A Beginner’s guide to Altcoins: What They Are and How They Work.

Bitcoin, Altcoins, Tokens, coins ... What The HECK?

This is a beginner's guide to Altcoins

So if you want to learn:

1. What Altcoins are (It is not what you think)

2. Where they come from (The History of Altcoins, Types, Pros & Cons)

3. What to consider before buying Altcoins + lots more

Let's get started.


  1. What are Altcoins?
  2. Understanding Altcoins
  3. What to consider before buying Altcoins
  4. FAQs

1. What are Altcoins?

Bitcoin, the Mother of All Cryptos, was officially launched on January 3, 2009, in the aftermath of the 2008 economic meltdown, as an alternative payment system used over the internet (digital currency) and free of any central control. The goal was to create a more robust, secure, “unhackable” and inflation-proof currency that could operate without the need for any central institution. 

However, Bitcoin is not flawless; Bitcoin programming is meant to slow down the system for security reasons. As Bitcoin gained popularity, scalability challenges such as delayed transactions and energy efficiency surfaced. Here is when Altcoins appeared. Originally, they were interested in expanding Bitcoin’s capabilities and developing better versions. Nowadays, they go beyond that. The term altcoins refer not only to the “original” altcoins but also to any cryptocurrency other than bitcoin

Altcoins should be viewed as a new generation of “internet stocks.” We can divide them into coins (altcoins with their own blockchain) and tokens (applications altcoins that run on an existing blockchain or DLT).

Another way to categorize them is by Market Cap (Hig, Mid, Low) and use case (payment altcoins, infrastructure/platform altcoins, services altcoins, and entertainment altcoins). 

Altcoins have advantages and disadvantages. Altcoins provide high rewards but also huge risks. They provide higher security and robustness through decentralization but the current infrastructure needs further development for mass adoption.

2. Understanding Altcoins

To understand altcoins, we must first understand how they came to be, how they are classified, and what their pros and cons are.

A Brief History of Altcoins

Here is a brief history of Altcoins

Namecoin (NMC), born in 2011, is considered the first altcoin. Namecoin is based on Bitcoin’s code (first fork) and, like Bitcoin, has a maximum supply of 21 million coins. Namecoin could be considered a “services altcoin”, it was the first to introduce decentralized DNS, .bit web domains, which offer lower fees to register a domain (0.01$ at the time of writing), anonymity, and resistance to censorship (identity). 

Litecoin (LTC): Litcoin, which was born shortly after Namecoin in 2011, was the first significant competitor to Bitcoin, depicted as the silver to Bitcoin’s gold. It is the second “payment altcoin” (after Bitcoin), and it significantly increased transaction speed by cutting block creation time from 10 minutes (Bitcoin) to 2.5 minutes. Litecoin also pioneered innovative features like the Lightning Network and Segregated Witness, both of which are now live on Bitcoin.

Peercoin (PPC): Peercoin was born towards the end of 2012 and it was the first to use a different consensus mechanism: Proof-of-stake. In the proof-of-stake system, new coins are generated based on the holdings of individuals (instead of computational power). Proof-of-stake is more energy-efficient and makes monopoly more costly. We can consider Peercoin as the first “infrastructure/platform altcoin.”  

DogeCoin (DOGE): DogeCoin was born at the end of 2013. It was a fork of an older, now-defunct altcoin called Luckycoin, which was itself a fork of Litecoin (LTC). DogeCoin was inspired by a popular meme known as Doge, a picture of a Shina Inu dog, and was the first meme coin (made for fun). Doge has a strong online community behind it and is used for tipping online content creators or crowdfunding activities.

Ethereum (ETH): Ethereum was conceived in 2013 by programmer Vitalik Buterin and released in 2015 through an ICO. Ethereum is the most successful infrastructure (platform) altcoin, currently is the second cryptocurrency by market cap (after Bitcoin). Ethereum is revolutionary in the fact that allows the creation of smart contracts (applications on top of the DLT or blockchain technology). Ethereum is akin to the invention of the smartphone which provides the technology to run apps on top of it.

Tether (USDT): Tether is the first and most widely used stablecoin (pegged to the USD). Tether Limited issued Tether in 2014 with the concept that the Bitcoin blockchain could be used to issue cash. Stablecoins are useful because they provide traders with a great tool for avoiding the extreme volatility of cryptocurrency markets. However, centralization increases the possibility of fraud, and Tether has been the subject of multiple investigations. Some detractors believe its true purpose is to maintain the price of bitcoin high.

Quantum: Kevin McCoy, a digital artist, minted the first non-fungible token (NFT) “quantum” in 2014. Quantum is a hypnotic pixelated octagon filled with different shapes.  It was based on a paper released by Meni Rosenfeld that introduce the concept of “Colored Coins”, a way of managing real-world assets that can be used to prove ownership of those assets. An NFT is a digital representation of something unique. Quantum art piece sold for over 1.4 million in a Sotheby Auction. 

Maker (MKR): DeFi (decentralized finance) is thought to have begun with MakerDAO in 2017. Since then, users have been unable to do anything with their money other than send it from A to B. MakerDAO, an Ethereum-based protocol, developed a method to take out a loan without relying on a centralized institution. This system allows anyone to borrow DAI (a MakerDAO stablecoin) against Ether. DeFi has exploded since then.

Decentraland (MANA): Gaming is one of the uses of NFTs; add VR to the mix, and the Metaverse is born. In 2017, Decentraland (an ethereum-based VR platform) was the first to join the market. In the virtual world of Decentraland, players can purchase and sell digital real estate, vote on policy changes, land auctions, and subsidies to improve the platform, among other things. Decentraland was one of the very first “entertainment altcoins.”

Ocean Protocol (Ocean): In 2017, another game-changing technology was born. The concept of datatokens is introduced by Ocean. Users can use Ocean to manage their data, monetize it, and gain access to datasets used for research, AI modeling, and general analysis. Corporate behemoths manage our data in a centralized manner; Ocean offers decentralized data networks to return power to the user.

Who knows what the cryptocurrency world has in store for us! As new revolutionary cryptocurrencies arise, we will keep you updated. Stay tuned!

Special mention goes to Ripple (fist centralized currency), Monero (first privacy coin), Polkadot (first interoperability protocol), BitShares (first DAO), NXT (first DEX).  

How are altcoins created? 

Altcoins can be created in a variety of ways, the most common of which are as follows:

  • Hard Forks: A hard fork occurs when a cryptocurrency is copied and modified. In layman’s terms, hard forks occur when a sufficient number of network participants disagree with the overall direction and decide to create a new version. Litecoin (LTC) and Bitcoin Cash (BCH) are hard forks of Bitcoin, Ethereum Classic (ETC) of Ethereum,etc.
  • ICOs (Initial Coin offering): The term is derived from the traditional financial term, initial public offering (IPO). Unlike IPOs, which are used to sell company stock in order to raise funds from the general public. ICOs, on the other hand, offer cryptocurrencies in order to raise funds for a specific project. The first successful ICO was Ethereum. The DAO was an example of a failed ICO 
  • IDOs (Initial DEX offering): IDOs are similar to ICOs, except that the project is launching a coin or token through a decentralized liquidity exchange (DEX). One of the first IDOs launched in the space was RAVEN. 

Note: ICOs and IDOs entail high risks. There have been numerous scams perpetrated by bad actors looking to get rich quick. Always do your own due diligence. 

Types and characteristics

The altcoin ecosystem is difficult to categorize. Not to add that the nomenclature is a little confusing. The first step is to remove the word “currency” from cryptocurrency and think of it as a new generation of “internet stocks.”

Classification by Features: Tokens vs Coins 

Tokens and coins are digital assets that can be used to represent value as well as serve as a medium of exchange. However, they are not the same thing.

  • Coins: Coins are all altcoins or cryptocurrencies that have their own DLT or Blockchain. Coins are meant to be used to transact in a particular network. Is the coin of the network that fuels a particular network. They are also known as native cryptocurrencies or assets. To use the Bitcoin platform, you need Bitcoin, to use Ethereum you need Ether, etc. 
  • Tokens: Tokens are a representation of an asset that runs on an existing blockchain. They are tradable assets that represent digital files. To put it simply, tokens are altcoins that are used in applications. Assume you have an iPhone and wish to install an app that tracks your running distance. The token is the altcoin that is used in that app. For instance, ERC-20 tokens (Chainlink, Maker, Augur…) run on the ethereum network (the iPhone). 

    • Fungible Tokens: Fungible tokens are interchangeable

      • Utility Tokens: Intended to provide services within a network, purchase services, pay network fees or redeem rewards. Filecoin (FIL) which is used to purchase storage space on a network, is a good example. 
      • Governance Tokens: Governance tokens are those that give users voting rights to give users control of the future of a project. Examples include Uniswap (UNI), Aave (AAVE), etc.
      • Security Tokens: Security tokens are digital representations of a tradable financial instrument, such as a company’s stock or bond. They provide equity to holders in the form of ownership or a dividend payout. They are used as an investment. Examples include Polymath (POLY), Blockchain Capital (Bcap), etc.

    • Non-fungible Tokens (NFTs): NFTs are digital representations of something unique. You can’t exchange one NFT for the other directly. That makes them ideal for proving ownership rights, identity and authenticity. NFTs examples are Quantum, LAND, etc. 

Classification by Market Capitalization (Market Cap)

The Market cap is an important metric to understand Altcoin Value. Market cap is how much money or capital is invested in an asset when measured in dollars. 

Market cap = Coins in circulation (circulating supply) x exchange rate (current price)

We can classify them into:

High-Cap: Anything in the top 10 by market cap. According to coinmarketcap those are Bitcoin (BTC), Ethereum (ETH), BNB (BNB), Tether (USDT), Solana (SOL), USD Coin (USDC), Cardano (ADA), Ripple (XRP), Terra (LUNA) and Polkadot (DOT). 

Mid-cap: Anything in the top 10-50. Examples are Avalanche (AVAX), Dogecoin (DOGE), Shiba Inu (SHIB), Polygon (MATIC), Binance USD (BUSD), Chainlink (LINK), Aave (AAVE), etc. 

Low-cap: Anything not in the top 50. Low cap Altcoins are extremely volatile and they come and go like the wind. Examples are The Graph (GRT), EOS (EOS), Stacks (STX), BitTorrent (BTT), Flow (FLOW), Enjin Coin (ENJ), etc. 

Classification by Use Case (our favourite)

At Altcoins Mastery, we feel that while all of this terminology is essential for better understanding their functionality, it is also a bit confusing. What matters, in the end, is what altcoins are used for.

We don’t need to comprehend how electricity works to take advantage of its benefits. That is why we choose to categorize altcoins based on their use case, rather than their features or characteristics.

Payment Altcoins: Payment cryptocurrencies can be considered as “digital cash” or cryptos meant to be used as money. Some were created as alternatives to fiat money, while others are primarily concerned with payments (e.g., smooth transactions) for a certain use case or industry. This is the original use case for cryptocurrencies and the most extended so far. 

  • Here we include all cryptocurrencies you can use to pay for goods and services. Bitcoin (BTC), Bitcoin Cash (BCH), Monero (XMR), Dash (DASH) among others. 
  • And asset-backed cryptocurrencies, such as Stablecoins that aim to dampen cryptocurrency volatility by tying them to fiat currencies (Tether, DAI, USDC, etc), commodities such as gold (Paxos Gold), cryptocurrencies (Wrapped Bitcoin), or other assets.
Use Cases: Paying for goods and services, banking the unbanked, cross-currency and international payments, lower fees, quicker and more secure online transactions, price stability... 

Infrastructure Altcoins: Infrastructure cryptocurrencies can be viewed as the “entry fee” that users must pay in order to use a specific shared infrastructure, platform, or DLT to develop their own applications. They are crypto assets that “enable stuff to happen” in the crypto world. 

  • Here we include cryptocurrencies you can use to build or connect applications and networks in the crypto world. In other words, these cryptocurrencies are the foundations around which the crypto world is based. Smart contracts make it possible. 
  • Ethereum (ETH), NEO, IOTA, Cardano (ADA), Polkadot (DOT), Kusama (KSM) or Algorand (ALGO) among others are a few examples. 
Use Cases: Finance (Real State, decentralized finance(Defi), microfinance, etc), Law (copyright), government voting, Healthcare (store health records), Supply Chain (inventory), automotive, etc.

Services Altcoins: Services altcoins can be defined as any use case in which someone provides a business, social or personal service to someone. These could be services related to a specific area of the financial industry (financial altcoins) or non-financial that encompass all services other than financial.

Consider the usual services industry, but this time on the DLT! We distinguish between financial and non-financial (others).

  • Financial Altcoins include Compound (COMP), PancakeSwap (CAKE), Voyager Token (VGX), Augur (REP).
Use Cases: Decentralized Finance (DeFi), Centralized Finance (CeFi) for savings, investing, trading, lending, prediction markets or crowdfunding for projects or ventures. 
  • Non-financial Altcoins (Others) include Dentacoin (DCN), Chainlink (Link), EFFORCE (WOZX), Fetch.ai (FET), etc. 
Use Cases: AI, data management, energy efficiency, file storage, and healthcare (dentistry), etc. 

Media & Entertainment Altcoins: Media and entertainment cryptocurrencies include anything associated with the social media and entertainment industry. These include social media altcoins, entertainment altcoins, and meme coins (designed for fun)

  • Social Media Altcoins include Basic Attention Token (BAT), THETA or Steemit (STEM)
Use Cases: Advertising and content creation & distribution
  • Entertainment Altcoins include Enjin Coin (ENJ), Decentraland (MANA) or OVR (OVR)

Use Cases: Gaming, collectibles (NFTs), AR & VR (metaverse) 

  • Meme coins include Dogecoin (DOGE), Shiba Inu (SHIB) or Akita Inu (AKITA). Others are named after Tesla CEO Elon Musk, like Dogelon Mars (ELON)
Use Cases: They have no real-world application. Meme coins are altcoins that are inspired by popular memes or jokes and are designed to be entertaining. 

What are the Pros & Cons of Altcoins?

Here are the pros and cons of Altcoins:

By decentralizing networks, data, and entire industries from the hands of a few large firms and institutions, altcoins return power to the user.The decentralization infrastructure is still in its infancy and somewhat clunky. The entry barriers are high. We are here to provide guidance. 
Altcoins offer high potential rewards (multiples of Bitcoin’s)With high rewards come high risks. Particularly with mid and low-cap altcoins. Many altcoins are scams or end up failing. We are here to clear things up.  
Altcoins address many of the concerns that Bitcoin has been attempting to solve, such as scalability, energy efficiency, and others.Most of the crypto industry lacks a regulatory framework. This is being drafted as we speak. We will keep you updated on future regulations.
Altcoins have progressed beyond becoming the “internet of money,” and the vast majority of them no longer compete with Bitcoin. They are just solutions to different problems that we currently have as a society. Many altcoins are hard to buy because they’re only listed on specific altcoin exchanges. We will tell you where and how to buy them. 
There is a large selection of altcoins which present investors with a great opportunity for diversification. All the crypto industry is correlated to Bitcoin (for the moment) which means we double or triple our exposure. We will provide investment and trading guidelines.

3. What to consider before buying Altcoins

Before deciding on an altcoin to invest in, make sure you do your homework on the project. Read the Whitepaper, look into the team behind it, and invest only what you can afford to lose. Ask yourself: 

  • Do I understand the Altcoin project in which I wish to invest?
  • Who are the people behind it? Is the crew experienced enough?
  • What are the real-world applications? What issue does it address?
  • What role does the Altcoin play in my existing portfolio?

Be aware that the current Altcoins market is similar to the internet in the 90s, where numerous companies competed to become the web browser of choice, the search engine, the social media platform, and so on. In the end, just a few companies survived, and Web 2.0 evolved into what it is today.

We believe this is the current state of the altcoins market, most will fail but some will succeed.

Place your bets wisely. 

4. FAQs 

What is an Altcoin?

An altcoin, or “Alt” for short, is referred to as any cryptocurrency other than bitcoin. “Altcoin” is a combination of two words “alternative” and “coin.” 

What are the top 10 Altcoins?

According to coinmarketcap the top 10 altcoins (high-cap) are Bitcoin (BTC), Ethereum (ETH), BNB (BNB), Tether (USDT), Solana (SOL), USD Coin (USDC), Cardano (ADA), Ripple (XRP), Terra (LUNA) and Polkadot (DOT) as of January 2022. 

Which Altcoin is the best investment?

Ether is the largest and most well-known altcoin in terms of market capitalization. Ethereum applications are limitless because it is essentially a platform for developing apps, similar to the iPhone. The capabilities of smart contracts are revolutionary, and industries such as huge automated manufacturers – VW (IOTA), BMW (VeChain), and Daimler – own crypto. On average, an automobile is leased roughly every second. The car sector believes it can obtain better control by processing all of its lease contracts on a blockchain such as Ethereum.

We recommend researching Ethereum and its competitors before investing any money.

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Marc Arbonés
Marc is a millennial economist, systems thinker, crypto investor (since 2017), crypto writer, and peak performance consultant. He is the Editor and Founder of Altcoins Mastery, where he supports creators and investors in capitalizing on a "fairer" financial system powered by Crypto, DeFi, and web 3.0.