What is an altcoin?

The short answer

An altcoin is any cryptocurrency that is not Bitcoin. The word is short for alternative coin, and it dates to the early 2010s when the first projects launched to compete with or modify Bitcoin. Today it covers everything from Ethereum, the second largest crypto asset, to thousands of tiny tokens with almost no users.

Because the category is defined by what it is not, it is enormously varied. Some altcoins are full blockchains with their own networks and consensus, like Ethereum, Solana, and Cardano. Others are tokens that run on top of those blockchains, like stablecoins, DeFi governance tokens, and memecoins. Grouping them all under one label obscures more than it reveals.

Some people exclude Ethereum from the term given its size, and stablecoins are often treated as their own category since they are not meant to appreciate. In practice, when traders talk about altcoins, they usually mean the broad range of coins and tokens whose prices move with market sentiment beyond Bitcoin.

The main categories

Smart contract platforms are blockchains that run applications. Ethereum pioneered the category, and competitors like Solana, Avalanche, and others aim to offer faster or cheaper execution. Their native coins pay for transactions and secure the network, which gives them built in demand tied to usage. Because they host so much activity, these coins are often the first altcoins people encounter.

Stablecoins such as USDT, USDC, and DAI are pegged to a currency, usually the US dollar, and are used for trading, payments, and savings. DeFi tokens like UNI and AAVE govern protocols for trading and lending. Infrastructure tokens such as Chainlink's LINK pay for services like oracles that other applications depend on.

Payment focused coins like Litecoin, launched in 2011 as one of the earliest altcoins, and privacy coins like Monero aim to improve on Bitcoin for specific uses. Memecoins like Dogecoin and Shiba Inu began as jokes or community projects and trade almost entirely on attention. Layer 2 tokens, gaming tokens, and tokenized real world assets round out a long and growing list.

• Smart contract platforms: Ethereum, Solana, Avalanche, Cardano
• Stablecoins: USDT, USDC, DAI
• DeFi and infrastructure tokens: UNI, AAVE, LINK
• Payment and privacy coins: Litecoin, Monero
• Memecoins: Dogecoin, Shiba Inu

Why altcoins exist

Bitcoin was designed to do one thing well: move and store value without a central authority. It deliberately changes slowly. Developers who wanted faster transactions, programmable contracts, privacy, or different economic rules had to build new networks. Ethereum's introduction of smart contracts in 2015 was the most consequential of these departures.

Many altcoins represent genuine experiments in blockchain design, testing different consensus methods, scaling approaches, and governance models. Some of these ideas have proven valuable and influenced the whole industry. Many others failed, and a large share of altcoins launched over the years no longer have any meaningful activity. The graveyard of abandoned projects is far larger than the list of survivors.

A significant number of altcoins also exist simply because launching a token is easy and can be profitable for the creators. The low cost of creating an ERC-20 token or a Solana token means thousands launch every month, most with no purpose beyond speculation. Distinguishing experiments from cash grabs is the central challenge of evaluating altcoins.

How altcoins behave in markets

Altcoins are generally more volatile than Bitcoin. In rising markets, many altcoins have risen far more than Bitcoin in percentage terms, and in falling markets they have fallen harder, with many losing 80 to 95 percent of their value from peak to trough. Smaller coins with thin liquidity swing the most.

Traders watch Bitcoin dominance, the share of total crypto market cap held by Bitcoin, as a gauge of altcoin sentiment. When dominance falls, money is flowing into altcoins, a period sometimes called an altcoin season. When it rises, investors are retreating to the relative safety of Bitcoin. These rotations have repeated across several market cycles.

Survivorship is a key concept. Of the altcoins that were in the top ten by market cap in 2017 or 2018, most have since fallen far down the rankings or become irrelevant. A few, like Ethereum, have endured. Past rankings are a poor guide to future ones, and the altcoin that outperformed last cycle is not necessarily the one that will next time.

Risks specific to altcoins

Beyond general crypto volatility, altcoins carry project risk. The team may abandon the project, the technology may not work, a competitor may win, or the token may be designed to enrich insiders. Many altcoins have concentrated ownership, where a few wallets can crash the price by selling. Checking the tokenomics and holder distribution is essential.

Scams are concentrated in altcoins. Rug pulls, where developers drain a project's liquidity and vanish, are common in new tokens. Pump and dump schemes use social media to inflate a price before insiders sell. Fake tokens imitate real ones. A professional website and a large social following are not evidence of legitimacy.

Liquidity risk is also higher. A coin may be easy to buy during a hype wave and nearly impossible to sell without crashing the price afterward. Regulatory risk is more pronounced too, since authorities have treated some altcoins as unregistered securities, and exchange delistings have followed. A token that trades on only one or two small exchanges is especially exposed to this.

How to evaluate an altcoin

Start with the basics: what does the project do, and does the token have a role in it? Read the documentation and look for a clear explanation of the problem being solved. Check whether the network or protocol has real users, measured by transactions, active addresses, or value locked, rather than just social media activity.

Then examine the tokenomics. How much supply is circulating versus locked, who holds the largest balances, and when do insider tokens unlock? Review the team's track record and whether the code is open source and audited. Compare the market cap with similar projects to judge whether the valuation makes sense relative to its activity.

Finally, size any position according to the risk. Altcoins can go to zero, and most eventually do. Treat anything beyond the largest, most established projects as highly speculative. This content is educational, not advice, and the burden of research falls on the person deciding where to put their money. Expect to be wrong often, and size positions so that being wrong is survivable.