What is an altcoin and how people are making money with it?

“Altcoin” is a popular term these days, and usually comes along with Bitcoin and/or cryptocurrencies. The concept is very simple: every cryptocurrency that’s not Bitcoin (BTC) is considered an altcoin (short for “alternative coin”). So, we can say most cryptocurrencies are altcoins, just because they’re not Bitcoin. Easy, right?

Well, not every “coiner” out there thinks the same. Some of them think an altcoin refers to “alternative versions of Bitcoin”, alternative digital currencies (decentralized or not) or maybe cryptocurrencies that have their own blockchain and aren’t running on any other (like the numerous ERC-20 tokens inside Ethereum).

Thereby, we can say for sure the term doesn’t have an “official” or “fixed” definition (Bitcoin either, so, don’t worry that much), but is used by the crypto-users as convenient. For example, there’s a thing with Bitcoin (BTC) and Bitcoin Cash (BCH). Some BCH adopters firmly believe this currency is the continuation of Bitcoin, so, they refuse to call it just an “altcoin”.

Many others prefer the term “altcoin” when talking about BCH because, for them, there’s only one Bitcoin and that is BTC. We’re free to choose, anyway. The world won’t be destroyed if you call “altcoin” to something that others don’t considerate as it. The word is merely referential to name the big, big world of cryptos beyond the first one.

Some optional differences

However, there’re some subtle differences we can apply to name properly these coins. According to CoinMarketCap, there’re +7.025 in existence to date, and they’re different from each other. Maybe they share some systems or purposes, but each one has something unique. That doesn’t mean they can’t be included in categories, though.

When someone uses the word “altcoin”, is usually referring to those cryptocurrencies which have their own blockchain (beyond Bitcoin). For example Litecoin (LTC), Ethereum (ETH), Ripple (XRP), Monero (XMR), or NEM (XEM).

Image by WorldSpectrum / Pixabay

On the other hand, when someone uses the word “token”, they’re referring to those coins which don’t have their own blockchain and works over another chain. They’re easy to recognize because, in most cases, you’ll need the native cryptocurrency of the main blockchain to pay transaction fees when you use these coins. For example DAI (running over Ethereum), USDT (Ethereum as well), the customized coins you can make in platforms like Counterparty, and, of course, the long list of DeFi coins (mainly from Ethereum).

Now, “digital/virtual currencies” is a term more suited for companies and organizations. If the cryptocurrency isn’t decentralized but private, they’ll probably call it a “digital currency”.

“Cryptoasset” is used around investment circles to allude altcoins and tokens per equal, and “colored coins” is a very specific concept: they’re tokens created over an existing unit of another cryptocurrency (like BTC), just by adding some extra information to the protocol. That way, they’re marked as “special”, representative or collectible.

Do they work to make money?

Image by Gerd Altmann / Pixabay

The crypto-traders out there take advantage of this volatility to make some money from arbitrage and some trading techniques. The first thing they do is investigate very well the cryptocurrency project they’re planned to investing in. If it looks like something attractive, either for its price in the short or long term, they start to put some fractions of their portfolio in the coin and wait for the best.

Perhaps they decide to wait till the altcoin goes up to sell their early participation and earn the difference, or maybe they’ll wait to buy the dip and re-sell later. Maybe they’ll buy and sell every day, or hunt some interesting event (like a new function launch or exchange listing) to start the trading.

This is a risky practice, though. Probably the yield farming with DeFi tokens is even more, but the trading with altcoins may be deceiving as well. You must learn to distinguish between “shitcoins” (useless altcoins and tokens) and projects with real potential or even take advantage of shitcoins to make some money in the short term. It’s almost an art, a whole career, and you’ll need a lot of study and practice.

Some tips? Don’t be greedy. Start slowly and cautious, with little. And never invest something you can’t afford to lose.

Originally published at https://blog.alfa.cash on September 13, 2020.

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