What is an altcoin?

Imagine a dealership that lumps every vehicle except one particular brand into the same category. That’s roughly how the word altcoin works: it tells us a cryptocurrency isn’t Bitcoin, but very little about what it actually does. The same conversation can cover Ethereum’s ETH, an app token and a memecoin that started as an internet joke.

The name comes from “alternative coin.” In practice, it is used both for coins with their own blockchain and for tokens that run on top of another network. It doesn’t describe any particular way of working. Some altcoins are used for payments or network fees, others for participating in apps, and others for voting on how a project is run.

Under the broad definition, the category also includes stablecoins, which aim to keep a stable value relative to a currency or another asset. In market discussions, though, they are often considered separately. Some people also exclude ETH, so you need to understand how each person is using the term.

Why it matters

If you hold crypto, the word altcoin alone isn’t enough to tell you what you own. Two altcoins can differ in network security, issuance of new units, utility and who controls changes. We find the question “what does it do and how does it work?” more useful than the label “is it an altcoin?”.

Also, a low price per unit doesn’t mean a cheap valuation. Market cap is calculated by multiplying the price by the circulating supply. A token with a tiny price can have an enormous supply.

What to watch out for

Many smaller altcoins have limited liquidity, meaning fewer trades can be filled without a big move in price. That can make it hard to sell at the amount you see on screen. A concentration of tokens in a few wallets, scheduled unlocks and weaknesses in the code create additional risks.

Being listed on an exchange isn’t a guarantee of quality, and “alternative” doesn’t mean technologically better. And if you see the phrase “altcoin season,” it describes a period of broad altcoin outperformance against Bitcoin, not a promise that every coin will follow.