Investing & Retirement

A Primer on Altcoins

My friend Zach at Pineapple Money is a whiz on cryptocurrency. He kindly wrote this article today. Make sure to give Zach a visit and say thanks!

You’ve been hearing about cryptocurrencies all over the place.

Bitcoin is a name you recognize, and you’ve watched a few YouTube videos (or blog posts!) on how it works, and why it has any value.

Now you have YouTube video recommendations for something called “Ethereum,” and your friend made a lot of money with that one dog crypto that Elon Musk tweets about. 

Ethereum and Dogecoin are two examples of “altcoins.”

Source: Pixabay

What Are Altcoins?

This is an easy one. Altcoins are any cryptocurrency that isn’t Bitcoin.

Is Ethereum an altcoin? Yep. Is Dogecoin an altcoin? You betcha.

The word altcoin is the words “alternative” and “coin” smashed together to make a word that sounds better than “alternative coin”. Altcoins share similarities with Bitcoin, but also have a variety of differences.

For example, some altcoins, like Ethereum, provide “smart contracts.” Others promote price volatility of ~zero. All altcoins are some sort of cryptocurrency that relies on blockchain technology (which Bitcoin also utilizes). 

Ethereum

Ethereum (ETH) is one of the most widely known altcoins, and for good reason. As of July 2021, Ethereum has a market cap of $220 billion. According to Wikipedia, that’s around the same as the GDP of Peru. Ethereum is currently only second to Bitcoin in market value.

Source: Tenor

Ethereum is an open-source blockchain platform. That means that the code is available for anyone to read, and potentially for anyone to contribute to. They even have their own programming language, called Solidity.

Because Ethereum is a blockchain network, it is a decentralized public ledger that verifies and records transactions. The users of the Ethereum network are able to build, distribute, monetize, and use applications on the network. 

Distributed apps on the Ethereum network are commonly referred to as dApps. The cryptocurrency Ether (Ethereum or ETH) is then used to pay for all usages of the network.

Source: Tenor

That was a lot! Let’s break that down a little bit.

You know how your house is hooked up to the electric grid, and you can power your home with little personal effort? Pretty cool if you ask me. You didn’t have to get a degree in electrical engineering or become a master electrician to make it work. It’s just there and you pay a fee to use the “electrical network.”

That’s how Ethereum works. Everyone uses the network either by writing code to make dApps or by using a dApp that someone else wrote. There’s a fee to use the network. That fee is referred to as “gas” and is part of how the price of Ethereum continues to go up.

Another big positive for Ethereum is that it’s building a fairer financial system. There are billions of people on Earth that cannot open bank accounts. Ethereum’s decentralized finance (DeFi) system runs 24/7 and never discriminates. This means that anyone with an internet connection can receive, send, borrow, and earn interest anywhere in the world.

Did you know that Ethereum isn’t only for digital money? Anything that can be owned can be represented, traded, and used as non-fungible tokens (NFTs). For example, you can tokenize your works of art, and get a royalty payment automatically each and every time it is resold.

Source: Pixabay

Is Ethereum Better Than Bitcoin?

The Bitcoin blockchain was created to support a cryptocurrency, but the Ethereum blockchain was not created to serve only that function. The Ether (ETH) cryptocurrency was built to be the on-chain solution for currency for all applications that are built upon the Ethereum blockchain.

What does that actually mean? Ethereum is and plans to do much more than what Bitcoin has to offer. Ethereum is a platform for many types of decentralized applications to store information securely.

Dogecoin

Dogecoin (DOGE) is a cryptocurrency, just like Ethereum and Bitcoin are cryptocurrencies.

Source: Pixabay

You may have heard DOGE is slightly different from those more popular coins. Dogecoin was created in late 2013 partly as a lighthearted joke for crypto lovers, and its name is inspired by the “doge” meme. Even after all that, Dogecoin is in the top ten cryptocurrencies by market cap as of July 2021.

An important difference between Dogecoin and Bitcoin is that Dogecoin is an inflationary coin. That means there is not a cap on the total number of Dogecoin that can be created. In contrast, every four years the amount of Bitcoin awarded to miners is halved, which means that the inflation rate of Bitcoin is halved as well until every single last Bitcoin is released.

Not to be forgotten, Elon Musk has had quite the effect on the community and price of Dogecoin. No one really knows how or when Elon Musk became infatuated with Dogecoin. What we do know is the effect it has had on Dogecoin. Dogecoin is up 63x in the last year, and this seems to have direct ties to Elon Musk’s endorsements.

Honorable Mentions

We only covered two altcoins above. Both Ethereum and Dogecoin are popular and have a vast following. But here are a few other altcoins that deserve an honorable mention:

  • Binance Coin (BNB) – Binance coin is the currency used by the Binance exchange and is the native coin of the Binance chain much like Ethereum.
  • Cardano (ADA) – Cardano is similar to Ethereum as it has dApps, and is a network.
  • Ripple (XRP) – Ripple is similar to Bitcoin as it is a cryptocurrency and is used as a digital payment network.
  • Polkadot (DOT) – Polkadot creates an interconnected internet of blockchains.
  • Litecoin (LTC) – Litecoin was launched in 2011 as an alternative to Bitcoin.
  • Stellar (XLM) – Stellar is similar to Ripple and Bitcoin as it enables payments across borders.
  • EOS (EOS) – EOS is similar to Ethereum as it is a network and allows for the development of dApps.

How to Execute an Altcoin Investment

So you’ve learned all about Dogecoin and Ethereum and some other altcoins, and now you want to get your hands on some. How do you do that?

Before you rush off, remember that cryptocurrency is an extremely speculative market and you should only be investing money that you are willing to kiss goodbye.

Now that I’ve given you a warning, one of the easiest ways to execute an investment would be to head on over to coinbase.com, sign up, and follow their instructions on how to buy Ethereum, Dogecoin, or any of the other altcoins that they offer. 

Jesse’s note – you can give back to Zach for this terrific article by using that Coinbase link above. You receive $10 for free, and Zach gets $10 too. Not bad!

Coinbase also offers a great program called Coinbase Learn. You can earn a few different cryptocurrencies by watching videos and taking quizzes on what you learned. It’s a great way to get your feet wet without spending any money.

Note: Unlike stocks, you can purchase a fraction of a cryptocurrency so you can invest with as little as $1.

Source: Pixabay

Closing Thoughts

Here’s a quick rundown of what we went over above:

  • An altcoin is any cryptocurrency that isn’t Bitcoin.
  • Ethereum is a network that could be compared to the electrical grid
  • Dogecoin is an inflationary currency

What are you going to do with what you just learned? Let me know in the comments below!

Thanks again, Zach! I really enjoyed finally learned more about ETH, DOGE, and altcoins in general.

Thank you for reading! If you enjoyed this article and want to read more, I’d suggest checking out my Archive or Subscribing to get future articles emailed to your inbox.

-Jesse

P.S. – If you enjoy podcasts, check out the Best Interest Podcast! It’s getting some rave reviews!

About Jesse Cramer

Jesse Cramer created The Best Interest to explain personal finance and investing in simple terms. His writing has been featured by CNBC, MSN, The Motley Fool, and other national publications. He resides in Rochester, NY with his girlfriend and their dog. Follow him on Twitter: @BestInterest_JC
View all posts by Jesse Cramer →

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