Recently, I’ve been reviewing the basic knowledge of cryptocurrencies and found that many beginners are still a bit confused about the concept of altcoins, so I decided to organize my understanding and share it.

Speaking of altcoins, actually, it’s a general term for all cryptocurrencies except Bitcoin. Why are they called altcoins? Mainly because early on, most of these coins were directly copied or forked from Bitcoin’s code. But now, this term is a bit outdated, because with the development of blockchain technology, various projects have their own unique ecosystems and technical solutions. Many new public chains and tokens are true technological innovations, so the more common term now is "mainstream coins."

When mentioning altcoins, we usually refer to tokens rather than coins. This distinction is very important—coins are simply tools for payment and value storage, but tokens have much more diverse functions. Because the features of tokens depend on the smart contract design by the team, their gameplays are varied. The most common standard is ERC-20, which, due to its open-source nature, makes issuing altcoins very easy. Over 20,000 types are listed on CoinMarketCap.

Altcoins can be roughly divided into several categories. Stablecoins are the most practical, such as USDT, USDC, which are pegged to the US dollar and mainly used for trading settlement and collateral. Meme coins are interesting; originating from internet meme culture, they have little practical value but are driven strongly by community, with large price swings and social media influence. Governance tokens represent voting rights in decentralized protocols, allowing holders to participate in project decisions. Utility tokens are used to maintain blockchain operation, such as Ethereum’s ETH and Solana’s SOL.

Here are a few projects worth knowing. USDC is jointly issued by Circle and a well-known exchange, and has become a market staple. Dogecoin (Doge), born in 2013, is known for its low price and unlimited supply, mainly used for tipping back in the day. UNI is the governance token of the decentralized exchange Uniswap, whose innovative AMM mechanism has contributed greatly to DeFi development. Aave is the largest lending protocol; governance token holders can not only vote but also earn income through staking.

There’s an interesting phenomenon called "Alt Seasons." Usually, at the start of a bull market, Bitcoin and Ethereum rise first, then funds flow into riskier altcoins. During this period, many new tokens emerge, wealth myths spread, and many retail investors enter the market. The most famous examples in history are the 2017 ICO boom, the 2020 DeFi Summer, and the 2021 Meme Coin wave. But after an alt season ends, a significant retracement often follows, which is the biggest risk in altcoin investing.

Investing in altcoins is indeed risky. First, small market caps mean high volatility; daily price swings far exceed those of Bitcoin and Ethereum, so profits can come quickly but losses can be just as fast. Second, scams and Rug Pulls are everywhere. DeFi and DEXs lower the threshold for issuing tokens, giving scammers opportunities. Some projects look legitimate, but once you invest, you find the team’s activity in the community decreases, and eventually they run away with the funds. The Squid Game token incident is a typical example: the price dropped from 3,000 to 0.0033, with the official claiming a hacker attack, but then they shut down all communities. Such worthless tokens are often derogatorily called "Shitcoins."

Data shows that the importance of altcoins is rapidly increasing. In 2014, altcoins accounted for only 6% of the total market cap, but by 2022, it had risen to 58%, indicating explosive growth in market demand for altcoins. Bitcoin was originally designed for peer-to-peer payments and value storage, but our needs have long surpassed that scope. Stablecoins make trading more convenient, governance tokens allow investors to participate in project planning, and meme coins, despite lacking practical applications, can strongly mobilize community strength. These innovations enable us to experience more diverse blockchains and better decentralized financial services.

So, although the outlook for altcoins is promising, their daily large fluctuations do test one’s resolve. Even if you are optimistic about a certain altcoin, you should allocate assets according to your risk tolerance and not be blinded by wealth myths.