Learn all about altcoins, memecoins, dominance, and the lovable Shiba Inu!
What is an altcoin? Is it different from Bitcoin and Ethereum? And what are these meme coins that keep popping up on my Twitter? These are all very fair questions, as the crypto world is littered with confusing jargon that gets thrown around everyday! Let's start by going over the history of altcoins.
An altcoin literally means "alternative coin," and is the word used to reference every cryptocurrency other than Bitcoin - the progenitor of all crypto. The very first altcoin was Namecoin, which was originally created to insert data into Bitcoin's blockchain directly. However, the developers quickly discovered a scaling problem with this, and decided to adopt a shared proof-of-work mechanism to create other uses for new cryptocurrencies.
Namecoin's flagship use case is the top-level domain .bit, which is censorship-resistant and independent of ICANN - the Internet Corporation for Assigned Names and Numbers that governs all website domains. Despite the enthusiasm and potential uses for such a domain - the project faded away into obscurity. Nonetheless, Namecoin had paved the way for future altcoins to follow.
How many altcoins are there?
Currently, there are over 12,000 altcoins in circulation - representing a whopping 1.1 trillion dollars of the total cryptocurrency market! Here are some of the biggest use cases that they were developed for:
- Stablecoins, as discussed in our previous article - were designed to hold their value in the face of volatility, facilitate transactions on and off-exchange, and act as a secondary storage unit for money outside of traditional banks.
- Decentralized finance (DeFi) altcoins were created to promote the growth of financial systems that are removed from the need for third-party intervention. These systems improve transaction speed, reduce fees, and protect their users' privacy.
- Play-to-earn altcoins are in-game currencies that can be exchanged for real-world money. These altcoins have created entirely new economies in emerging countries where it is difficult to earn livable wages, and are also closely connected to the metaverse - which we'll talk more about later.
- Exchange-based tokens are altcoins that were developed by an exchange to appreciate in value (so long as the exchange remained credible) while being used as an incentive that could be traded for certain discounts or services.
- NFTs stand for "non-fungible tokens," and have unique digital signatures that can only be tied to one owner at a time. In contrast, a fungible token can be copied at any time to replace other fungible tokens. NFTs are commonly used to recognize the ownership of digital art, and even real-world pieces.
- Governance altcoins grant voting power to their holders. This voting power is used to manage and decide on future developments in a blockchain.
- Privacy altcoins were developed to completely protect the identities (addresses) and transaction amounts sent between exchanging parties.
- IoT altcoins are a little more difficult to explain, as the IoT use cases are huge - but basically they facilitate the flexibility, speed, and efficiency of things and processes that use the internet by involving distributed ledger technology.
What is Bitcoin/altcoin dominance?
Bitcoin is the largest cryptocurrency by far, with a market capitalization of over 800 billion currently. In comparison, the next largest cryptocurrency is Ethereum - which is just shy of 360B today. This means we can assume that Bitcoin always has dominance relative to any one cryptocurrency.
However, Bitcoin dominance is a term used to describe the ratio of the Bitcoin market cap versus the combined altcoin market caps, and is expressed as a percentage. For example, let us say that Bitcoin has a market cap of 800B - while the combined altcoin market cap is 600B. This is an 8:6 ratio, out of a total of 14. Divide 8 by 14, and you get: .57, or 57% dominance!
Conversely, altcoin dominance - also known as alt season - happens when Bitcoin's dominance declines, and more non-crypto money is poured into altcoins at a faster rate than Bitcoin. This is marked by 75% of the top 50 altcoins outperforming the growth rate of Bitcoin relative to the dollar.
Alt season is a great time to begin taking profits on your altcoins, and storing that value in stablecoins. You should wait and see how the market performs before re-investing your profits further. We'll talk more about market cycles and how crypto responds to external events in another article!
Why should I consider investing in altcoins?
Altcoins are a worthwhile investment because they possess much greater real-world utility compared to Bitcoin, and can easily reach 10-100x their original value in a matter of years or even months. Historically, the greatest altcoin projects have suffered plenty of short-term volatility - but averaged a lifetime gain in the hundreds to thousands of percentage points.
Besides, Bitcoin can be considered the "blue-chip" stock of the crypto world - and it's important to diversify your portfolio.
There's an old saying to "follow the money," and right now that money is being poured into the development of altcoins! Hundreds of billions of dollars have been raised by venture capital to build out entire ecosystems on Ethereum, Solana, Polygon, Avalanche, and more.
What is a memecoin?
A memecoin is intended to be an absolute joke of a coin, derived from popular internet memes. Sometimes they emerge from nothingness and gain credibility through the sheer numbers of investors that buy them out of amusement.
A great example of this is Dogecoin, which was largely considered to be the father of memecoins. At the time, a Shiba Inu meme was all the rage on the internet - and millions of fans from around the world began to adore the captioned dog. Two bored engineers named Billy Markus and Jackson Palmer decided to build Dogecoin on top of Litecoin, never imagining what it would spark. Thanks to Reddit subculture, Dogecoin exploded from .0000869 cents to .7315 cents per token between 2014 and 2021 - an astronomical 140285% return!
Another example is Shiba Inu, which was created in 2020 by an anonymous group known as "Ryoshi." Shiba was dubbed the "Doge-killer," and it certainly was - amassing a 46,000,000% return in just a year.
Ironically, both memecoins are now worth 16B and 13B by market cap respectively, making them some of the most valuable altcoins in the crypto market!
Whether you invest in altcoins or decide to take a long shot at memecoins, Finblox has you covered. Currently, we offer amazingly competitive returns on some of the most promising altcoins - including Polygon, Solana, Avalanche, Axie Infinity, and more. With no lock-ins, no minimums, and no limits on withdrawal periods - all you have to do is deposit your coins and let them appreciate safely in value under the custody and insurance of our partners, Fireblocks and Coincover.
Thanks for reading! Please subscribe if you haven't already - and stay tuned to learn about crypto pop culture and some of that lingo we talked about earlier!
This content is provided for informational purposes only, and should not be relied upon as legal, business, investment, or tax advice. You should consult your own advisers as to those matters. Charts, graphs and references to any digital assets are for informational and illustrative purposes only.