Altcoin Types and Real-World Use Cases

Cindicator Team -

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 purpose in mind. Each coin or token often has a unique function or solves a particular problem in the cryptocurrency ecosystem. Altcoins might aim to enhance transaction efficiency, build community-driven platforms, decentralize finance, or even represent assets. This structure allows developers to attract investor communities by offering distinct features or potential value. 

Unlike meme coins, which primarily gain popularity due to social media and community hype, most altcoins are designed with a broader, more functional application in mind.

To understand the range of altcoins available, we can divide them into six main categories based on their different types of use cases and applications:

1. Stablecoins. A significant type of altcoin that aim to reduce the common volatility seen in most cryptocurrencies. They’re usually pegged to stable assets like fiat currencies (e.g., the US Dollar) or commodities (e.g., gold) to maintain a consistent value. This stability makes them a preferred choice for transactions, saving, and as a tool for liquidity in trading platforms.

Examples of Stablecoins:

  • Tether (USDT): One of the most widely used stablecoins, pegged to the US Dollar.
  • USD Coin (USDC): Also pegged to the US Dollar, USDC is managed by regulated financial institutions and commonly used on major exchanges.
  • Dai (DAI): An algorithmic stablecoin pegged to the dollar, backed by a mix of cryptocurrencies to maintain its value.

2. Utility Tokens. A type of altcoin created to serve a specific function within a digital ecosystem, typically on blockchain-based platforms. Unlike cryptocurrencies intended for trading, utility tokens allow users to access products, services, or even exclusive features within an ecosystem.

Examples of Utility Tokens:

  • Ethereum (ETH): Known as the backbone of the Ethereum blockchain, ETH enables transactions, smart contracts, and dApps within the platform.
  • Chainlink (LINK): Used in the Chainlink network, LINK tokens incentivize data providers to share accurate data with blockchain systems, allowing secure oracle connections.

3. Governance Tokens. Represent a core component of decentralized finance (DeFi) projects, giving token holders voting power over protocol changes and upgrades. With governance tokens, the community can participate in the decision-making process, directly influencing the future direction and policies of the platform.

Examples of Governance Tokens:

  • Uniswap (UNI): The governance token for the Uniswap exchange, UNI holders vote on proposals affecting platform improvements and updates.
  • Compound (COMP): The COMP token allows users to propose and vote on changes to the Compound lending platform, giving them direct control over protocol policies.

4. Security tokens are digital representations of traditional assets such as stocks, bonds, or real estate. They are subject to regulatory frameworks and often provide token holders with rights similar to traditional investment assets, such as dividends, profit-sharing, or ownership stakes. Security tokens combine blockchain transparency with traditional investment properties.

Examples of Security Tokens:

  • tZERO: A platform offering regulated security tokens that represent real-world financial products.
  • RealT: Tokenizes real estate properties, allowing users to purchase fractional ownership of properties.

5. Play-to-Earn Tokens. A newer type of altcoin, play-to-earn tokens are specific to blockchain-based games. Players earn these tokens by participating in games, completing quests, or achieving specific milestones. These tokens often have value outside the game, allowing players to trade or sell them on exchanges.

Examples of Play-to-Earn Tokens:

  • Axie Infinity (AXS): Earned through gameplay, AXS tokens can be traded or used within the Axie Infinity ecosystem.
  • Decentraland (MANA): Used within the virtual world of Decentraland, where users can buy land, objects, and interact with the environment.

6. Meme tokens are primarily driven by online communities and social media trends. They often have little intrinsic value or utility but gain popularity through online hype. Despite their speculative nature, meme tokens have built large communities and have shown potential for massive short-term gains.

Examples of Meme Tokens:

  • Dogecoin (DOGE): Originally created as a joke, Dogecoin has developed a loyal community and widespread recognition.
  • Shiba Inu (SHIB): Another meme token with a large, active community, designed to compete with Dogecoin.

7. Metaverse Coins (Bonus). Metaverse coins are a type of altcoin associated with virtual reality environments where users can interact, socialize, and transact. These coins support metaverse economies, enabling users to purchase virtual land, clothing, and other assets. Metaverse coins power an immersive, interactive virtual economy.

Examples of Metaverse Coins:

  • Sandbox (SAND): Used in the Sandbox metaverse, allowing users to create, own, and monetize experiences.
  • Decentraland (MANA): Another metaverse coin, enabling transactions in the Decentraland virtual world.

Understanding the different types of altcoins helps newcomers and investors navigate the diverse cryptocurrency landscape. Each type of altcoin has a unique role, from providing stability to powering digital ecosystems and supporting new financial models. By exploring these types of altcoins, you can gain insights into the practical applications and potential of each coin category, empowering informed choices in this dynamic market.

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.

Why Do Different Types of Altcoins Matter?

Altcoins have created a vibrant ecosystem within the cryptocurrency market. Each type of altcoin serves a unique purpose, from enabling private transactions to allowing community-driven decision-making and supporting real-world use cases. As you explore cryptocurrencies, understanding these different types of altcoins can help you choose which aligns best with your interests and goals.

Whether you're looking for investment opportunities, functionality within a decentralized application, or secure ways to store digital assets, altcoins offer something for everyone. 

By recognizing the types of altcoins available, you can make informed decisions and fully appreciate the innovation that’s expanding the digital currency landscape.

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

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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.