Types of altcoins

Different functionalities and consensus mechanisms can make up an altcoin. Depending on these variations, altcoins may be in more than one category. Here's a crash course on some of the most important categories:

Utility tokens

Utility tokens make up the majority of tokens issued in the ICO space. They are mainly used by companies to spark interest in their products and for the application and creation of value in the services provided in blockchain ecosystems. Unlike security tokens and shares, they do not provide ownership rights over part of a company.

Based on mining

Mining-based altcoins, as the name suggests, are mined and use proof-of-work (PoW), a method in which systems generate new coins by completing “blocks” of verified transactions added to the blockchain. Examples of mining-based altcoins are Litecoin, Monero and Zcash.

Stablecoins

Stablecoins closely track the value of fiat money, such as the US dollar or euro. They allow users to transfer value cheaply and quickly around the world, while maintaining price stability. BUSD is an example of a stablecoin pegged to the USD.

Security tokens

Security tokens are digital assets issued on a blockchain and are similar to securities traded on the stock market. Some offer capital in the form of ownership, dividend payments to holders, or even bonds. Security tokens are typically launched through security token offerings (STO) or initial exchange offerings (IEO).