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The short version

  • Currently, more than 19,000 different crypto tokens trade on the market.
  • The most prominent coins today are Bitcoin and Ethereum.
  • Some examples of altcoins are Solana, Tether, Axie Infinity and Loftyi.ai tokens.
  • A cryptocurrency boom isn’t necessarily a bad thing. It signals growth in the industry. However, it can signal a bubble if many speculative projects receive funding.
  • From an investment perspective, it can be challenging to sift through so many crypto projects to find winners.
  • It is challenging to value cryptocurrencies compared to traditional investments because of their relative newness and a lack of historical data.

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Why are there so many cryptocurrencies?

There are many reasons, some good and and some bad, why we have more than 19,000 cryptocurrencies and dozens of blockchain platforms. On the positive side, there's a lot of interest in the industry. Many entrepreneurs believe that they can use cryptocurrencies to solve a particular problem or offer an innovative project.

With this in mind, many cryptos are created for specific purposes, such as being more private or having faster transaction times. Others are simply copies of existing cryptocurrencies with slight changes. There also several different over-arching types of cryptocurrencies, including:

  • Stablecoins
  • Utility tokens
  • Security tokens
  • DeFi tokens
  • Gaming coins

The biggest reason why we have so many cryptocurrencies is that anyone can create one provided that they have the know-how. Unlike with SEC-registered securities, there's no regulatory body that decides which “initial coin offerings” (ICOs) are allowed to be listed.

Because of this, there are unfortunately some people who create cryptocurrencies as get-rich-quick schemes and “rug-pull” scams. You're more likely to find scam cryptos on decentralized exchanges (DEXes), since CEXes like Crypto.com or Gemini typically won't list a token until it's legitimacy has been proven over a longer period.

If you do decide to invest in a new altcoin on a decentralized exchange, make sure to carefully read through its whitepaper. By the way, if a coin's development team hasn't published a whitepaper, that's a big red flag.

More: How to spot a crypto scam

What are the most prominent cryptos?

Below we’ll go over two of the most prominent cryptocurrencies today – Bitcoin and Ethereum.

Bitcoin

Bitcoin is the project that started it all. It was designed as a form of payment that transacts under a decentralized ledger system, which enables it to be independent of the control of a government or a financial institution.

An individual or group using the pseudonym Satoshi Nakamoto created the project in 2009. (To this day, the identity of Nakamoto remains a mystery.)

The total supply of bitcoin is limited to 21 million coins, making it deflationary in theory. Mining, which generally involves high-powered computers verifying transaction blocks, creates new tokens.

Bitcoin currently has the largest market cap in the crypto industry at around $4.24 billion. The token appeals to investors who want to store value.

Ethereum

Ethereum is the second largest cryptocurrency by market cap, but many believe it's the largest crypto network in the world. Vitalik Buterin founded the crypto in 2013, and the network officially went live in July 2015. Ethereum is widely used as a utility network for digital projects such as stakingNFTs, and decentralized finance.

The main difference between Ethereum and Bitcoin is that Ethereum’s network allows users to build new programs and applications. Ethereum serves not only as a digital currency but also as a programmable blockchain.

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Why are there so many altcoins?

So what is an altcoin or alt-token? Generally, altcoins are any cryptocurrency that is not Bitcoin. But many group Ethereum and Bitcoin together. So if we think of altcoins as any coins that are not Bitcoin or Ethereum, this means there are more than 18,998 altcoins.

The purpose of an altcoin can vary. Some have utility and value within a particular decentralized gaming ecosystem, while others can be used as currencies. As the industry develops and advances, it creates more use cases for these tokens.

Below are some examples of alt-tokens that illustrate the variety of altcoins on the market.

Solana

Proposed by Anatoly Yakovenko in 2017, Solana hosts decentralized and scalable projects. The Solana ecosystem can support the development of NFTs, decentralized finance platforms, and blockchain games.

Its main appeal is its faster than its rivals, such as Ethereum, and it has lower transaction fees. This is because it uses a unique “proof of history” algorithm to validate its transactions.

Tether

Tether was one of the first stablecoins. Stablecoins are pegged to the U.S. dollar, which makes them popular for storing value in crypto ecosystems. Investors can use these tokens for staking or liquidity pools.

But stablecoins are a polarizing topic in the crypto world, especially since we’ve seen the collapse of algorithmic stablecoins like UST, which was a part of the Terra Luna ecosystem. USDT Tether is still among the most popular coins, but recently investors have questioned which assets back the token.

Axie Infinity

Axie Infinity was one of the first decentralized gaming experiences. In the game, players raise creatures called Axies which are NFTs. After raising and breeding Axies, players can engage in battle gameplay similar to Pokemon. The native token AXS is used for voting and governance, while Smooth Love Potions (SLP) is used as in-game currency.

Lofty.AI Token

Lofty.Ai might not be as well known as the other tokens on the list but it offers real-life utility. Investors can buy tokenized real estate and earn real rental income from their investment. On the Lofty.AI website, investors buy tokens which give them a fractional share of a real-world property. The platform is built on the Algorand blockchain, and investors earn income on their investment directly from the site with no third-party intermediary.

Are there too many cryptos?

As with any industry experiencing supercharged growth, many new projects will inevitably crop up. However, the rapid development of new crypto projects is not necessarily bad. This shows there is a lot of interest in the space, and many people see the potential for various applications.

The investor's challenge is they have a large pool of tokens to filter through to find projects that will take off. Since there are so many different crypto projects, we know that some will not survive. Finding a good investment is like searching for a needle in a haystack. At worst, if speculative projects with little to no utility receive funding, it could indicate a bubble.

Crypto is difficult to value because it's a relatively new technology with limited historical data. Investors can look at certain factors of a crypto project, such as utility, narrative, user demand, innovation, and adoption rate. However, it's still not an easy task to perform fundamental analysis on cryptocurrencies.

The bottom line

Cryptocurrencies have come a long way since Bitcoin and Ethereum first entered the scene. Since then, altcoins have flooded the market. Crypto projects are challenging to value because of the relatively new technology. Investors must be diligent in their research to find an excellent prospective investment in this space.

Disclaimer: The content presented is for informational purposes only and does not constitute financial, investment, tax, legal or professional advice. If any securities were mentioned in the content, the author might hold positions in the mentioned securities. The content is provided “as is” without any representations or warranties, express or implied.

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Jay Wu, CFA Freelance Contributor

Jay Wu is a freelance contributor for Moneywise.

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