What Are Altcoins? Defined and Explained

What Are Altcoins?

By Lyle Daly – Updated Feb 26, 2025 at 10:03 AM EST

Key Points

Altcoins offer a variety of purposes, improving on Bitcoin's technology since 2011.
Staking-based altcoins reward users for transaction processing and are more energy-efficient.
Investing in altcoins poses higher risks and potential rewards compared to Bitcoin.

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Staking-based

These cryptocurrencies use a process called staking to verify transactions and add more coins to the supply. Holders of a staking-based cryptocurrency can choose to stake their coins, meaning they're pledging those coins to be used for transaction processing. The cryptocurrency's blockchain protocol chooses a participant to verify a block of transactions. In return, participants receive crypto rewards.

An early altcoin called Peercoin (CRYPTO:PPC) was the first to introduce the concept of staking. Although Peercoin hasn't become a household name, staking has become popular because it's more energy-efficient than mining.

Governance

Governance tokens are cryptocurrencies that give holders voting rights to help shape the future of the project. In most cases, these tokens allow you to create and vote on proposals related to the cryptocurrency. This helps make the cryptocurrency a decentralized project since all the holders have a say, and decisions aren't made by one central authority.

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Should you consider investing in altcoins?

You should consider investing in altcoins if you're going to make crypto part of your portfolio and you have time to spend researching them. Some altcoins are ambitious projects that offer more use cases than Bitcoin, which is primarily used as a store of value. Since altcoins aren't as well-known, they could see larger price increases if they catch on.

There are notable downsides to buying altcoins. Because of the sheer number of them, it's challenging to pick out the best altcoins to invest in. Altcoins present a greater risk, and many of the smaller altcoins are dubious investments or scams.

To sum it up, altcoins are worth checking out for hands-on cryptocurrency investors willing to do their homework. If you're looking for a lower-risk or less time-intensive investment, cryptocurrency stocks are a better way to go. Remember that taking on too much risk isn't recommended, so even if you decide to buy altcoins, they should only make up a small part of your portfolio.

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About the Author

Lyle Daly is a contributing Motley Fool stock market analyst covering information technology and cryptocurrency. Lyle has been a contributor at the financial services company since 2018. His work has been featured on USA Today, Yahoo Finance, MSN, Fox Business, and Nasdaq. Before joining The Motley Fool, he wrote for financial brands including Intuit.

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@LyleDaly

Lyle Daly has positions in Bitcoin, Ethereum, and USDC. The Motley Fool has positions in and recommends Bitcoin, Coinbase Global, and Ethereum. The Motley Fool has a disclosure policy.