There’s a crypto frenzy going on. Everybody is either investing or thinking of investing in cryptocurrencies as sought-out people and companies like Elon Musk, Microsoft, Amazon, AT&T, and more have become their proponents.
But is it a good investment option? Even if it is, it’s a herculean task to pick the right cryptocurrency to invest in which is what we are going to simplify in our article.
We are going to explore all about Altcoins (alternate cryptocurrencies) and if they are a better investment option in comparison to Bitcoin.
What are Altcoins?
Altcoins are all the alternative cryptocurrencies to bitcoin. They function similarly meaning they are decentralized and not regulated by any government.
Altcoins are bunched together in a category because they tend to be less popular investment options in comparison to Bitcoin. Despite the similarity in concept, Altcoin differs from Bitcoin in functioning.
For example, some altcoins use different consensus mechanisms to validate transactions or provide capabilities such as low price volatility.
Cryptocurrencies are designed to be unregulated and decentralized. However, with growing popularity, their core values have been questioned. For an instance, if a person or an organization has the resources to hoard cryptocurrency, they can easily sway the markets at their whims and fancy without government interference, which is why cryptocurrencies that have modeled themselves after bitcoin are also in some cases known as “shitcoins”.
So, why do these Altcoins exist? Are they of any value to investors or the cryptocurrency market?
The Purpose of Altcoins
Almost 9000 cryptocurrencies exist as of March 2021, which account for 40% of the entire cryptocurrency market. Altcoins as is self-explanatory from the name, seek to provide an alternative to bitcoins.
Since bitcoin was the first cryptocurrency (and trendsetter), its design and functioning influenced the development of all other cryptocurrencies. But being the first, its mechanism has certain shortcomings.
For example, Proof-of-Work (PoW), the consensus mechanism used to create blocks and validate transactions, is energy-intensive and time-consuming. Bitcoins are also limited in nature which makes them more volatile to market swings.
Altcoins seek to overcome those shortcomings so that they can establish a competitive advantage.
For example, several altcoins use the Proof-of-stake consensus system to validate transactions, as the system consumes lesser energy. Some of the altcoins display less volatility than bitcoins making them a more attractive investment option.
Now that we’ve discussed the purpose of altcoins and established that they might add a positive value to your investment portfolio, let’s see which altcoins you should add to your portfolio.
Top Five Altcoins that You Should Consider Investing In
Just like how 5Ps in marketing can make your product thrive in the market, following these 5 Altcoins can bring serious growth to your crypto portfolio.
Ethereum is a decentralized platform of financial products that are accessible to anyone in the world. Ethereum network users can create, publish, monetize, and use applications on the platform by using Ether as payment.
It enables smart contracts and decentralized applications to run on its platform-specific cryptographic token called Ether. Ethereum is currently functioning on the Proof-of-Work consensus algorithm but seeks to change that to Proof-of-Stake in 2021. This will allow it to function faster with lesser energy.
Created by Charlie Lee (former Google employee) in 2011, Litecoin was one of the first cryptocurrencies to establish itself after bitcoin. Litecoin functions on an open-source global payment network that is not governed by any government and uses “scrypt” as proof of work. Although Litecoin is like Bitcoin in many ways, it has a faster block generation rate and hence offers a faster transaction confirmation time.
Polkadot is a unique cryptocurrency that seeks to allow the interoperability of various networks. Apart from creating decentralized applications and financial products, consumers can also create parallel blockchains using Polkadot’s security. Polkadot was created by Gavin wood, who was one of the core developers of Ethereum but left due to the difference in opinions.
Bitcoin Cash (BCH)
Bitcoin Cash forked from Bitcoin in August 2017. BCH split from bitcoin due to the issue of scalability. While Bitcoin limits the size of blocks that save transactions to 1 megabyte, BCH increased it to 8 megabytes claiming that the transactions become faster in increasing the block size. The rest of its functioning remains similar to bitcoin barring a few differences.
Binance Coin (BNB)
It is a utility cryptocurrency that functions as a payment method for transactions that occur on the Binance exchange. The Binance exchange was founded by Changpeng Zhao and is one of the most widely used exchanges in the world based on trading volumes. Those who use cryptocurrency as a means of payment for the transaction can trade at a discount.
Binance Coin’s blockchain is also the platform that Binance’s decentralized exchange operates on.
Note: Even though our writers are well-versed with this market and this topic, it is advisable to always conduct a self-analysis of the investment options before investing.
Now that we’ve discussed the meaning and purpose of altcoins and deliberated upon the different options available in the market, let’s understand the key differences between altcoins and bitcoin to determine which is a better investment option.
Bitcoin vs. Altcoin
- Transaction fees: Bitcoin has the highest transaction fees amongst all cryptocurrencies clocking in around $36.96 per transaction. In comparison, XRP, which has the fourth-largest market capitalization in crypto charges a fraction of the amount at $0.0041.
- Popularity: Since cryptocurrencies are not backed by economies, their valuation is dependent on how popular they are. In 2014, the Internet retailer Overstock.com became one of the first big online sellers to accept direct bitcoin payments. Tesla (which had invested significantly in Bitcoin) also announced that they would accept bitcoin as a form of payment, but in May 2021, they denounced it in the same breath citing environmental issues.
- Security: Bitcoin is widely considered the pioneer of cryptocurrencies and has the largest market capitalization. While some of the altcoins boast of being better versions of bitcoin, the security that bitcoin offers is so far unmatched by any alternative currency.
- Functioning: Many altcoins consume less energy in crypto mining and provide a more efficient system to carry out transactions. While bitcoin uses a Proof-of-work consensus system, several alternatives use the Proof-of-stake system for faster transactions that are more beneficial to both the merchant and the buyer.
Which is the Best Investment Option?
The choice between investing in bitcoin or altcoin depends on your expectations from the investment.
A lot of factors influence the cryptocurrency market. If you’re inclined towards buying popular options, bitcoin may seem like a favorable investment as it’s widely accepted as payment.
On the other hand, if you don’t have the resources to shell out for high transaction fees and believe that Ether is a faster and more efficient cryptocurrency, you may choose to invest in it.
There are ways to earn interest on Bitcoin. You can try those too to build compounding earnings for your Bitcoin holding.
Ultimately, the choice between altcoin and bitcoin is not that different, since the core functioning of both is the same. The decision, however, rests on the different returns and facilities that each of them can provide.
Virginia Andrus is an independent Digital Marketing Consultant with 6+ years of marketing experience. Virginia is a chef by heart. In her free time, she is either writing marketing copies for brands and agencies or experimenting with new recipes at her home. Connect with her on Twitter: @andrus_virginia.