When you first get into the cryptocurrency world, there are a lot of terms, definitions, theories and everything thrown at you. It can be quite confusing for a complete newbie. You will probably also come across the word altcoins. What is an altcoin? This is exactly what this article will be about.

Bitcoin, Ethereum and Altcoins

In the beginning was light. Bitcoin was at the beginning of cryptocurrency. His idea, ideology and open source gradually spread to other enthusiasts. Many new projects began to emerge gradually. In the increasing number of coins, a division was created, which looks roughly as follows.

Bitcoin and Ethereum are among the largest, most well-known, and most basic cryptocurrencies. All other cryptocurrencies can be considered altcoins.

In a certain way, you could say that altcoins are all cryptocurrencies that were not the first in their principle of operation. All other cryptocurrencies are based on these two “ancestors” and largely copy them. For Bitcoin, you can find direct competitors such as Bitcoin Cash. In the Ethereum world, for example, Ethereum Classic.

Even altcoins themselves can be divided into several categories.

Altcoins and tokens with a certain standard

Let’s quickly look at one more thing – tokens. If you are interested in cryptocurrencies for a long time, you will most likely come across tokens and names like ERC-20 or BEP-20.

Cryptocurrencies are a very open field and most projects are open-source. In other words – anyone can look at the code and start their own blockchain with a new coin. Such a blockchain is completely independent and needs its own network for all of this. Likewise, every application needs modification to be able to store and use this new cryptocurrency/altcoin. For that reason, so-called tokens with a certain standard were created.

These are coins that come out and work directly on some cryptocurrency. Basically, they get some benefits with it that they can build on. One of them is precisely the simplified compatibility wherever the underlying cryptocurrency is already incorporated.

ERC-20 tokens work on the Ethereum blockchain , BEP-20, on the other hand, on the BNB Smart Chain. But new technologies are still being created and the group is gradually growing.

Just to set some rules – in the next breakdown we won’t differentiate between altcoins and tokens. 

Altcoins/tokens division and their purpose

Altcoins, and in general you could probably say cryptocurrencies as a whole, are divided into several groups according to their purpose. We will quickly describe them now.

Payment systems

Under payment systems, you can think of cryptocurrencies that try to create functional money. This is the very basic idea of ​​cryptocurrencies. Bitcoin, Litecoin, etc. could be included here.

Stablecoins

A stablecoin is a cryptocurrency or token that tries to maintain a constant price. They achieve this by making it possible to exchange each unit of stablecoin for one unit of the underlying currency. You can think of them as credits that you buy in some service. You pay USD 10 and receive a voucher worth USD 10, which you can use in any way you like.

Stablecoins are mainly used in trading and commerce. Their transfer between services is much faster and there are no major restrictions on them.

There are several stablecoins today, but only a few of them are actually used. Today, the most traded stablecoin is Tether, USD Coin and the native stablecoin of the Binance exchange Binance USD.

Tokens with a different underlying asset

Stablecoins are the first and simplest form of altcoins with an underlying asset. Altcoins, the price of which is linked to some other asset , can be another extension . Here we can find tokens whose price depends on specific shares, as well as commodity tokens, etc.

Today, most of these tokens are mainly used for trading and hedging positions.

Utility tokens

Utility tokens are always associated with some purpose or work that the network needs. They can be used to purchase and unlock individual features. You will find this system especially with cryptocurrency exchanges and payment cards. For example, the CRO token, a native coin for the Crypto.com service, unlocks a better level of payment cards, which come with higher cashback, etc.

Meme coins

Projects that arose as a pure recession are referred to as meme coins. They mostly have an absolutely appallingly designed system. Originally, they really only served as a joke, but in some cases they grew to gigantic proportions.

You are probably familiar with dog cryptocurrencies such as Dogecoin or Shiba Inu. We are not disputing that people buy them and you can make a lot of money from them. But nothing more is worth expecting. 

Governance tokens

Some projects address the rights of participants through the distribution of tokens. Investing in these tokens gives the holder the power to make decisions about the network. Governance tokens mainly affect the world of decentralized applications and decentralized organizations that need some kind of “power management” system.

Compound is a cryptocurrency lending protocol. An active user has the opportunity to acquire COMP tokens, which then give his voice weight in decisions about the functioning of the entire protocol.

NFT tokens

NFT tokens are a slightly special category that ideally requires an entire article. In speed, these are tokens that give the user ownership of a certain virtual object. Today it’s all about graphics. But imagine a 3D virtual space as a metaverse, in which NFTs will be used to purchase virtual real estate, advertising space, etc. 

Conclusion

We explained the difference between crypto-currencies, altcoins, and also touched on the issue of various tokens. We hope that the topic is now clearer for you. 

Although at first it may seem that the cryptocurrency world is the same and everything is just a coin with a different name, in reality the whole project and its purpose can be diametrically different. You have to take this fact into account especially when you want to invest in one of the altcoins.