What is an Altcoin?
The term 'Altcoin,' of course, is a portmanteau, combining the words 'alternative' and 'coin.' An altcoin, therefore, is any cryptocurrency that is alternative to the first — and to-this-day dominant — cryptocurrency, Bitcoin. At the time of writing in July 2021, CoinMarketCap lists more than 10,000 cryptocurrencies. By definition, all but one of these are altcoins.
Just like for any other asset class, in cryptocurrency investment, diversification is key. As we would like to show in this blog post, the rapidly growing list of altcoin provides individual and institutional investors alike with a wealth of portfolio-building opportunities.
Why so many cryptocurrencies?
To get to the bottom of this question, it helps first to have a certain understanding of blockchain, the technology on top of which all cryptocurrencies operate. In simple terms, a blockchain is an immutable, distributed public ledger of transactions. Often thought of as the internet's cryptographically-secured 'upper layer,' blockchains are developed by many kinds of organizations in order to fulfil a number of different use cases.
The blockchain concept was first proposed by Satoshi Nakamoto in 2009 and was intended to serve as the technical infrastructure for a new kind of internet-native money. The original goal for this electronic cash, which Nakamoto called Bitcoin, was to prove that it was possible to transfer value online in a way that eliminated fraud and that didn't depend on central authorities, like banks or payments processors (i.e. PayPal).
As we all know today, this idea has turned out to be revolutionary. Bitcoin has not only proven itself to be the most secure infrastructure for payments ever conceived, but it has also attracted a massive network of enthusiastic users who carry out around 350,000 transactions each day. Over time, Bitcoin has settled into its use case as a store of value, with a market cap gradually approaching the one-trillion-dollar mark.
The rise of the altcoins
Fairly early on, though, certain flaws in the Bitcoin network were noticed by the community. These issues namely related to scalability, transaction time, programmability, and energy use. The first altcoins arose as attempts to resolve these concerns.
First issued in 2011 as a source code fork of the Bitcoin core, Litecoin (LTC) was one of the first major altcoin projects. Litecoin's initial aim was to reduce transaction times and increase scalability by reducing block processing time from ten minutes down to two and a half. Ripple (XRP) is another early project, launched in 2012, that powers a payments network which reduces transaction times to a few seconds.
By the second half of the 2010s, the concept of fast, effective, and secure crypto payments had been proven. It was realized, then, that decentralized ledger technology could be used for so much more. The Ethereum network, with its native Ether token, was the first major attempt to use blockchain technology in order to decentralize… well… just about everything. This ultimately would facilitate the launch of an infrastructure for the development and deployment of decentralized applications (Dapps) and smart contracts.
Ether (ETH) was initially issued in 2015 as the first true utility token. A utility token is a cryptoasset whose value lies in its role on the network (i.e. its 'utility'). Ether's utility on the Ethereum network is to pay for transaction fees and Dapp usage. As of the current time, Ethereum has secured market dominance among crypto projects, and most new tokens today are issued using smart contracts hosted on the network. Going into the third decade of the 21st century, Ethereum may have one major issue that could be holding things back:
Today, one of the biggest concerns among crypto users and crypto critics alike is energy consumption. The proof of work protocols used by major cryptocurrencies, including BTC, LTC, and ETH mean that miners consume an enormous amount of electrical power when confirming transactions. As proof-of-work blockchain networks grow, the ecological harm they cause only increases.
While the Ethereum foundation has announced an eventual shift to the much more energy-efficient proof-of-stake protocol, several other projects are coming out ahead. Now, everyone has their eyes on such emerging PoS blockchains as Cardano, Polkadot, Solana, and Algorand, as well as on their native tokens, with ticker symbols ADA, DOT, SOL, and ALGO, respectively.
To get to the bottom of this question, it helps first to have a certain understanding of blockchain, the technology on top of which all cryptocurrencies operate. In simple terms, a blockchain is an immutable, distributed public ledger of transactions. Often thought of as the internet's cryptographically-secured 'upper layer,' blockchains are developed by many kinds of organizations in order to fulfil a number of different use cases.
The blockchain concept was first proposed by Satoshi Nakamoto in 2009 and was intended to serve as the technical infrastructure for a new kind of internet-native money. The original goal for this electronic cash, which Nakamoto called Bitcoin, was to prove that it was possible to transfer value online in a way that eliminated fraud and that didn't depend on central authorities, like banks or payments processors (i.e. PayPal).
As we all know today, this idea has turned out to be revolutionary. Bitcoin has not only proven itself to be the most secure infrastructure for payments ever conceived, but it has also attracted a massive network of enthusiastic users who carry out around 350,000 transactions each day. Over time, Bitcoin has settled into its use case as a store of value, with a market cap gradually approaching the one-trillion-dollar mark.
The rise of the altcoins
Fairly early on, though, certain flaws in the Bitcoin network were noticed by the community. These issues namely related to scalability, transaction time, programmability, and energy use. The first altcoins arose as attempts to resolve these concerns.
First issued in 2011 as a source code fork of the Bitcoin core, Litecoin (LTC) was one of the first major altcoin projects. Litecoin's initial aim was to reduce transaction times and increase scalability by reducing block processing time from ten minutes down to two and a half. Ripple (XRP) is another early project, launched in 2012, that powers a payments network which reduces transaction times to a few seconds.
By the second half of the 2010s, the concept of fast, effective, and secure crypto payments had been proven. It was realized, then, that decentralized ledger technology could be used for so much more. The Ethereum network, with its native Ether token, was the first major attempt to use blockchain technology in order to decentralize… well… just about everything. This ultimately would facilitate the launch of an infrastructure for the development and deployment of decentralized applications (Dapps) and smart contracts.
Ether (ETH) was initially issued in 2015 as the first true utility token. A utility token is a cryptoasset whose value lies in its role on the network (i.e. its 'utility'). Ether's utility on the Ethereum network is to pay for transaction fees and Dapp usage. As of the current time, Ethereum has secured market dominance among crypto projects, and most new tokens today are issued using smart contracts hosted on the network. Going into the third decade of the 21st century, Ethereum may have one major issue that could be holding things back:
Today, one of the biggest concerns among crypto users and crypto critics alike is energy consumption. The proof of work protocols used by major cryptocurrencies, including BTC, LTC, and ETH mean that miners consume an enormous amount of electrical power when confirming transactions. As proof-of-work blockchain networks grow, the ecological harm they cause only increases.
While the Ethereum foundation has announced an eventual shift to the much more energy-efficient proof-of-stake protocol, several other projects are coming out ahead. Now, everyone has their eyes on such emerging PoS blockchains as Cardano, Polkadot, Solana, and Algorand, as well as on their native tokens, with ticker symbols ADA, DOT, SOL, and ALGO, respectively.
Stablecoins
Another important story in the world of altcoins is the rise of stablecoins. A stablecoin is a cryptocurrency that holds a value at all times equal to that of some other asset. At the time of writing, stablecoins have been issued that maintain 1:1 price equivalency with fiat currencies, including the USD and EUR, with commodities like gold, and even with other digital assets.
Major cryptocurrencies, including BTC and ETH, have proven themselves over the last decade to serve as an effective long-term store of value. Over the short-term, though, compared to other transactional instruments, these top coins are far too volatile for everyday payments. Projects like Tether and MakerDAO have been the two “major players" aiming to solve this issue through the release of the USDT and DAI stablecoins, respectively.
Tether, a centralized organization that controls accounts at various financial institutions in order to back their token, has been able to bring USDT into the mainstream, with the top daily trading volumes of all cryptocurrencies according to CoinMarketCap. On the other hand, MakerDAO, a decentralized autonomous organization, has been able to prove that similar utility can be achieved entirely on-chain. The DAI stablecoin is a popular alternative to Tether and the MKR token, which fuels the ecosystem and enables governance of the DAO, is one of the crypto community's favorite investment assets.
Other popular stablecoins have come to the fore, as well. Many of these, including Binance's BUSD and Coinbase's USDC, are issued by popular exchanges. While every stablecoin does basically the same thing, each offers certain specific benefits, primarily in the form of native integration with various crypto-financial and decentralized finance (DeFi) platforms.
Privacy coins
Probably the biggest misconception about well-known cryptocurrencies is that their transactions are anonymous — this couldn't be further from the truth. Any transaction that occurs on a blockchain is entirely trackable, and most wallet addresses can be linked to a real-world identity through the exchanges or other crypto-financial service that they interact with.
However, certain cryptocurrency transactions may require a higher degree of anonymity on the part of one or both of the involved parties. For these scenarios, a number of projects have developed so-called 'privacy coins' that utilize a range of cryptographic techniques to mask the identities of users. Currently, the most frequently-used privacy coins are Monero (XMR) and Zcash (ZEC).
Altcoins of the Future and CBDCs
It would not be an exaggeration to say that a new cryptocurrency or token is issued each and every day. Some of these tokens are purely transactional instruments, while others may be utility tokens, issued to serve a purpose on a specific platform. They may even be security tokens, created as capital-gains generating investment instruments, sold in order to raise money for a company or project.
One of the most intriguing trends at the current time is the issuance of government-issued and backed digital currencies. While these digital assets, referred to in the short form as 'CBDCs,' are not cryptocurrencies in the classic sense of the term, they are created using blockchain technology and may turn out to be quite integrated with the greater crypto-financial system. This is certainly an area for prudent crypto users and investors to watch.
Another important story in the world of altcoins is the rise of stablecoins. A stablecoin is a cryptocurrency that holds a value at all times equal to that of some other asset. At the time of writing, stablecoins have been issued that maintain 1:1 price equivalency with fiat currencies, including the USD and EUR, with commodities like gold, and even with other digital assets.
Major cryptocurrencies, including BTC and ETH, have proven themselves over the last decade to serve as an effective long-term store of value. Over the short-term, though, compared to other transactional instruments, these top coins are far too volatile for everyday payments. Projects like Tether and MakerDAO have been the two “major players" aiming to solve this issue through the release of the USDT and DAI stablecoins, respectively.
Tether, a centralized organization that controls accounts at various financial institutions in order to back their token, has been able to bring USDT into the mainstream, with the top daily trading volumes of all cryptocurrencies according to CoinMarketCap. On the other hand, MakerDAO, a decentralized autonomous organization, has been able to prove that similar utility can be achieved entirely on-chain. The DAI stablecoin is a popular alternative to Tether and the MKR token, which fuels the ecosystem and enables governance of the DAO, is one of the crypto community's favorite investment assets.
Other popular stablecoins have come to the fore, as well. Many of these, including Binance's BUSD and Coinbase's USDC, are issued by popular exchanges. While every stablecoin does basically the same thing, each offers certain specific benefits, primarily in the form of native integration with various crypto-financial and decentralized finance (DeFi) platforms.
Privacy coins
Probably the biggest misconception about well-known cryptocurrencies is that their transactions are anonymous — this couldn't be further from the truth. Any transaction that occurs on a blockchain is entirely trackable, and most wallet addresses can be linked to a real-world identity through the exchanges or other crypto-financial service that they interact with.
However, certain cryptocurrency transactions may require a higher degree of anonymity on the part of one or both of the involved parties. For these scenarios, a number of projects have developed so-called 'privacy coins' that utilize a range of cryptographic techniques to mask the identities of users. Currently, the most frequently-used privacy coins are Monero (XMR) and Zcash (ZEC).
Altcoins of the Future and CBDCs
It would not be an exaggeration to say that a new cryptocurrency or token is issued each and every day. Some of these tokens are purely transactional instruments, while others may be utility tokens, issued to serve a purpose on a specific platform. They may even be security tokens, created as capital-gains generating investment instruments, sold in order to raise money for a company or project.
One of the most intriguing trends at the current time is the issuance of government-issued and backed digital currencies. While these digital assets, referred to in the short form as 'CBDCs,' are not cryptocurrencies in the classic sense of the term, they are created using blockchain technology and may turn out to be quite integrated with the greater crypto-financial system. This is certainly an area for prudent crypto users and investors to watch.
Why to diversify your crypto portfolio
Just like in any revolutionary movement, members of the crypto community like to divide themselves into camps. There are the Bitcoiners, who believe that everything can be made possible within the Bitcoin ecosystem, then there are those who believe the same for Ethereum — or for some other blockchain. The truth is, though, that the 'crypto revolution' will involve the participation of a wide variety of networks and technologies. There is room for innovation everywhere, and it's hard to predict today from where it will come. The intelligent crypto investor, therefore, diversifies.
Fortunately, the diversification opportunities today are almost limitless. The top 20 cryptocurrencies by market cap include assets that have been issued by decentralized organizations, as well as by private and publicly-listed companies, that are making use of a host of groundbreaking technologies. Many of these projects have already been able to obtain large adoption in many of the world's major economies, and others are doing exciting things in the developing world that are set to improve lives and transform society everywhere.
Furthermore, much like in other capital markets, there are plenty of opportunities in terms of small- and medium-cap tokens. What's more, it might be worthwhile for more sophisticated investors to consider getting involved in Initial Coin Offerings (ICOs), Initial Exchange Offerings (IEOs), or Initial DEX Offerings (IDOs), the crypto equivalents of IPOs.
Navigating the top 20 tokens by market cap
If you are new to crypto portfolio diversification, probably a good place to start would be on the CoinMarketCap website. We recommend to look through the top twenty or so tokens by market cap. You can then review any communications released by the organizations that issue these tokens, such as white papers and technical documentation, review the tokenomics, and, of course, consult with your own financial advisors.
Among these top 20 cryptocurrencies, there are plenty of diversification opportunities. We will provide just a brief roadmap of these coins and tokens, as listed in July 2021. For the purposes of your portfolio diversification, we will rate the native cryptocurrencies and tokens as large- (>$20b) or medium-cap (<$20b). We will also briefly describe what the coin or token does (the 'utility') and their advantages.
Native Cryptocurrencies
Ethereum (ETH)
Large cap
Utility: Transaction and Dapp usage fees.
Advantages: Large network, highest level of adoption, EIP-1159 and ETH 2.0 (with staking) coming.
Binance Coin (BNB)
Large cap
Utility: Trade cryptocurrencies and pay fees on the Binance exchange.
Advantages: Facilitates the lowest exchange fees in the world
Cardano (ADA)
Large cap
Utility: Transaction and Dapp usage fees, staking.
Advantages: Decentralization of the Cardano foundation, government partnerships and network adoption in the developing world.
Ripple (XRP)
Large cap
Utility: Instantaneous cross-border payments involving multiple currencies.
Advantages: Focus on a user base of financial institutions. Highly scalable network.
Dogecoin (DOGE)
Large cap
Utility: Very currency much coin how money ("memecoin").
Advantages: None. Elon Musk likes it though.
Polkadot (DOT)
Medium cap
Utility: Transaction and Dapp usage fees, staking.
Advantages: Parachain architecture massively increases scalability.
Bitcoin Cash
Medium cap
Utility: Secure permissionless transactions
Advantages: Larger blocks than Bitcoin, enabling lower fees and faster transaction processing
Litecoin (LTC)
Medium cap
Utility: Secure permissionless transactions
Advantages: Fast transaction processing times
Solana (SOL)
Medium cap
Utility: Transaction fees and Dapp usage fees.
Advantages: "Proof of history" protocol as an improvement on PoS makes Solana possibly the fastest blockchain.
Stellar (XLM)
Medium cap
Utility: Instantaneous cross-border payments involving multiple currencies.
Advantages: Focus on financial inclusion in developing countries.
Ethereum Classic (ETC)
Medium cap
Utility: Transaction and Dapp usage fees.
Advantages: Continuation of the unaltered of the original Ethereum blockchain.
Filecoin
Medium cap
Utility: Incentivizes participants in decentralized file storage system.
Advantages: Largest decentralized network for file storage.
Tokens
Uniswap (UNI)
Medium cap
Utility: Gives token holders governance rights as well as a share in all transaction fees paid on the Uniswap platform.
Chainlink (LINK)
Medium cap
Utility: Staked by and rewarded to node operators.
Polygon (MATIC)
Medium cap
Utility: Transaction fees and staking.
Stablecoins
Tether (USDT)
Advantages: Largest network, most exchange integrations.
USD Coin (USDC)
Advantages: Native Coinbase integration, runs on the Ethereum, Stellar, Algorand, Hedera Hashgraphy, and Solana blockchains.
Binance USD (BUSD)
Advantages: Native Binance integration.
Wrapped Bitcoin (WBTC)
Advantages: Maintains the same value as Bitcoin while enjoying integration with ERC-20 infrastructure and the greater Ethereum ecosystem.
Dai (DAI)
Advantages: Decentralized and trustless stablecoin option.
Just like in any revolutionary movement, members of the crypto community like to divide themselves into camps. There are the Bitcoiners, who believe that everything can be made possible within the Bitcoin ecosystem, then there are those who believe the same for Ethereum — or for some other blockchain. The truth is, though, that the 'crypto revolution' will involve the participation of a wide variety of networks and technologies. There is room for innovation everywhere, and it's hard to predict today from where it will come. The intelligent crypto investor, therefore, diversifies.
Fortunately, the diversification opportunities today are almost limitless. The top 20 cryptocurrencies by market cap include assets that have been issued by decentralized organizations, as well as by private and publicly-listed companies, that are making use of a host of groundbreaking technologies. Many of these projects have already been able to obtain large adoption in many of the world's major economies, and others are doing exciting things in the developing world that are set to improve lives and transform society everywhere.
Furthermore, much like in other capital markets, there are plenty of opportunities in terms of small- and medium-cap tokens. What's more, it might be worthwhile for more sophisticated investors to consider getting involved in Initial Coin Offerings (ICOs), Initial Exchange Offerings (IEOs), or Initial DEX Offerings (IDOs), the crypto equivalents of IPOs.
Navigating the top 20 tokens by market cap
If you are new to crypto portfolio diversification, probably a good place to start would be on the CoinMarketCap website. We recommend to look through the top twenty or so tokens by market cap. You can then review any communications released by the organizations that issue these tokens, such as white papers and technical documentation, review the tokenomics, and, of course, consult with your own financial advisors.
Among these top 20 cryptocurrencies, there are plenty of diversification opportunities. We will provide just a brief roadmap of these coins and tokens, as listed in July 2021. For the purposes of your portfolio diversification, we will rate the native cryptocurrencies and tokens as large- (>$20b) or medium-cap (<$20b). We will also briefly describe what the coin or token does (the 'utility') and their advantages.
Native Cryptocurrencies
Ethereum (ETH)
Large cap
Utility: Transaction and Dapp usage fees.
Advantages: Large network, highest level of adoption, EIP-1159 and ETH 2.0 (with staking) coming.
Binance Coin (BNB)
Large cap
Utility: Trade cryptocurrencies and pay fees on the Binance exchange.
Advantages: Facilitates the lowest exchange fees in the world
Cardano (ADA)
Large cap
Utility: Transaction and Dapp usage fees, staking.
Advantages: Decentralization of the Cardano foundation, government partnerships and network adoption in the developing world.
Ripple (XRP)
Large cap
Utility: Instantaneous cross-border payments involving multiple currencies.
Advantages: Focus on a user base of financial institutions. Highly scalable network.
Dogecoin (DOGE)
Large cap
Utility: Very currency much coin how money ("memecoin").
Advantages: None. Elon Musk likes it though.
Polkadot (DOT)
Medium cap
Utility: Transaction and Dapp usage fees, staking.
Advantages: Parachain architecture massively increases scalability.
Bitcoin Cash
Medium cap
Utility: Secure permissionless transactions
Advantages: Larger blocks than Bitcoin, enabling lower fees and faster transaction processing
Litecoin (LTC)
Medium cap
Utility: Secure permissionless transactions
Advantages: Fast transaction processing times
Solana (SOL)
Medium cap
Utility: Transaction fees and Dapp usage fees.
Advantages: "Proof of history" protocol as an improvement on PoS makes Solana possibly the fastest blockchain.
Stellar (XLM)
Medium cap
Utility: Instantaneous cross-border payments involving multiple currencies.
Advantages: Focus on financial inclusion in developing countries.
Ethereum Classic (ETC)
Medium cap
Utility: Transaction and Dapp usage fees.
Advantages: Continuation of the unaltered of the original Ethereum blockchain.
Filecoin
Medium cap
Utility: Incentivizes participants in decentralized file storage system.
Advantages: Largest decentralized network for file storage.
Tokens
Uniswap (UNI)
Medium cap
Utility: Gives token holders governance rights as well as a share in all transaction fees paid on the Uniswap platform.
Chainlink (LINK)
Medium cap
Utility: Staked by and rewarded to node operators.
Polygon (MATIC)
Medium cap
Utility: Transaction fees and staking.
Stablecoins
Tether (USDT)
Advantages: Largest network, most exchange integrations.
USD Coin (USDC)
Advantages: Native Coinbase integration, runs on the Ethereum, Stellar, Algorand, Hedera Hashgraphy, and Solana blockchains.
Binance USD (BUSD)
Advantages: Native Binance integration.
Wrapped Bitcoin (WBTC)
Advantages: Maintains the same value as Bitcoin while enjoying integration with ERC-20 infrastructure and the greater Ethereum ecosystem.
Dai (DAI)
Advantages: Decentralized and trustless stablecoin option.
Get the guidance you need
Our team of crypto-financial experts has long been well-immersed in all the intricacies of cryptocurrencies, altcoins, and the plethora of tokens being issued almost every day. We stand at the ready to help show you the way. Contact us to learn more.
Our team of crypto-financial experts has long been well-immersed in all the intricacies of cryptocurrencies, altcoins, and the plethora of tokens being issued almost every day. We stand at the ready to help show you the way. Contact us to learn more.