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As stated in our article titled ‘5 Basic Principles of Personal Finance for a Stable Household’, one of the best ways to build financial security is to invest for the future. Investing strategically helps you grow your wealth for different financial goals, including retirement, vacations, car purchases, and education. While you can gain some small returns through interest at the bank, you might give your capital a significant boost by placing money in investment vehicles like stocks, bonds, and cryptocurrencies.
Today, those interested in supporting the emerging cryptocurrency trading market tend to look into altcoins.
What is an Altcoin?
Altcoins, which derive their name from a portmanteau of “alternative” and “coin,” comprise of all cryptocurrencies outside of Bitcoin. Though Bitcoin stands as the most popular currency by virtue of its being the most established, many altcoins –– including Ether, Dogecoin, and Tether –– have managed to gain substantial followings by improving upon the shortcomings of Bitcoin and adding useful features of their own.
Below, we’ve listed a few important altcoins all prospective crypto investors should know about.
Ether is the native token of the decentralized, open-source blockchain Ethereum. Ethereum was designed in 2013 by programmer Vitalik Buterin, who wanted to develop use cases for blockchain technology outside of currency. Today, traders use the Ethereum Blockchain for all kinds of purposes –– including the minting and trade of NFTs, which are non-fungible digital tokens representing ownership of assets like digital art.
NFTs have exploded in popularity within the past two years, accumulating a total sales volume of $10.7 billion between July 2021 and September 2021. And since the majority of NFTs run on the Ethereum blockchain, collectors are required to purchase Ether to trade NFTs. The privilege of accessing NFTs and other Ethereum blockchain services drives Ether’s popularity.
Founders created Dogecoin in 2013 to parody the many altcoins that emerged after Bitcoin’s rise to popularity. Featuring “Doge” (a popular meme of a wide-eyed Shiba Inu) as its logo and mascot, Dogecoin intended to bring a lighthearted twist to cryptocurrencies, given the cryptocurrency landscape’s culture of elitism and gatekeeping during the early 2010s.
All these years later, Dogecoin has built a steady following, which has expanded in part thanks to endorsements from public figures like Tesla’s Elon Musk. Dogecoin also propelled itself by the hype surrounding GameStop stock and gained a market capitalization of $9 billion in 2021.
When Bitcoin was introduced, it came with two major problems: expensive and slow transactions. Three years later, developers introduced the alternative Litecoin, a cheaper and speedier Bitcoin alternative.
Litecoin uses the same source code as Bitcoin but runs on an entirely different blockchain. When you trade Litecoin, transaction fees run for just $0.1 or less, which is much lower than Bitcoin’s average transaction cost of just under $2. Litecoin can also complete transactions within just 2.5 minutes; by comparison, Bitcoin transactions take up to 10 minutes to process.
One of the biggest disadvantages of cryptocurrencies is volatility. Though drastic price changes can generate high returns for investors who sell at the right time, this unpredictability makes cryptocurrencies difficult to use as actual currencies.
Tether Limited developed Tether (which was then named Realcoin) to solve this problem, a cryptocurrency pegged to the U.S. dollar. All tokens are backed one-to-one by U.S. dollars held in Tether Limited’s cash reserves. There are also Tether tokens for both the euro and the Japanese yen.
Investing in Altcoins like Ether, Litecoin, Dogecoin, and Tether can be an exciting way to grow your wealth. However, investors should note that cryptocurrencies are still relatively new, and their values are still subject to volatility. To keep your capital safe, invest only what you can afford to lose.