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Exploring the Alternate Uses for Various Altcoins

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In the ever-evolving world of cryptocurrency, altcoins take centre stage as dynamic players with unique characteristics. Back to basics: a currency is only as valuable as the demand it attracts. The essence of altcoins lies in understanding how these tokens function and the categories that define their fundamental actions and origins. In this article, we’ll focus on the fundamental functions of altcoins and how they affect their value.

Types of Tokens and Their Functions

Altcoins usually commence their life cycle through an ICO, or Initial Coin Offering. Companies looking to create an altcoin draft a whitepaper outlining their objectives, project workings, future plans, and budget requirements. Investors, intrigued by the whitepaper’s promise, can then invest their money in the company and receive tokens in return. This crowdfunding mechanism fuels the development of the project. Once completed, these tokens are converted into the project’s cryptocurrency, determining its market value. Notable examples include the Ethereum blockchain, which experienced significant growth since its initial offering.

Understanding Categories of Altcoins

Altcoins pertain specifically to non-Bitcoin and non-Ethereum cryptocurrencies. It’s crucial to distinguish between their characteristics, pros, and cons, as they undergo distinct market fluctuations during pump-and-dump cycles and various bull and bear periods. Understanding these can help you to decide what you want to add to your portfolio.

Store of Value Cryptocurrencies:

These aim to hold or increase their purchasing power over time. Unlike traditional currencies that lose purchasing power due to constant printing, store-of-value cryptocurrencies like Litecoin maintain a limited supply, acting as a safeguard against inflation.

Advantage: Relatively safer, likely to appreciate in dollar value over time.
Disadvantage: Limited functionality beyond preserving purchasing power.

Smart Contract Cryptocurrencies:

Designed for programmability, these tokens prioritise utility over value storage. Smart contract cryptocurrencies, like Ethereum and Binance Smart Chain, derive value from utility in transactions. Users pay fees in ETH or BNB, with inflation ensuring a steady coin supply for decentralised applications (dapps). dapps uses multiple smart contracts to operate and complete transactions without middlemen, unlike when you use a bank for transactions.

Advantage: Value tied to dapp adoption, fostering a decentralised digital and financial infrastructure.
Disadvantage: Intense competition, with new projects regularly entering the market.

Oracle Cryptocurrencies:

Smart contract cryptocurrencies rely on real-world data for their dapp to run for real-world cases. Oracle cryptocurrencies, like Chainlink, decentralise data feeds by aggregating input from individuals or institutions and then averaging it. Oracle crypto tokens are required to cover the costs of retrieving this info. Currently, Chainlink is the largest and most widely used Oracle cryptocurrency. There are roughly a dozen additional Oracle cryptocurrencies on the market, including Band Protocol and API 3.

Advantage: Growing demand with the expansion of smart contract cryptocurrencies and dapps.
Disadvantage: Challenges with token distribution, potential for price suppression.

Payment Cryptocurrencies:

Payment cryptocurrencies, such as Bitcoin Cash, Dash, and Telcoin, aim to revolutionise traditional payment systems by leveraging smart contract technology. With the inefficiencies of current systems, which involve middlemen and high fees, payment cryptocurrencies help to streamline transactions, ensuring speed and lower costs. Users can securely store funds in personal wallets, avoiding the constraints of traditional banks. With mainstream adoption potential, Dash is widely used in Argentina, and Telcoin gains traction for affordable remittance services.

Advantage: High potential for mainstream adoption, targeting a lucrative market.
Disadvantage: Unlikely to replace traditional currencies due to price volatility and government intervention.

Privacy Cryptocurrencies:

Privacy cryptocurrencies safeguard transactions and dapps while countering blockchain transparency. While transactions appear public, privacy coins like Monero and Zcash offer robust anonymity, resisting even government decryption. Various forms, from Secret Network’s privacy-preserving dapps to Tornado Cash’s transaction obfuscation on Ethereum, cater to users wanting financial privacy amid rising concerns over data exposure and surveillance.

Advantage: Strong design and longevity, often with fair launches and no pre-mines.
Disadvantage: Regulatory scrutiny, potential delisting from exchanges.

Exchange Tokens:

Exchange tokens are linked to cryptocurrency exchanges. These act as a blend of membership subscriptions and company stock. Sometimes they even serve as governance or utility tokens. These offer perks like trading fee discounts and early access to sales. Their value hinges on the exchange’s popularity, with buybacks and supply reductions increasing token prices over time. Notably, exchanges like Binance integrate their own exchange tokens into smart contract networks, further elevating their demand.

Advantage: Likely price appreciation through buybacks and burning mechanisms.
Disadvantage: Gains may not be as rapid as with other cryptocurrencies, vulnerable to regulatory changes.

Meme Coins:

Meme coins often lack a specific use case. They usually rely on hype and unrealistic profit promises further spurred on by influencers. In the cryptocurrency world, inexperienced investors often fall for inflated promises. Meme coins like Shiba Inu may seem attractive to buy at a fraction of a cent. But with massive supplies in the trillions, achieving a one-dollar price tag would require investing way more than is rational. While some argue for their potential, many meme coins primarily serve to enrich their creators. While Dogecoin started off as a joke, but it’s different in that it can be merge-mined with Litecoin at no extra cost.

Advantage: Potential for quick profits.
Disadvantage: Highly manipulated, prone to market volatility and unpredictability.

While altcoins face challenges, especially in the form of bad actors and market manipulations, numerous projects emerge from genuine interest and purpose. As Bitcoin and Ethereum dominate the charts, altcoin seasons continue to be a significant phenomenon. Investors should exercise due diligence, researching each altcoin category thoroughly before making investment decisions. Altcoins, with their diverse functions and characteristics, contribute to the dynamic landscape of the cryptocurrency market. It’s always best to DYOR the background of the project you are eyeing before making your decision.

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