TYPES OF ALTCOINS
There are several categories of altcoins on the basis of their functionalities and consensus mechanisms—mining-based, pre-mined, meme coins, utility tokens, security tokens and stablecoins.
- Mining-based altcoins: These coins are mined into existence and most of them employ the proof of work (PoW) method which is used to generate new coins by solving different problems to create blocks. Notable mining-based altcoins are Litecoin, Monero and ZCash.
- Pre-mined altcoins: These are the exact opposite of mining-based coins as they are produced not through an algorithm but are distributed before being listed on crypto exchanges. An example of a pre-mined altcoin is Ripple’s XRP.
- Security tokens: They are similar to securities that are traded in bourses and they often promise equity in the form of ownership or a dividend payout to holders except they have a digital origin. The prospect of price appreciation for these tokens is a big reason why investors put their money into security tokens.
- Meme coins: Meme coins, also known as parody coins, are cryptocurrencies inspired by jokes or memes on social media. First parody coin or the meme coin to be created was the Dogecoin which was inspired by a popular Doge meme based on the Japanese Shiba Inu dog in 2013. Shiba Inu came in as a rival of the Dogecoin in 2020. Meme Coins such as Shiba Inu and Dogecoin are some of the prominent meme coins that ruled the roost in 2021.
- Utility tokens: These tokens are utilised to provide services within a network and can be used for purchasing services, paying network fees or redeeming rewards. Utility tokens are not used for paying dividends or part with an ownership stakes.
- Stablecoins: As the name suggests, stablecoins eye the reduction of the volatility associated with crypto trading by pegging their value to a basket of goods (fiat currencies, precious metals and other cryptocurrencies). This basket acts as a reserve to redeem holders in case the cryptocurrency fails or faces problems. Notable stablecoins are Tether’s USDT, MakerDAO’s Dai and USD Coin (USDC).
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