What are altcoins?

How do altcoins differ from Bitcoin (BTC)

Altcoins usually differ from Bitcoin in their technical features and use cases. Bitcoin is primarily designed as digital money and a means of payment. Altcoins often address specific needs or explore different technological applications.

At the same time, there are many altcoins built on Bitcoin’s blockchain or also primarily designed as a store of value. Unlike Bitcoin, many altcoins allow faster transactions, enhanced security or the development and use of decentralised applications (DApps) through smart digital contracts (smart contracts). In addition, they often offer new consensus mechanisms or blockchain technologies. These differences highlight the range of developments in the crypto sector.

The historical development of altcoins

One of the first altcoins was Litecoin (LTC), launched in 2011, just three years after the publication of the Bitcoin white paper. Just a year later, in 2012, XRP (XRP) appeared, addressing Bitcoin’s high block time.

The first altcoins thus emerged shortly after Bitcoin (BTC) was introduced. They were primarily developed to address the limitations and challenges of Bitcoin, the first generation of blockchain technology. These early altcoins offered improvements in transaction speed, mining process and potential applications.

In 2013, Dogecoin (DOGE) was launched by Billy Markus and Jackson Palmer. The network is based on the Litecoin protocol and was originally created as a humorous project. The cryptocurrency aimed to build on Bitcoin’s success and attract a broader audience through its playful reference to the internet meme “Doge”. Dogecoin gained unexpected popularity, reaching a market capitalisation of approximately £290 million by August 2019.

Investment in altcoins

Before investing in altcoins, you should thoroughly research the respective crypto projects. This is the only way to realistically assess opportunities and risks. Key factors in evaluating an altcoin project include:

Evaluating the underlying technology

When assessing an altcoin’s technology, look at how well it is scalable, secure and adaptable. These factors are crucial for the long-term viability and innovation potential of the project.

A scalable technology can efficiently handle a growing number of users and transactions. Security features strengthen user trust and may positively influence the project’s adoption or market presence. Adaptability ensures the project can withstand future challenges and developments in the market.

Experience and vision of the development team

A qualified and committed development team is a vital indicator of an altcoin project’s potential success. Teams that present a clear vision, extensive experience and a solid track record contribute significantly to the credibility and progress of their project.

It’s recommended to look into the professional backgrounds of team members, their involvement in past projects and their participation in the community. This helps you gain a well-rounded view of their expertise and commitment.

Recognising market trends

If you want to invest in altcoins, you’ll need a basic understanding of market trends in the crypto space. The prices of many cryptocurrencies, including altcoins, often follow Bitcoin’s movements. So in addition to metrics like your altcoin’s market capitalisation, you should also keep an eye on Bitcoin forecasts and trends.

The “altcoin season” is a unique phase. During this period, altcoins often significantly outperform Bitcoin. 

Properly assessing the risks of an altcoin project

To assess an altcoin project, you should review the underlying technology’s technical innovations, security and adaptability. These observations help you better understand the risks and opportunities of a new blockchain platform and its related coins and tokens.

However, investments in altcoins can be volatile and risky. Even with extensive research and a promising outlook, your investment could lose value. That’s why you should never invest all your available capital in a single asset class.

Technological innovation: how altcoins are advancing the crypto space

Altcoins contribute to the ongoing development of blockchain technology. They explore various approaches to improving aspects such as transaction speed, security, and usability. Many also address key challenges in the blockchain space, including privacy, interoperability, and scalability.

Privacy and security

Some altcoins place a strong emphasis on privacy and security features. For instance, Monero (XMR) uses technologies such as ring signatures and stealth addresses to enhance user anonymity. Due to its privacy-focused design, Monero has also been associated with use in darknet markets, prompting debates about its implications.

Another example is ZCash (ZEC), which employs zero-knowledge proofs to verify transactions without disclosing key details. This method supports confidentiality while maintaining the integrity of the transaction process.

While these privacy features represent significant technical progress, they also introduce ethical and regulatory challenges for the broader ecosystem.

Interoperability between different blockchain systems

Interoperability refers to the ability of different blockchains to communicate with each other. Expanding interoperability supports the exchange and interaction between blockchain networks, enabling solutions such as Layer 2. These increase transaction speed by offloading certain tasks from one blockchain to another.

Projects like Polkadot (DOT) and Cosmos (ATOM) are leading this development. They enable the secure and efficient exchange of information across different blockchains. Polkadot uses parachains and a relay chain for this purpose – specialised blockchains for specific tasks and a main blockchain that links them. Cosmos employs an inter-blockchain communication protocol (IBC), which transfers data and value between independent blockchains.

The goal is to build a connected network of blockchains. This reduces fragmentation in the space and allows different cryptoassets and blockchain applications to work seamlessly together.

Scalability and efficiency

Scalability and efficiency describe a blockchain network’s ability to process an increasing number of transactions quickly and cost-effectively, without losing performance.

The Polygon (MATIC) network addresses scalability by implementing Layer 2 protocols, which shift some processing tasks to parallel blockchains. This approach allows for high transaction throughput, with some reports citing up to 65 000 transactions per second under specific conditions. Similarly, Ethereum (ETH) is working to improve scalability through sharding – a method that divides the blockchain into smaller segments to enable more efficient processing. These developments aim to improve network performance and support the broader use of blockchain technology.

The influence of open-source projects on altcoins

Many altcoins are developed as open-source projects. By making their source code publicly available, these projects allow thorough review and improvement by the global developer community. This not only enhances the security and reliability of altcoins but also supports the creation of new cryptocurrencies addressing challenges like privacy, scalability and interoperability.

Many altcoins adopt an open-source development model, which allows for transparency and encourages community involvement. This collaborative approach contributes to the ongoing evolution of blockchain technology and supports experimentation across different platforms within the altcoin ecosystem.

The importance of the community and development team for altcoin projects

The community and development team are crucial to an altcoin’s success. A vibrant community increases visibility and acceptance, while a capable development team lays the foundation for innovation and trust.

The role of the development team

The development team of an altcoin project plays a key role in its success. A strong team brings technical expertise and creative solutions. They drive blockchain technology forward and implement new and innovative features.

Ethereum demonstrates how vital a strong development team is for a project’s progress. The cryptocurrency t benefits from the developers’ deep technical knowledge and innovation. Founder Vitalik Buterin introduced visionary ideas that established Ethereum as a leading platform for smart contracts and decentralised applications. Ongoing development by the team, such as the transition to Ethereum 2.0 and the introduction of sharding and proof-of-stake, has been instrumental in Ethereum’s long-term success and scalability.

The role of the community

In many altcoin projects, the community plays an important role alongside the development team by contributing to transparency, trust, and broader engagement. Active participation can help increase awareness and usage through discussion, feedback, and advocacy.

Litecoin, for example, has maintained a notably active community. In 2023, it saw significant increases in network activity, becoming one of the more frequently used crypto networks.

Ethereum is another case with a particularly engaged community, involving users, developers, and contributors who regularly participate in forums, social media channels, and meetups. This level of involvement has supported ongoing updates and the platform’s technical evolution.

Ethereum’s combination of sustained development and strong community participation has helped it maintain a prominent position in the crypto market. As of June 2025, its market capitalisation is estimated at approximately £260 billion, placing it second only to Bitcoin.

What are use cases for altcoins in daily life

Altcoins explore use cases that extend beyond Bitcoin’s original focus as a store of value. By applying blockchain technology to areas such as financial transactions, privacy, and digital identity, many altcoin projects aim to address specific technical or societal challenges. These efforts reflect a broader attempt to experiment with new applications and business models within the evolving digital economy.

Types of altcoins and their functions

Altcoins can be grouped into different categories based on their functions and areas of application. This variety reflects the broad spectrum of blockchain technology and its potential uses:

• Utility tokens: provide access to specific features or services on a platform and may be used for transaction fees or to access certain parts of a network

• Platform tokens: usually linked to blockchain platforms that enable developers to create their own applications

• Privacy tokens: aim to offer enhanced anonymity and privacy for transactions

• Security tokens: represent investments in real assets or companies and are typically subject to financial regulations

• Smart contract platform tokens: enable the automatic execution of contracts once certain conditions are met, improving efficiency and automating processes

• Stablecoins: digital tokens with a stable value, usually pegged to fiat currencies like the US dollar

Decentralised finance (DeFi)

Decentralised finance (DeFi) addresses the issue of limited access to traditional financial services. Many people globally don’t have access to bank accounts or credit, which hinders economic development.

Ethereum is the leading platform for DeFi applications. Stablecoins often serve as stable exchange media within DeFi systems. The network allows users to take out loans, earn interest on deposits and engage in complex financial transactions without traditional banks. 

Contract and business settlements

Smart contracts and decentralised applications (DApps) on platforms like Ethereum (ETH), Cardano (ADA) or Solana (SOL) address the inefficiencies and high costs of traditional contract settlements. These technologies enable automated, transparent and secure transactions and asset transfers without intermediaries. This reduces costs and time required to conclude contracts and the risks of human error and fraud.

Data privacy concerns

The digital age brings significant concerns about privacy in financial transactions and the storage of sensitive data. Cryptocurrencies like Monero (XMR) and ZCash (ZEC) address these concerns through strong encryption protocols. These currencies allow users to protect their financial privacy and guard against surveillance and data leaks.

Gaming and education

In the fields of gaming and education, cryptocurrencies like Floki (FLOKI) are creating new pathways for learning and play. Floki uses blockchain technology to make educational content more accessible and includes reward systems for learners and players.

Another notable altcoin is the Tron (TRX) token. This project enables the development of DApps focused on gaming and educational use by providing an efficient and cost-effective platform. The combination of accessibility and performance makes Tron an attractive choice for developers wanting to create interactive, gamified experiences.

Conclusion: why altcoins are more than just alternatives

Altcoins present a variety of potential applications that may influence how financial and technological systems develop. Beyond addressing challenges in the financial sector, some projects also explore solutions in areas such as privacy, supply chain management, and education.

Investing in altcoins can carry both opportunities and risks. Due to their high volatility, prices may experience significant fluctuations, which can lead to gains but also to substantial losses. Anyone considering purchasing altcoins like Ethereum, Litecoin, or Solana should take time to understand the underlying technology, the development team, and the project’s long-term goals. Awareness of broader market trends – such as so-called “altcoin seasons” – can also contribute to more informed decision-making.