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Bitcoin Alternatives: Altcoins To Know About

By Eric Rosenberg • August 1, 2022

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Bitcoin Alternatives

While Bitcoin is arguably the most popular cryptocurrency, there are many other emerging currencies called altcoins.

You may have heard of some of these (notably Ethereum), but some of these other Bitcoin alternatives might not have been on your radar yet. 

Read on to learn more about these alternate cryptocurrencies. 


Table of Contents
What Are Bitcoin And Cryptocurrencies?
How Are Cryptocurrencies Created?
Top Bitcoin Alternatives
Are Any Cryptocurrencies Better Than Bitcoin?

Risks Of Bitcoin And Altcoin Investing
Pros And Cons Of Cryptocurrency
The Future Of Bitcoin And Altcoins

What Are Bitcoin And Cryptocurrencies?

Cryptocurrencies are digital currencies whose trade is facilitated on the blockchain rather than by a government or central bank.

Considered by many to be the first cryptocurrency, Bitcoin (BTC) developed due to the financial crisis of 2008 and consumers’ subsequent skepticism of financial institutions. An individual or group of developers (to this day, no one knows for sure) called Satoshi Nakamoto published a whitepaper in October 2008 detailing Bitcoin’s first blueprint. Since then, Bitcoin has grown into a worldwide phenomenon as investors seek to understand how crypto can add value to their portfolios.

How Are Cryptocurrencies Created?

The hallmark of Nakamoto’s white paper is blockchain technology, Bitcoin’s solution for validating transactions while eliminating third-party oversight. Blockchain is a virtual ledger that records all transactions with a particular asset. A block, which holds information about the transaction, connects to other blocks before and after it, forming a solid chain that makes up the ledger.

A new block is added to the chain whenever a transaction occurs, and the ledger updates the network. This block system practically eliminates the possibility of editing the blockchain to introduce fraud and the need for a centralized institution to control the exchange. 

Top Bitcoin Alternatives

Bitcoin may be the first form of cryptocurrency, but it’s certainly not the last. Listed below are some of the most popular altcoins. 

  • Ethereum (ETH): Ethereum is the second-largest cryptocurrency in terms of market cap behind Bitcoin. Ethereum’s platform supports smart contracts and other decentralized finance (DeFi) apps. Learn more about Ethereum here >>

  • USD Coin (USDC): This is part of a subgroup of cryptocurrencies called stablecoins.  Stablecoins are tied to fixed assets, like the U.S. dollar (in the case of the USD coin), precious metals, or some other tangible resource. Learn more about USDC here >>

  • Ripple (XRP): Ripple is a crypto solution for businesses and banks. Its coinage, XRP, is the currency customers utilize to facilitate transactions and source digital assets. Learn more about Ripple here >>

  • Cardano (ADA): Cardano is one of the largest crypto platforms with a smart contract feature. It aims to be the most environmentally sustainable blockchain platform. Learn more about Cardano here >>

  • Solana (SOL): Solana strives to develop faster and more affordable decentralized crypto solutions thanks to its scalability. Learn more about Solana here >>

  • Dogecoin (DOGE): Dogecoin originated as a playful alternative to other cryptos. However, in 2021, its followers’ demand for the laidback currency increased so much that today it’s one of the top ten largest cryptocurrencies. Elon Musk has a predisposition towards this coinage—his Las Vegas Loop, an underground transportation company, now accepts Dogecoin as a form of payment. Learn more about Dogecoin here >>

  • Polkadot (DOT): Polkadot’s functions are two-fold. Most importantly, it serves as a protocol that enables blockchains to communicate with one another, thereby increasing transaction speeds compared to singular blockchains. Polkadot is also a token used for staking and protocol governance. 

  • Shiba Inu (SHIB): There are one quadrillion SHIB coinage, making it much more abundant than other cryptos. The idea of a community-run cryptocurrency inspired Shiba’s founders, and it’s compatible with Ethereum. Learn more about Shiba Inu here >>

  • Avalanche (AVAX): Avalanche is another smart contracts platform with its own form of currency called AVAX. Avalanche boasts that it can produce quicker transactional throughput and finality on its blockchain than Bitcoin, Ethereum, and Polkadot. 

  • Polygon (MATIC): Because many programs use the Ethereum blockchain, the numerous simultaneous transactions result in high fees. Platforms like Polygon run parallel to Ethereum’s blockchain, enabling users to employ the same applications as Ethereum does with fewer transaction costs. Polygon also has a coin, MATIC, used for governance, staking, and trading. Learn more about Polygon here >>

  • Stellar (XLM): Stellar is a decentralized network for creating, sending, and trading all forms of currency. Stellar uses a blockchain, but its platform operates like a cash transfer application, making the program easier to use and less expensive. Stellar also has its own form of currency, called lumens. 

Are Any Cryptocurrencies Better Than Bitcoin?

Bitcoin remains the dominant force in the crypto sphere by market cap. In fact, Ethereum is the second largest cryptocurrency, yet its market cap is less than half of Bitcoin’s.

It's hard to say if any one type of cryptocurrency is worse or better than another. Since different cryptos have distinct uses, they will perform differently than other currencies in the market.  

Risks Of Bitcoin And Altcoin Investing

Cryptocurrency has been historically volatile. Those more risk-averse may consider volatility a reason to shy away from crypto. However, others believe it is the spark that keeps the crypto market engaging, incentivizing individuals to invest more. 

Diversifying a crypto portfolio is important—different types of crypto have different purposes. For example, some forms of crypto are a way to exchange currency, while others increase wealth. Likewise, some crypto platforms have smart-contract and decentralized applications, while others employ stablecoins. Understanding a crypto’s use is paramount in choosing where to invest and how to diversify to shield investors from any steep dips.   

In addition, it's wise to diversify crypto types and utilize different blockchains, potentially preventing losses in the event of a significant market dip or blockchain issue.  

Moreover, weighing the various risks and benefits of one form of crypto over another is essential, particularly regarding market cap. For example, since Bitcoin has a large market cap, it’s relatively more stable than smaller forms of crypto. However, those smaller coins’ growth potential may lead to future gains worth considering.

Pros And Cons Of Cryptocurrency

Pros

  • Challenging To Hack The Blockchain: Crypto’s blockchain is replicated and validated on thousands of individual computers. To hack the blockchain, one would have to hack at least half of these computers, making cyber security relatively high for crypto investing. 
  • Increased Financial Freedom: Cryptocurrency gives individuals more control of their money without a centralized bank or government. Individuals in countries with overly-inflated currency can use crypto as a viable alternative. In fact, El Salvador became the first country to grant bitcoin as legal tender in September 2021.
  • Elimination Of The Middleman:

    One-to-one transactions lead to more clarity and greater accountability amongst participants since it’s solely up to individuals with a direct stake. 

Cons

  • Complex Tax Law: Despite crypto’s decentralization, the government still taxes it. The IRS considers cryptocurrency a property rather than a currency—thus, a capital gains tax applies to any profits crypto investors receive. Employees who receive crypto as part of their salary have it taxed as income.  
  • Lack of Widespread Use: Although crypto is increasingly popular in the public eye, most people’s day-to-day transactions take place with a traditional currency system. Some retailers like Starbucks and Whole Foods accept crypto, but the number is relatively few.
  • Volatility: Most crypto isn’t backed by anything tangible, like precious metals. This volatility can lead to steep price increases and dips, making more risk-averse investors think twice about investing. 

The Future Of Bitcoin And Altcoins

Like gold or other precious metals, some cryptocurrencies have a limited supply. For example, Bitcoin will never exceed 21 million coins—currently, miners have uncovered over 19 million. As coins with a limited supply reach their maximum circulation amounts, their scarcity (supply) in relation to their popularity (demand) will likely cause these currencies to become more valuable.

Scarcity may have individuals more inclined to invest in crypto to combat their fear of missing out. Others may be attracted to the potential deflationary value of these limited supply cryptocurrencies. Everyone’s motivation for investing in crypto is different, but one thing is sure—crypto isn’t going away any time soon.

Eric Rosenberg
Eric Rosenberg

Eric Rosenberg is a financial writer, speaker, and consultant based in Ventura, California. He holds an undergraduate finance degree from the University of Colorado and an MBA in finance from the University of Denver. After working as a bank manager and then nearly a decade in corporate finance and accounting, Eric left the corporate world for full-time online self-employment. His work has been featured in online publications including Business Insider, Nerdwallet, Investopedia, The Balance, HuffPo, Investor Junkie, and other fine financial blogs and publications. When away from the computer, he enjoys spending time with his wife and three children, traveling the world, and tinkering with technology. Connect with him and learn more at EricRosenberg.com.

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