--- title: "Altcoins for Beginners: What are they and how do they differ from Bitcoin?" description: "Learn all about altcoins and how they differ from Bitcoin. Discover the various types and their unique functionalities." url: "https://www.mrmoneytv.com/articles/altcoins-for-beginners-what-are-they-and-how-do-they-differ-from-bitcoin/" category: "Investing & Market" author: "Finlit" published: 2024-07-11 updated: 2024-07-17 source: "Mr Money TV" --- # Altcoins for Beginners: What are they and how do they differ from Bitcoin? Learn all about altcoins and how they differ from Bitcoin. Discover the various types and their unique functionalities. ## Key takeaways - Altcoins are alternative cryptocurrencies that emerged after Bitcoin. The first, Namecoin, launched in 2011, and thousands have been created since. - Altcoins fall into five main types: stablecoins (Tether/USDT, Binance USD/BUSD), utility tokens (Ethereum), security tokens (TZROP), governance tokens (Uniswap), and meme coins (Dogecoin). - Bitcoin was built as a peer-to-peer digital currency and "digital gold," while altcoins add specialised uses: Ethereum runs smart contracts and dApps, and Ripple (XRP) targets fast, low-cost international payments. - Bitcoin processes only a limited number of transactions every 10 minutes, so it slows and gets pricier when congested; Litecoin and Stellar (XLM) offer faster, cheaper transactions. - Altcoins can be more affordable than Bitcoin and offer growth opportunities, but they are generally more volatile, and telling legitimate ones from the thousands on the market is challenging. Bitcoin has been around for a while now, but much like the Ramli burger stalls that keep popping up on every corner, other cryptocurrencies have emerged since Bitcoin's debut. These [cryptocurrencies](https://www.investopedia.com/terms/d/decentralized-applications-dapps.asp#:~:text=Decentralized%20applications%20\(dApps\)%20are%20digital,as%20a%20means%20of%20exchange.) are known as altcoins. While the [buzz around Bitcoin](https://www.barrons.com/articles/bitcoin-price-drops-ethereum-cryptos-2db0cc36) still remains, altcoins have emerged as a popular alternative to Bitcoin. But what are altcoins exactly, and what are they used for? In this article, we’ll cover what altcoins are, why they exist, and how do they stack up against the Bitcoin? Let’s dive in! ## What are Altcoins? Altcoins are alternative cryptocurrencies that emerged after Bitcoin. The first altcoin, [Namecoin](https://www.namecoin.org/), was introduced in 2011, and since then, thousands of altcoins have been created. While Bitcoin remains the most well-known and widely used cryptocurrency, altcoins offer different features and functionalities that make them unique. ## Why do Altcoins Exist? Some Altcoins are made to improve on Bitcoin’s limitations, such as transaction speed, security, and scalability. Others are created for specific purposes, like enabling smart contracts, providing privacy, or supporting [decentralized applications (dApps)](https://www.investopedia.com/terms/d/decentralized-applications-dapps.asp#:~:text=Decentralized%20applications%20\(dApps\)%20are%20digital,as%20a%20means%20of%20exchange.). In essence, altcoins broaden the scope of what cryptocurrencies can do and how they can be used. ## Types of Altcoins Speaking of, let’s get into the various types of altcoins available and what they do. ### 1\. Stablecoins Stablecoins are designed to provide stability in the volatile cryptocurrency market, making them useful for trading, transferring value, and as a store of value. Investors use stablecoins to hedge against market volatility, transfer funds quickly and inexpensively, and earn interest through [decentralied platforms (DeFi platforms).](https://www.investopedia.com/decentralized-finance-defi-5113835) Examples of stablecoins include [Tether (USDT)](https://coinmarketcap.com/currencies/tether/), [Binance USD (BUSD)](https://www.binance.com/en/research/projects/binance-usd), [Gemini Dollar (GUSD)](https://www.gemini.com/dollar), and [Paxos Standard (PAX)](https://paxos.com/usdp/). ### 2\. Utility tokens Utility tokens provide access to a product or service within a specific blockchain ecosystem, such as paying for transaction fees or accessing dApps. Investing in utility tokens like [Ethereum](https://coinmarketcap.com/currencies/ethereum/) can be beneficial if you want to participate in the network’s services, such as staking, voting on proposals, or using dApps built on the platform. ### 3\. Security tokens Owning security tokens is similar to owning shares in a company. They represent ownership in an asset, company, or revenue stream and are designed to follow regulations to ensure investors everything is done legally and safely. For example, if you own [TZROP tokens](https://stomarket.com/sto/tZERO), you own a piece of the [tZERO](https://tzero.com/) company. This means you could earn money if the company does well, similar to how owning stock in a company works. You can also buy and sell these tokens on certain platforms. ### **4.** Governance tokens Governance tokens give holders the ability to participate in the decision-making processes of a decentralized network, allowing them to vote on proposals and changes. Holding governance tokens like [Uniswap](https://uniswap.org/) allows you to have a say in the future direction of the project, potentially influencing key decisions and benefiting from the project's success. ### 5\. Meme coins Meme coins are created for fun and community engagement, often lacking a serious purpose and driven by social media and community sentiment. Investing in meme coins like [Dogecoin](https://dogecoin.com/) can be highly speculative, but if you time the market right, it can yield significant returns. However, it’s crucial to understand the risks involved due to their high volatility and potential lack of intrinsic value. ## Key Differences Between Bitcoin and Altcoins ### Purpose and Use Case Bitcoin was created primarily as a digital currency to enable peer-to-peer transactions without intermediaries like banks. It's often called "digital gold" because it's viewed as a store of value. Altcoins, however, often have specialized uses. For example, Ethereum (ETH) is known for its smart contracts, allowing developers to create decentralized applications (dApps), while Ripple (XRP) focuses on fast and cost-effective international payments. #### Technology [Bitcoin's blockchain](https://www.youtube.com/watch?v=3HSPgXOjC8I) is designed to be secure and decentralized, but this means it's slower and less scalable. On the other hand, altcoins, like Ethereum and Ripple, use different technologies to process transactions faster and more efficiently. ### Transaction Speed and Fees [Bitcoin transactions](https://www.mrmoneytv.com/post/what-is-bitcoin-halving) can be slower and more expensive because only a limited number of transactions can be processed every 10 minutes. When many people are using Bitcoin, it gets congested, causing delays and higher fees to speed things up. In contrast, many altcoins offer faster and cheaper transactions by using different technologies and consensus mechanisms, making them more efficient for everyday use. For instance, [Litecoin](https://litecoin.org/) and [Steller (XLM)](https://coinmarketcap.com/currencies/stellar/) which both offer faster and lower cost transactions.  #### Market Perception and Adoption Bitcoin is the most well-known and widely used cryptocurrency, often viewed as a safe and reliable choice. In contrast, altcoins offer more variety and innovation, addressing Bitcoin's limitations like transaction speed and costs, but they can be riskier and less stable. ## Should You Invest in Altcoins? Many investors wonder if they should invest in altcoins. Over the past few years, altcoins have come and gone, while Bitcoin (BTC) remains the "gold" of cryptocurrencies. Some believe that BTC is the only way to go in the crypto universe. However, there are always two sides to the coin (pun intended). Investors looking to diversify within the crypto market might benefit from altcoins, as they can be more affordable than Bitcoin and offer unique growth opportunities. Nevertheless, it's important to approach all cryptocurrencies with caution, given their high volatility and significant risks. There are thousands of altcoins on the market, and distinguishing the legitimate ones can be challenging. ## The Bottom Line In a nutshell, Bitcoin and altcoins offer distinct investment opportunities and risks. While Bitcoin remains the leading cryptocurrency, altcoins introduce innovations and solutions to Bitcoin's limitations, contributing to a more versatile and efficient crypto ecosystem. However, altcoins are generally more volatile compared to Bitcoin. Before investing in either, be sure to do thorough research and read all the fine-print before investing in any cryptocurrency. *Disclaimer: Please note that this information isn't advice to buy or sell any financial products. We urge you to do your own research or seek professional guidance before making any investment decisions.* *Subscribe to our* [*financial newsletter*](https://www.mrmoneytv.com/) *for the latest news, insights, and advice on personal finance, investing, and more. With every email, you’ll gather the confidence and knowledge to make informed decisions to achieve your financial goals.* ## Frequently asked questions ### What are altcoins? Altcoins are alternative cryptocurrencies that emerged after Bitcoin. The first, Namecoin, was introduced in 2011, and thousands have been created since. They offer different features from Bitcoin: some improve on limitations like transaction speed, security, and scalability, while others are made for specific purposes such as smart contracts, privacy, or supporting decentralized applications (dApps). ### What are the main types of altcoins? There are five main types. Stablecoins are built for price stability (Tether/USDT, Binance USD/BUSD). Utility tokens give access to a blockchain's services (Ethereum). Security tokens represent ownership, similar to company shares (TZROP tokens in tZERO). Governance tokens let holders vote on a project's direction (Uniswap). Meme coins are driven by community sentiment and social media (Dogecoin). ### How are altcoins different from Bitcoin? Bitcoin was created mainly as a digital currency for peer-to-peer transactions and is viewed as "digital gold," a store of value. Altcoins often have specialised uses: Ethereum is known for smart contracts and dApps, while Ripple (XRP) focuses on fast, cost-effective international payments. Many altcoins also use different technology to process transactions faster and more cheaply than Bitcoin. ### Why are Bitcoin transactions slower and more expensive than some altcoins? Bitcoin can only process a limited number of transactions every 10 minutes, so when many people use it the network gets congested, causing delays and higher fees to speed things up. Many altcoins use different technologies and consensus mechanisms to offer faster, cheaper transactions. Litecoin and Stellar (XLM) are two examples that both offer faster, lower-cost transactions. ### Should you invest in altcoins? It depends. Investors looking to diversify within crypto might benefit, since altcoins can be more affordable than Bitcoin and offer unique growth opportunities. But all cryptocurrencies carry high volatility and significant risk, and altcoins are generally more volatile than Bitcoin. With thousands on the market, distinguishing the legitimate ones is challenging, so do thorough research before investing.