Definition
An altcoin is defined as alternative digital assets, such as coins or tokens other than Bitcoin.
Understanding the term
Altcoins can also refer to digital assets, which are known as tokens (rather than coins). Examples of altcoins include Ethereum-based tokens called ERC-20, such as Chainlink (LINK), Shiba Inu (SHIB), and Basic Attention Token (BAT).
By forking from or competing with a cryptocurrency or blockchain, altcoins seek to improve upon their perceived limitations. Altcoins can further be categorized into different types.
Stablecoins
A stablecoin is a cryptocurrency whose value is pegged to the value of an asset with lower volatility, such as fiat currencies, other cryptocurrencies, or precious metals. Popular stablecoins include Tether (USDT) and USD coin (USDC).
Security tokens
Security tokens are similar to regular financial securities in that they represent fractions of real assets with value, such as businesses. These tokens store ownership stakes in something due to the immutability of blockchain records.
Governance tokens
Governance tokens are utility tokens that can be used to acquire certain voting rights, such as voting privileges to participate in a blockchain. Users of a decentralized autonomous organization (DAO) use these tokens to vote on decisions or bring changes to protocols.
Takeaway
Altcoins with strong utility, use cases, and purpose are key to the adoption of blockchain technology, despite their volatility. Your financial situation, goals, risk tolerance, and market conditions will determine which altcoin is best to invest in.