“Altcoin” is a combination of the two words “alternative” and “coin” and includes all alternatives to Bitcoin. The basic framework for Bitcoin and altcoins is similar. Thus, they share code and function like peer-to-peer systems or like a giant computer capable of processing large amounts of data and transactions at the same time.

Types of Altcoins

Depending on their functionalities and consensus mechanisms, altcoins come in various categories. While researching altcoins, these are the main categories of altcoins that are prominent:

• Mining-based

These are a type of cryptocurrency that uses a process known as mining and in doing so they can use it for verification processes for transactions and also in due course of mining, it helps to add more coins to the existing supply. The miners possess certain devices, which they use in order to solve certain mathematical equations. What generally happens is that the first miner who gets to unravel an equation will be able to verify a block of transactions. In return for their services the miners are presented with rewards in crypto.

• Stablecoins

Stablecoins were developed to offer the advantages of cryptocurrencies and tokens without the price volatility. They accomplish this by tying their value to an existing currency, one for one. Tether, the largest stablecoin by market cap, is tied to the U.S. dollar; one tether will always equal one U.S. dollar.

Stablecoins aren’t subject to turbulent, daily price fluctuations, meaning they’re useful in practical everyday cases, such as payments, investments, and loans.

• Staking-based

Just like mining, these cryptocurrencies use the process of staking for verification purposes and also to add more coins on the network. The ones who are holding their coins can actually choose to stake their coins, which would imply that they are pledging those coins for the purpose of transaction processing. The blockchain protocol of the cryptocurrency would choose a participant and allocate that individual to carry out the task of verifying a block of transactions.

• Security Tokens

Security tokens operate as investment contracts. The token’s purchaser expects future profits from dividends, revenue share, or market appreciation. These differ from utility tokens in that security tokens follow stringent rules on who can buy and transfer them.

  • Governance Based

These are tokens that provide the users with the right to vote in order to help reshape the future of the project if they wish to. Generally in most of the cases, it can be seen that these tokens allow the users to create and participate in voting on certain proposals that are directly related to the cryptocurrency. This enables the cryptocurrency to become a truly decentralized project where there are no central authority controlling the decisions and everyone has an equal say.