

Privacy coins highlight the misunderstanding that all cryptocurrencies are anonymous when most are inherently pseudonymous. While cryptocurrency transactions do not include personal details or IP addresses, their pseudonymous nature allows for the potential identification of the sender or receiver through the analysis of transaction data and patterns.

Privacy coins are designed to prioritise trader’s anonymity and transaction privacy. They employ advanced cryptographic techniques to conceal transaction details and protect participants’ identities.

There are hundreds of privacy coins that employ a combination of privacy-enhancing design features, but their total market cap and trading volume represents less than 1% of overall numbers. Prominent players are Monero (XMR), Zcash (ZEN), and Dash (DASH).

Utility tokens

Utility tokens are digital assets built on existing blockchains to provide access to a specific product or service within those blockchain ecosystems. Consequently, their value is derived from the utility or functionality they offer.

The development of Ethereum Virtual Machine (EVM) has opened the door to a range of new blockchain-based applications. Dapps such as decentralised finance (DeFi) platforms, gaming systems, and artificial intelligence (AI) applications leverage smart contracts to issue tokens which give their holders privileges while using these apps.

In some cases, the core functionalities of an app are accessible only to token holders. These tokens are known as utility tokens. For example, some metaverse platforms and NFTs can only be purchased using a designated token only.

Security tokens

Security tokens represent ownership or a stake in a real-world asset or in any revenue-generating enterprise. These tokens derive their value from the underlying assets to which they are linked. These tokens are typically subject to strict regulatory oversight. Failure to comply with regulations would lead to severe penalties and potential derailment of the project’s development.

People often miss differentiating between utility and security tokens. However, this can be utterly ‘dangerous’ if you are the issuer. Make sure not to inadvertently categorise their tokens as securities as this could lead to legal complications.

Governance tokens

Decentralised Autonomous Organisation (DAO) are an organised collective with a ‘flat’ hierarchical structure centred around a shared cause or mission. Crypto projects which aim for true decentralisation often embrace the DAO model for governance.

In DAOs, participation rights are tokenized, and every token holder is considered a member of the DAO. Through voting portals, DAO members can vote on proposals and submit their suggestions to be considered by the rest of the collective.

Some projects implement a dual-token system. They issue governance tokens and utility ones separately. Holders of the governance tokens hold the right and duty of voting on improvement proposals, while the second token serves as a means for interacting with the app.

Top 10 Altcoins of 2024

• Ethereum
  Ethereum (ETH) now ranks as the second-largest cryptocurrency in the world by market capitalisation. Ethereum’s market cap is approximately $459 billion with 425,210 daily active addresses at the time of writing.
  Unlike Bitcoin, which primarily functions as a digital store of value and a medium of exchange, Ethereum is a platform designed for building decentralised applications (DApps) and executing smart contracts, offering a diverse array of use cases beyond currency transactions.
• Solana
  Solana, a layer-one blockchain developed by Solana Labs in 2020, operates on a Proof-of-Stake consensus model and boasts a potential transaction throughput of 65,000 TPS.
  Solana (SOL) is now ranked as the fifth largest crypto. The blockchain positions itself as a leading network designed for flexible speed expansion as more validators join the project.
  This implies that the more transactions performed on the platform, the faster and more scalable Solana will be. Therefore, there is no limit to Solana’s growth.
• XRP
  XRP is used to facilitate exchanges between various currencies through Ripple Labs, a digital technology and payment processing company. Established in 2012, Ripple Labs is a veteran in the rapidly evolving cryptocurrency sector. Despite the rise and fall of many other cryptocurrencies over the past decade, Ripple Labs and its currency, XRP, have retained their esteemed reputation in the cryptosphere.
  The first decentralised exchange (DEX) was introduced by XRP Ledger, featuring a protocol that supports custom tokenization. This open-source technology is also recognized for being more environmentally friendly than many other cryptocurrencies, which likely adds to its widespread appeal.
  The coin has been recently relisted on Coinbase for New Yorker after a nine-month hiatus.
• Dogecoin
  Dogecoin was the first meme coin created, featuring the famous meme of a Japanese Shiba Inu dog. It was originally intended as a joke to gain mainstream attention in 2013 and has since rapidly evolved into a prominent cryptocurrency thanks to a dedicated community and creative memes. DOGE is a fork of Litecoin (LTC) and uses the same Proof of Work (POW) consensus mechanism, with no maximum supply.
• Toncoin
  Developed in 2018 by encrypted messaging system Telegram, TON – The Open Network – is a layer-1 blockchain aiming to integrate cryptocurrency and blockchain functionality into the Telegram ecosystem.
  Toncoin is TON’s native cryptocurrency used for network operations, transactions, games or collectibles built on TON.
• Cardona
  Cardano (ADA) is a decentralised Proof-of-Stake (PoS) blockchain. Similar to Ethereum, Cardano's PoS system rewards participants for their efforts in validating and expanding the blockchain's historical record.
  Cardano aims to develop into a platform for decentralised applications (dApps) with various use cases managed by its stakers. The blockchain's cryptocurrency, ADA, is named after Augusta Ada King, Countess of Lovelace, an English aristocrat recognized as the first computer programmer. ADA can be bought on most major cryptocurrency wallets and exchanges.
• Shiba Inu
  The Shiba Inu (SHIB) coin, created in August 2020, is an Ethereum-based crypto named after the Japanese dog breed. It is often considered a viable alternative to Dogecoin (DOGE), or some might call it the “Dogecoin killer”.
  SHIB serves as the native and governance token for the Shiba Inu network. The project has its decentralised exchange (DEX) called ShibaSwap.
• Avalanche
  Avalanche (AVAX) now ranks as the 12th largest cryptocurrency by market cap with the price of around $36 per AVAX.
  The main innovation behind the Avalanche cryptocurrency platform is the merging of three distinct blockchains, as opposed to the standard choice of two. Such a distinctive design approach provides the AVAX blockchain with the needed benefits in terms of finality.
  Each blockchain in the AVAX ecosystem performs a different specialised function, unlike a single blockchain doing all functions. The efficient allocation of work over many chains contributes to the Avalanche blockchain platform's agility. The network can therefore simultaneously achieve the appropriate scalability, decentralisation, and security levels.
• Polkadot
  Polkadot is a blockchain technology developed by Switzerland’s Web3 Foundation, which is dedicated to the development of an open-source, fully-functional, and user-friendly decentralised web. The Polkadot network is the idea of Gavin Wood, a founder member of Ethereum, and is often referred to as the ‘Ethereum Killer.’
  Polkadot’s most significant feature is its interoperability, which connects a vast network of purpose-built blockchains and enables them to function smoothly with one another via ‘parachains’. It is also meant to be quick and scalable through the use of many parallel blockchains or “parachains” that alleviate a significant portion of the processing needs on the main blockchain. The network also enables blockchains to be upgraded without the need to fork the chain, a process that previously took months and sometimes divided the community.

What is Altcoin Season

Altcoins are all nonBitcoin cryptocurrencies. When referring to Altcoin Season, it is a crypto market phase where the prices of altcoins surge dramatically and tend to outperform Bitcoin.

During altcoin season, the aggregate market cap of all altcoins surpasses Bitcoin in a bull run in the crypto market. This surge in price and trading volume for altcoins gains traction among investors, fostering investments in emerging cryptocurrencies rather than Bitcoin.

Altcoin Season vs. Bitcoin Season

When it is Altcoin Season, the market’s focus shifts from Bitcoin to alternative cryptocurrencies. This move is attributed to a significant rise in the prices and trading activity of altcoins that could outperform Bitcoin. Several different elements could also be considered, such as speculative trading, the introduction of new projects, technological improvements, and increased utility that attracts investors.

Typically, altcoin season occurs after Bitcoin has experienced a prolonged price surge, making it less affordable for average investors.

By contrast, Bitcoin Season is marked by the market’s heightened focus on Bitcoin. When this season occurs, Bitcoin’s dominance index – a measure of Bitcoin’s market cap relative to the total crypto market cap – rises, meaning that investors are in favour of the largest coin. This shift often happens when the market sentiments are pessimistic or amidst market volatility, and investors gravitate towards Bitcoin and stablecoins, seeking safer investments.

What Causes Altcoin Season?

Decreasing Interest in Bitcoin

Historically, after a remarkable ceiling trend, Bitcoin’s price tends to stabilise and stays high for extended periods. This can lead market participants seeking short term gains or looking to diversify their holdings to sell their BTC and shift to altcoins. Additionally, the high price of Bitcoin can deter new crypto investors, and they have no choice but to choose altcoins instead.

New Crypto Trends: DeFi, NFTs, and Web 3

The launch of new projects or updates to existing altcoins can create excitement in the market and drive up demand, especially when these altcoins are part of a broader trend or offer unique features or solutions to unresolved issues in the crypto space.

For instance, in 2020, the rise of decentralised finance (DeFi) fueled an altcoin season. In 2021, the rapid growth in popularity of nonfungible tokens (NFTs) triggered another altcoin surge. Similarly, in early 2022, the emergence of Web3 drove a new wave of altcoin adoption.

Previous Altcoin Seasons Since the Birth of Bitcoin

Late 2017 – Early 2018

In this altcoin season, the Bitcoin dominance index started the year at 87% and plunged to an all-time low of 32% during the altcoin bubble peak in January 2018. Conversely, altcoins’ dominance rose dramatically, showing an appreciation in altcoin valuations.

The total cryptocurrency market cap experienced explosive growth, rising from around $30 billion in early 2017 to over $600 billion roughly a year later. Many altcoins reached all-time highs during this period, primarily due to the ICO boom, where numerous new tokens were launched, attracting significant investment and speculative interest.

Early 2021

In 2021, the introduction of DeFi projects, non-fungible tokens (NFTs), and memecoins has driven the boom of a new altcoin season. The Bitcoin dominance index quickly fell from 70% to 38%, while altcoins’ market share doubled from 30% to 62%.

Some of the best performers were Solana, Polygon, Dogecoin, Shiba Inu, PancakeSwap, and BNB. The total cryptocurrency market cap surged past $2 trillion for the first time, led mostly by altcoins. This period was the golden age of crypto, the largest bull run in the crypto market to date, with the total market cap soared to an all-time high (ATH) of over $3 trillion by the end of 2021.

Both periods highlight the cyclical nature of ‘altcoin seasons.’ However, the market has witnessed significant growth in complexity, with over 10,000 altcoins in 2021 and a notable presence of stablecoins in the market cap rankings.

How to Identify an When an Altcoin Season Begins?

In fact, there is no exact formula to predict when an altcoin season happens. However, we have key indicators that signal the season’s potential arrival:

• Rising Altcoin Dominance: This metric tells how the market cap of all altcoins is compared to Bitcoin’s market cap. When altcoin dominance index rises significantly, it suggests that investors are shifting their focus towards altcoins.
• Increased Trading Volume: A noticeable surge in trading volume across various altcoins can signal growing investor interest and potential price increases.
• Positive Overall Market Sentiment: Bullish sentiment in the cryptocurrency market often extends to altcoins, driving up their prices.
• Specific Events: The launch of a promising altcoin project or favourable regulatory developments for altcoins can act as catalysts for an altcoin season. These events can significantly boost investor confidence and lead to increased investment in altcoins.

The Future of Altcoin

Discussions about the future of altcoins mirror the historical circumstances that led to the establishment of a federally issued dollar in the 19th century. Back then, various forms of local currencies circulated in the United States, each with unique characteristics and backed by different instruments. Local banks were also issuing currency, sometimes supported by fictitious reserves. This diversity of currencies and financial instruments parallels the current situation in the altcoin market, where thousands of altcoins are available, each claiming to serve different purposes and markets.

The current state of the altcoin market suggests that it is unlikely to consolidate into a single cryptocurrency. However, most of the thousands of altcoins listed in crypto markets today are not expected to survive. The market will likely coalesce around a few altcoins that offer strong utility, clear use cases, and a solid blockchain purpose, which will come to dominate the market.

Investing in altcoins can be an inexpensive way to diversify an investment portfolio beyond Bitcoin (BTC). However, it comes with significant risks, particularly due to the lack of regulation. These regulatory risks are expected to diminish as the cryptocurrency market matures. Nevertheless, the cryptocurrency market, regardless of the type of coin, remains young and volatile. As cryptocurrency continues to find its role in the global economy, it is prudent to approach all cryptocurrencies with caution.

Altcoin FAQs

What Is Considered an Altcoin?
An altcoin is any cryptocurrency other than Bitcoin. For instance, Solana (SOL), Toncoin (TON), Pepecoin (PEPE), or Book of Meme.

What Are the Top 5 Altcoins?
By market cap, the top five altcoins are ETH, USDT, BNB, SOL, and USDC, according to data from CoinMarketCap.

What Altcoin Will Explode in 2024?
Which altcoin will take off in 2024 is anyone's guess. There might not be any changes in the market, or a new one could be introduced that attracts a whirlwind of investors.

Is 2024 Altcoin Season?
2024 has witnessed remarkable surges in altcoins’ value as the market is getting more dynamic and investors are trying to diversify their portfolio to look for more gains on cryptocurrencies. However, the altcoin index has yet indicated an altcoin season. Given that, the market is unpredictable, so keeping an eye on potential coins will be beneficial.