Altcoin Types and Real-World Use Cases

Discover the different types of altcoins and their real-world use cases.

An altcoin is a combination of two words, ALTernative and COIN. These two words, when combined and shortened, form the term altcoin, which is an umbrella term for all cryptocurrencies other than Bitcoin.

Some people argue that altcoins are all cryptocurrencies other than Bitcoin and Ethereum (ETH) because the majority of cryptocurrencies fork from one of the two.

Although some altcoins share similarities with their parent coin- ETH or BTC, many distinguish themselves from the original cryptocurrency either through an alternative consensus mechanism to validate transactions and open new blocks, a unique use case, an additional capability, or all three.

Types of Altcoins and Their Use Cases

Developers create and release each altcoin with a specific goal or purpose in mind for the coin or token. Usually, to solve a problem or to rally an investor community. Aside from meme coins, most altcoins are created to have wider applications.

We can roughly divide altcoins into six categories based on their various use cases:

• Stablecoins
• Utility tokens
• Governance tokens
• Security tokens
• Play-to-earn tokens
• Meme tokens
• Metaverse coins (Bonus)

Stablecoins

Stablecoins attempt to offer relative price stability to the volatile crypto market by pegging their value to reserves such as fiat currencies, precious metals, or other cryptocurrencies. Other stablecoins use algorithms to adjust their prices in real-time to account for supply and demand, thus remaining stable in value.

Stablecoins, as you might expect, do not generate profits. Their wide range of applications is due to their ability to remain stable with only minor fluctuations even in the harshest market conditions.

Stablecoins offer a simple and secure method of storing funds on a blockchain, as well as a convenient global payment method. But perhaps their most common application is in decentralized finance (DeFi).

Stablecoins allow users in DeFi protocols to lend funds to others and earn interest in return in a trustless process that doesn’t require an intermediary such as a bank. Examples of stablecoins include fiat-backed Tether (USDT) and USD Coin (USDC).

Utility Tokens

These altcoins are used to deliver services within a network. They might be used, for instance, to pay for access to a service, cover network fees, or acquire rewards in a network. Ether (ETH) which is designed to be used on the Ethereum blockchain is an example of a utility token.

Other examples of utility tokens include:

XRP: seeks to replace SWIFT as a leading money transfer network with a quicker and more affordable global payment system.

Theta: aims to use a peer-to-peer network to provide high-quality video streaming services around the world by rewarding users with tokens for sharing their internet bandwidth and relaying video to other users on the Blockchain on a peer-to-peer (P2P) basis.

Monero: a market leader in terms of anonymity and fungibility with its privacy-enhancing technologies.

Governance Tokens

Governance tokens provide investors with a say in a project. They grant holders voting rights in a protocol or a say in a Decentralized Autonomous Organization’s decisions (DAO).

Decisions in DAOs aren’t made by a single entity, instead, the community votes, with each member’s voice being weighed per the amount of their investment

MakerDAO’s Maker (MKR) is an example of a governance token, that allows investors to vote on various DeFi protocols on the MakerDAO platform. Maker (MKR) holders vote on issues such as team member appointments, fee adjustments, and new rules to ensure a stable and efficient stablecoin, DAI.

Security Tokens

Security tokens are digital contracts that, like stocks in traditional finance, represent a share in the company that issues them. Security tokens offer equity, which means a portion of a company’s ownership as well as a dividend payout to investors.

Security tokens provide an easier way for stock investors to invest in cryptocurrency since they share many similarities with what the investors already know and understand.

An example of a security token is tZero (t0). tZero (t0) is a blockchain-based asset exchange that aims to solve the issue of ICO regulatory compliance by allowing businesses to securely create and issue tokenized assets for investors. tZero aims to create an alternative to the existing stock market through the integration of blockchain technology.

Play-To-Earn Tokens

These types of altcoins exist within a game’s network. Users play the game and earn rewards in crypto. These coins can then be redeemed for in-game purchases such as gaming skins or be used to trade in the larger cryptocurrency market.

Axie Infinity’s AXS is an example of a P2E gaming token. AXS also serves as a Governance token in the Axie Infinity game and is available to trade on Binance, BKEX, and MEXC Global

Meme Coins

Meme coins are usually inspired by a joke or a humorous take on other well-known cryptocurrencies. Prominent influential figures looking to capitalize on short-term gains create hype around these altcoins causing them to gain popularity in a short period.

An example of a meme coin is Dogecoin (DOGE), which was invented in 2013 as a joke poking fun at Bitcoin and the numerous other cryptocurrencies boasting currency revolution at the time.

Metaverse Coins

Although the technology is still in its early stages, the metaverse is quickly gaining the attention of tech and cryptocurrency investors. As a result, metaverse coins represent an untapped future opportunity.

The rapidly developing Metaverse digital economy allows for the creation, acquisition, and sale of virtual goods. Additionally, in the more idealistic depictions of the metaverse, it is interoperable, enabling you to transfer virtual goods like clothing from one platform to another.

This digital economy will require a digital currency to support it, and more altcoins will be created to fill that role. An example of a metaverse coin today is MANA, Decentraland’s native token. MANA allows users to buy and develop virtual land in Decentraland.

Closing Thoughts

Today’s markets are flooded with a plethora of altcoins, each claiming to serve a specific purpose and market. The bear market is predicted to filter out the majority of these, leaving only those with a strong utility, use cases, and reliable blockchain purpose, which will dominate the markets moving forward.

Key Takeaways

• Altcoins is an umbrella term for all other cryptocurrencies other than Bitcoin
• Most altcoins are either forked from ETH or BTC and usually distinguish themselves through alternative consensus mechanisms, unique use cases, and additional capabilities
• As the metaverse economy continues to grow, metaverse coins stand as an untapped future opportunity

Related articles

What is Ethereum?
Intricacies of the Bitcoin Blockchain
Intricacies of the Ethereum Blockchain

Author:
Ken Melendez
✍️ Head of Content @ Cindicator
📊 Certified Bitcoin Professional
🔐 Blockchain Chamber - Chapter President

Who is Cindicator?

Cindicator is a world-wide team of individuals with expertise in math, data science, quant trading, and finances, working together with one collective mind. Founded in 2015, Cindicator builds predictive analytics by merging collective intelligence and machine learning models. Stoic AI is the company’s flagship product that offers automated trading strategies for cryptocurrency investors. Join us on Telegram or Twitter to stay in touch.

Disclaimer

Information in the article does not, nor does it purport to, constitute any form of professional investment advice, recommendation, or independent analysis.