With the growing popularity of cryptocurrencies a variety of digital currencies have emerged on the crypto scene. It is important to distinguish between the different types of coins and understand their unique value.
Let’s start with Bitcoin. It was created in 2008, as a reward for the process of mining and to bypass the controls of the banking system. These are digital assets that are used as a medium of exchange for transactions. A limitation of bitcoin, however, is its rigorous mining process that consumes tremendous time and effort.
As the crypto market quickly gained momentum,, it also started evolving, leading to the emergence of altcoins.
What is an altcoin?
An “Altcoin” is any coin that is an alternative to Bitcoin. It can be traded on an altcoin exchange or any major cryptocurrency exchange. Altcoins make up a significant part of the crypto market and are usually designed to compete with the market leader, Bitcoin.
Some of the major types of altcoins include – Ethereum, XRP, Axie Infinity, etc
Altcoins attempt to improve upon the perceived limitations of whichever cryptocurrency and blockchain they are forked from or competing with. The first altcoin was Litecoin, forked from the Bitcoin blockchain in 2011. Litecoin uses a different proof-of-work (PoW) consensus mechanism than Bitcoin, which is less energy-intensive and quicker.
What is a stablecoin?
Cryptocurrency trading and use have been marked by volatility since launch. Stablecoins aim to reduce this overall volatility by pegging their value to a basket of goods, such as fiat currencies, precious metals, or other cryptocurrencies.
The basket is meant to act as a reserve to redeem holders if the cryptocurrency fails or faces problems. Price fluctuations for stablecoins are not meant to exceed a narrow range. The USDT, for example, is pegged to the U.S. dollar at $1. As a result, 1 usdt is always worth $1.
Although altcoins are important assets for cryptocurrency investors, they experience significant price fluctuations.
In comparison, stablecoins limit losses, but they are not without controversy.
Whether users should invest in altcoins or stablecoins depends on several factors, including risk tolerance and the overall objective of their portfolio.
The key to being a successful crypto user comes down to the old saying of “don’t put all your eggs in one basket”. If you diversify across different coins, you’re safeguarding yourself against concentrated risk – such as one coin plummeting. Having a good mix of altcoins and stablecoins would be a good way to spread your assets, expose it to market gains (such as altcoins) and it is safe in stablecoins.