[MUSIC] Altcoins is a simple term from the early days of
cryptocurrency to denote all digital coins to Bitcoin.
However, times have rapidly changed in the crypto realm.
With more than 10,000 coins and tokens today,
altcoins isn't the most useful term.
That's like saying George Washington was the president
and all other ones are alt presidents.
Hi. I'm Kate from The Motley Fool,
and I'm going to break down the use case
and classification of
cryptocurrencies from altcoins to Bitcoin.
Bitcoin was created as a digital currency intended to
provide an alternative payment system
that would operate free of central control,
but otherwise be used just like traditional currencies.
But our financial system does not
stop with a simple currency.
Its financial institutions like banks,
financial markets like stock exchanges,
financial instruments like assets or securities,
and financial services like
asset management and liability management.
If Bitcoin's goal is to be digital gold,
then the goal of the large encompassing term of altcoins
is to redefine our entire centralized financial system.
The very first thing to talk about
is a coin versus a token.
They are somewhat used interchangeably,
but there are big differences.
Coins are digital money created using
encryption techniques that store value over time.
The main characteristics of a coin are: one,
they're tied to public open blockchains.
Anyone is allowed to join and participate in the network.
Two, they may be sent, received, or mined.
Three, coins are not meant to perform
any functions beyond acting as money.
Tokens are digital assets issued by the project
which can be used as a method of
payment inside the project's ecosystem,
performing similar functions with coins.
But the main difference is it also gives the
holder a right to participate in the network.
Like people, coins and tokens have more than one thing.
There is overlap in terminology.
But I want to give you an overview of some of
the main crypto buckets.
Stable coins.
Cryptocurrencies can go quickly
from one price to the next.
To use them in daily transactions would be difficult.
So stable coins were created as an attempt to
make a cryptocurrency that isn't volatile.
They are designed to follow the price of another asset.
Most of the largest stable coins are
pegged to the US dollar and its value.
If their price fluctuates,
the coin will reflect that.
Stable coins exist for savings or to send money.
It is possible to earn interest using stable coins,
whether lending them out or
through certain savings protocols.
Their lack of volatility is a great asset.
But because of that,
they're maybe not the best cryptocurrency investment.
Security tokens.
Security tokens represent legal ownership
of a physical or digital asset.
Security tokens are tokens that
represent tradeable financial assets,
like a share or a bond from a company.
They're meant as a form of investment.
They pay dividends, share profits or pay interest.
They serve as direct on-chain representations of
real world securities on
blockchain projects and/or digital assets.
Utility tokens.
Utility tokens are integrated into
an existing protocol and used to
access the services of that protocol.
Utility tokens are used to purchase
services or gain rewards.
They aren't meant to be an investment.
They have a utility.
The best example of this would be a gift card where
you're prepaying for a service
or a reward at a later date.
Like security tokens,
they don't provide any ownership in any kind.
They are not created for direct investment
like security tokens,
but can be used for payment of
services within their specific ecosystem.
The relationship between a platform and
a utility token is synergistic.
As the platform provide security for the utility token,
while the token provides the network activity
necessary to strengthen the platform's economy.
Governance tokens.
Governance tokens fuel blockchain-based voting systems.
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 in a cryptocurrency.
This helps make the cryptocurrency
a decentralized project,
since all holders have a say,
and decisions aren't made by one central authority.
Investing in Bitcoin is like just investing in gold.
There's so many other opportunities
growing in the cryptocurrency space.
Some altcoins are ambitious projects
that offer more use cases than Bitcoin.
Since altcoins aren't as well-known,
they could see larger price increases if they catch on.
It's important to do research on
a project you're interested in,
as there are scam projects.
But altcoins seek to solve issues with
our current centralized system
in a new and inventive way.
I hope this video helped you on your investor journey.
At The Motley Fool, our purpose
is to make the world smarter,
happier, and richer.
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