Cryptocurrencies have been one of the most-watched investments in recent years, making some early investors into millionaires and even billionaires. Much of the attention has focused on Bitcoin, the earliest and most valuable cryptocurrency, which briefly reached a market capitalization of more than $1 trillion in November 2021. Ethereum, the second most valuable cryptocurrency, has gotten almost as much buzz because it aims to be more than just an alternative currency.
But there are plenty of other popular cryptocurrencies, known as alternative cryptocurrencies or altcoins, that investors may consider.
What are altcoins?
Originally, an altcoin was any cryptocurrency other than Bitcoin, though increasingly Ethereum is no longer counted among the huge number of altcoins.
Like Bitcoin and Ethereum, altcoins are digital currencies, most of which rely on blockchain technology: a digital public ledger that uses complex cryptography to record every transaction. A blockchain network is decentralized—spread across thousands of computers around the world—and users are identified only by the ID number of their digital wallets.
It’s open-source technology, so anyone can take that source code and create new cryptocurrencies.
How many cryptocurrencies are there? The answer varies depending on the source, but according to one estimate, it’s as many as 70,000. Here are a few of the types of alternative cryptocurrencies and some of the altcoins to watch.
7 alternatives to Bitcoin and Ethereum
Cardano is a crypto network established by Charles Hoskinson, a co-founder of Ethereum who split off “to change the way cryptocurrencies are designed and developed.” Cardano says that unlike other networks, it was built on a “scientific philosophy” that relies on evidence-based methods of development and dozens of peer-reviewed research papers. It solicits peer feedback before implementing each change to the network.
People can send and receive funds using Cardano’s crypto, called Ada, and the network also supports decentralized apps and financial services. Like others, Cardano uses a blockchain, but it aims to be more sustainable and scalable with newer technology called proof-of-stake (PoS). Put simply: Users earn rewards, paid in Ada, to stay on the network and help verify transactions. This process uses much less electricity than the traditional proof-of-work (PoW) algorithm that Bitcoin and other cryptos use, in which new tokens are created, or “mined,” by using banks of high-powered computers to solve complicated math puzzles.
While Ada isn’t accepted as widely as Bitcoin or Ethereum, it can be used to make purchases through some merchants including digital art platforms and non-fungible token (NFT) marketplaces. Cardano also allows a special type of program that Ethereum pioneered: smart contracts, or programs on the blockchain that execute automatically when certain conditions are met.
Litecoin launched in 2011 as one of the early alternative cryptos. True to its name, it’s a sort of Bitcoin-lite, though much smaller in circulation than the original. Former Google software engineer Charlie Lee created Litecoin to improve upon what he perceived as flaws in Bitcoin’s setup, writing in a Cryptopedia essay that he had become interested in Bitcoin but recognized that it would need to be faster to scale up over time.
Lee considers Litecoin to be not a competitor, but rather “silver to Bitcoin’s gold.” Many of the core concepts are the same, as Lee built Litecoin from a copy of Bitcoin’s source code. But Litecoin uses different cryptographic algorithms for mining new tokens, and it also generates new blocks of data on the blockchain more quickly—which means that transactions settle faster than they do with Bitcoin.
3. Binance Coin (BNB)
This cryptocurrency is issued by Binance, one of the major crypto exchange platforms. The company created Binance Coin as a so-called utility token with one main purpose: to let users on its platforms pay fees for trading cryptocurrencies and building apps. Users are also incentivized with a discount for using Binance Coin, aka BNB, to pay these fees.
But thanks in part to Binance’s popularity among crypto fans, BNB has been on a tear recently. It was the fourth-most valuable cryptocurrency as of March 2022, and it can be used to pay some merchants for goods and services. The BRB token was first on the Ethereum blockchain, but Binance later created its own network.
Tether is different because it’s a so-called stablecoin, meaning it’s designed to eliminate most of the volatility inherent in crypto by pegging its value to a traditional currency. Most cryptos explicitly set themselves apart from government-backed, or fiat, currencies such as the U.S. dollar and Japanese yen. But the value of Tether, which was one of the first stablecoins on the market, is directly tied to the U.S. dollar.
Though it may sound like the concept of stablecoins doesn’t fit within the spirit of cryptos, Tether and others try to combine benefits from both sides: the intermediary-free aspect of crypto and the stability of a government-backed currency. Some users leverage Tether as a go-between when moving funds from one type of crypto to another, rather than converting to dollars and back to crypto again. Its more stable value may have attracted users interested in crypto but nervous about the volatility: As of March 2022, Tether was the third-largest crypto by market cap.
Created as a joke, Dogecoin is the brainchild of a pair of engineers who wanted to build a fun, lighthearted Bitcoin alternative and draw interest to the then-niche crypto space. They launched the coin in 2013 with a logo featuring a Shiba Inu, the dog breed that spawned countless “doge” memes.
It may have begun as a silly memecoin, but Dogecoin is the No. 13 crypto as of March 2022—surely with big thanks to meme-loving Tesla Chief Executive Officer Elon Musk, who has helped push Dogecoin higher with his Twitter chatter.
Ripple is built on an open-source peer-to-peer network like other cryptos, but it’s designed for a specific purpose. It’s a global payments network created to help large organizations quickly move funds all over the world in any form—whether Bitcoin and other cryptos, or the Japanese yen and other traditional currencies—while reducing the hefty transfer fees that are usually levied for sending money overseas and converting foreign currency. Ripple’s cryptocurrency is called XRP, and it’s typically used as a “bridge” currency to speed up conversion between different currencies.
Monero is a cryptocurrency created in 2014 with the specific goal of making it difficult to trace transactions. Although the goal was to enhance anonymity and ensure privacy, these features have made it a favorite with money launderers, hackers, and malware developers. But it also has drawn more developers than any blockchain other than Bitcoin and Ethereum. The IRS is so concerned about the potential for misuse of the network to avoid taxes that it has offered rewards to coders who can help it trace cryptocurrency transactions.
What to consider when investing in crypto
For investors, most altcoins carry many of the same considerations as cryptocurrencies—the most important of which is the extreme volatility that has whipsawed prices. Crypto bulls believe the currencies and the blockchain are the future of money, putting financial transactions in the hands of individual users and making exchanges transparent. Other crypto investors see it like any other investment: an asset that they can buy and sell to try to make a profit.
The bottom line
The crypto market is extremely volatile, and altcoins are no exception. After Bitcoin and Ethereum, many of the alternative cryptocurrencies frequently move up and down the rankings by market value. As with any asset subject to rapid price changes, the opportunity for a quick profit comes with the risk of a fast decline too. Stablecoins, whose values are tied to a traditional currency, try to mitigate this volatility.