Altcoins refer to cryptocurrencies other than Bitcoin. While Bitcoin was the first cryptocurrency and remains the most widely known and largest by market capitalization, thousands of altcoins have emerged since Bitcoin’s creation in 2009.
Unlike Bitcoin, which was intended to function solely as a digital currency and payment system, altcoins encompass a wide range of use cases, features, and technologies. Many altcoins aim to improve upon perceived limitations of Bitcoin by offering greater transaction speed, lower fees, different consensus mechanisms, or additional privacy features.
The altcoin market has grown exponentially along with the broader crypto industry. As of 2022, there are over 18,000 cryptocurrencies tracked by CoinMarketCap, although many have negligible market value. After Bitcoin, the leading altcoins by market capitalization include Ethereum, XRP, Cardano, and Solana. While Bitcoin still accounts for over 40% of the total crypto market cap, altcoins collectively account for the majority and continue gaining ground.
The launch and spread of altcoins represents the permissionless innovation made possible by open-source cryptocurrency protocols. However, the altcoin market is also characterized by high volatility, speculation, and scams that investors must navigate. This guide will highlight some of the most promising and noteworthy projects across different altcoin categories.
Top Altcoins By Market Cap
The top altcoins by market capitalization after Bitcoin are Ethereum, Cardano, Solana, and Polkadot. These alternative cryptocurrencies aim to improve upon Bitcoin in various ways or target specific use cases beyond just being a digital currency.
Ethereum is the second largest cryptocurrency and the most popular platform for decentralized applications (dApps) and smart contracts. The Ethereum blockchain allows developers to create and deploy decentralized apps powered by the ETH cryptocurrency. Ethereum aims to be a “world computer” for running decentralized financial applications without intermediaries.
Cardano was created by Ethereum co-founder Charles Hoskinson and takes a research-based approach to develop a proof-of-stake blockchain. The ADA cryptocurrency aims to allow smart contracts while being more scalable, interoperable, and sustainable than older blockchains.
Solana has gained popularity as a high-speed blockchain capable of over 50,000 transactions per second. The SOL cryptocurrency powers dApps with rapid speeds and low fees compared to Ethereum. Solana uses a proof-of-history consensus to keep track of the order of transactions.
Polkadot is a sharded multichain network that allows external blockchains to connect to its relay chain. The DOT cryptocurrency aims to allow interoperability between different blockchains and pooled security between chains. Polkadot was created by Gavin Wood, another Ethereum co-founder.
Memecoins
Memecoins refer to cryptocurrencies that gained popularity and value primarily through online hype and viral social media trends rather than their underlying technology. The poster child for this category is Dogecoin (DOGE), which features the Shiba Inu “doge” meme as its mascot.
Originally created as a joke in 2013, Dogecoin saw its value skyrocket in 2021 after it was promoted by high-profile figures like Elon Musk. The coin saw further hype-driven rallies throughout 2021 and 2022. Despite having faster block times and lower fees than Bitcoin, Dogecoin has few technological innovations and derives most of its value from community sentiment rather than utility.
Other prominent memecoins include Shiba Inu (SHIB), which brands itself as a “Dogecoin killer,” and Floki Inu (FLOKI), named after Elon Musk’s Shiba Inu dog. These coins saw massive rallies in 2021 and 2022, with SHIB at one point seeing gains of over 1,000,000% in a year. However, most memecoins are extremely volatile, with valuations rising and falling dramatically based on hype cycles and social media trends.
While memecoins showcase the power of community and marketing in the crypto space, their lack of unique utility and propensity for pump-and-dump schemes make them high-risk speculative investments rather than long-term holds for most investors. They represent an interesting social phenomenon more than serious cryptocurrencies with tangible use cases.
Metaverse Tokens
The metaverse represents the next evolution of social connection and entertainment through virtual worlds and augmented reality. Major tech companies like Meta (formerly Facebook) have invested billions into developing metaverse platforms.
Two of the most popular blockchain-based metaverse projects are Decentraland and The Sandbox. These operate as virtual worlds where users can play games, create content, and buy virtual land and assets using cryptocurrencies and NFTs.
Decentraland (MANA) has seen significant growth, with over $1 billion in total sales volume on its platform. Brands like Adidas and Samsung have purchased virtual land to market products and engage with customers. The Sandbox (SAND) also has major brand partnerships, including Gucci, Warner Music Group, and Ubisoft.
The metaverse gaming market is projected to grow from $478 million in 2020 to over $28 billion by 2025. As more users enter metaverse worlds, demand for the tokens powering these ecosystems will likely increase. Leading metaverse cryptos like MANA and SAND have already seen triple digit percentage gains in 2021.
Early investments in metaverse tokens could prove lucrative as the space evolves. However, it remains high risk and speculative similar to other altcoins. But the underlying tech powering blockchain-based metaverse experiences shows strong potential.
Interoperability Tokens
Interoperability refers to the ability for different blockchains to communicate and interact with each other. This allows assets, data, and other information to be seamlessly transferred between chains.
Some of the leading interoperability focused projects include:
Cosmos – Cosmos aims to create an “Internet of Blockchains” by enabling independent blockchains to transact with each other through Inter-Blockchain Communication (IBC). The Cosmos ecosystem uses a “hub and spoke” model, with the Cosmos Hub coordinating communication between all the other zones and sidechains. The native token of Cosmos is ATOM.
Polkadot – Polkadot was created to allow different specialized blockchains to exchange information and transactions through its relay chain. Parachains can be built on Polkadot for specific use cases while still being interoperable with the entire Polkadot network. The native token of Polkadot is DOT.
Avalanche – Avalanche is a layer one blockchain that supports the creation of custom blockchains to achieve scalability, security, and interoperability goals. It uses a unique consensus mechanism called Avalanche Consensus that allows for high transaction throughput. The native token of Avalanche is AVAX.
Interoperability solves some of the major challenges facing blockchain technology such as scalability and communication between chains. Projects like Cosmos, Polkadot, and Avalanche are leading the way in connecting blockchains together to usher in the next evolution of decentralized applications. Their native tokens give holders the ability to participate in consensus and governance of these rapidly expanding ecosystems.
Oracle Tokens
Blockchain oracles are third-party services that provide external data to blockchain networks. They serve as bridges between blockchains and the outside world.
Oracles are essential for the functionality of smart contracts, which are self-executing agreements on a blockchain. Smart contracts can only access data that is on their own blockchain. But many smart contracts need information from the real world to execute properly, like weather data, sports scores, or stock prices.
Oracles provide this external data to smart contracts in a secure and reliable way. Popular oracle tokens like Chainlink and API3 facilitate these oracle services on their networks.
Chainlink is the leading decentralized oracle network. It has an ERC-20 token called LINK that is used to pay Chainlink node operators for providing data to smart contracts. LINK helps create incentives for accurate data and a robust, decentralized oracle network.
API3 takes a different approach, using a DAO structure and API3 tokens to incentivize API providers to join its decentralized API marketplace. API3 aims to solve data availability issues for smart contracts in a fully decentralized way.
Overall, oracles and oracle tokens are crucial infrastructure in the blockchain ecosystem. They allow smart contracts to trigger actions and transactions based on real-world events. As adoption of smart contracts grows, the need for highly reliable and secure oracles will continue increasing as well.
DEFI Tokens
Decentralized finance (DEFI) refers to financial applications built on blockchain networks that aim to provide services like lending, borrowing, trading, and more without relying on intermediaries like banks. DEFI has seen explosive growth over the past few years.
Some of the leading DEFI tokens include:
Uniswap (UNI) – An automated decentralized exchange (DEX) built on Ethereum that allows users to trade cryptocurrencies. The UNI token governs Uniswap and allows holders to vote on protocol changes. Uniswap pioneered the automated market maker (AMM) model.
Aave (AAVE) – A decentralized lending protocol that allows users to lend and borrow a wide variety of digital assets. Lenders earn interest while borrowers pay interest. The AAVE token can be used for governance of the protocol. Aave is known for introducing novel DEFI features like flash loans.
MakerDAO (MKR) – Creator of the DAI stablecoin, which maintains its peg to $1 through a system of collateral and price feeds. MKR tokens are used to pay fees and govern the Maker protocol. Maker pioneered the model of decentralized collateralized loans and stablecoins.
DEFI has opened up a new realm of possibility in finance by enabling trustless and transparent applications. The total value locked in DEFI has grown from millions to over $100 billion today. As blockchain adoption increases, DEFI is poised to challenge traditional finance. Leading DEFI tokens like Uniswap, Aave, and Maker underpin these disruptive new financial systems.
Proof of Stake Tokens
Proof of Stake (PoS) is an alternative consensus mechanism to Proof of Work (PoW) used by many cryptocurrencies. In PoW, miners compete to solve complex computational puzzles in order to validate transactions and mint new coins. This requires enormous amounts of energy.
In PoS, validators stake existing coins to validate transactions and mint new coins. It’s much more energy efficient but requires participants to already own coins. Some leading PoS coins:
Cardano (ADA) – Uses the Ouroboros PoS algorithm. Cardano aims to be a fast, scalable and sustainable blockchain platform for running smart contracts. It’s focused on peer-reviewed research and formal verification.
Solana (SOL) – Relies on PoS and claims to achieve 50,000 TPS throughput. Solana has seen massive growth in 2021 due to its speed and low fees. Critics argue it sacrifices decentralization for scalability.
Algorand (ALGO) – Uses a “pure proof of stake” model. Algorand focuses on speed, scalability, security and decentralization. It uses cryptography and randomization techniques like Verifiable Random Functions to achieve consensus efficiently.
PoS coins like these offer an alternative to PoW with increased efficiency and lower environmental impact. As the technology matures, PoS may become the consensus mechanism of choice for many blockchains. Leading projects like Ethereum are transitioning to PoS partly for these reasons.
Privacy Coins
Privacy coins like Monero (XMR) and Zcash (ZEC) aim to provide users with anonymity and privacy when transacting on the blockchain.
Unlike Bitcoin, privacy coins use advanced cryptographic techniques like ring signatures (Monero) and zero-knowledge proofs (Zcash) to obfuscate transaction details like sender, receiver, and amount. This prevents the transactions from being traced back to a specific user or entity.
The key innovation of Monero is its use of ring signatures, which work by mixing the spender’s output with a group of others, making it difficult to determine the actual origin of the transaction. Zcash leverages zero-knowledge proofs called zk-SNARKs, which allow transactions to be verified without revealing any information about the parties or amounts involved.
Both Monero and Zcash have gained popularity among users who desire full anonymity and confidentiality with their transactions, including those engaged in illegal activities. However, advocates argue that privacy coins also serve legitimate purposes, like protecting sensitive financial or personal data.
As regulatory scrutiny on cryptocurrencies increases globally, the future of privacy coins remains uncertain. Some exchanges have already delisted privacy coins due to compliance risks. However, developers continue to actively maintain and upgrade these projects to stay ahead of blockchain analysis techniques.
Conclusion
The altcoin market has exploded with innovation and new projects in recent years. While Bitcoin and Ethereum dominate the crypto landscape, many promising altcoins have emerged that aim to improve upon their technology or carve out unique niches.
Some of the most interesting altcoins highlighted in this piece include memecoins like Dogecoin and Shiba Inu that have cultivated enthusiastic online communities. Metaverse-focused coins like Decentraland seek to create virtual worlds on the blockchain. Interoperability protocols like Polkadot enable cross-chain transactions between blockchains. Oracle networks like Chainlink facilitate real-world data integration. And decentralized finance (DeFi) platforms like Uniswap provide automated financial services without intermediaries.
Privacy-focused coins like Monero offer anonymous transactions, while proof-of-stake networks like Cardano provide a more energy-efficient alternative to Bitcoin’s proof-of-work. This diverse mix of novel projects demonstrates the creativity and experimentation taking place in the altcoin ecosystem.
Looking ahead, the outlook for altcoins appears strong. As blockchain technology matures and adoption increases, we can expect select altcoins to gain traction and carve out roles for themselves. However, the market will likely remain volatile with hype cycles and periodic crashes. Investors should therefore research projects thoroughly and invest judiciously in fundamentally strong altcoins with real-world utility. Overall, the innovation in altcoins represents an exciting new frontier in finance and technology.
