Altcoins, also known as alternative coins, refers to any cryptocurrency that's not bitcoin. Although some of these digital tokens may operate similarly to bitcoin
Altcoins, or alternative coins, are cryptocurrencies other than bitcoin. Some of these digital tokens operate similarly to bitcoin, but they are built on different blockchain networks.
There are thousands of altcoins, each typically created with a specific purpose. For example, a stablecoin is a type of altcoin that pegs its value to another asset, such as gold or the U.S. dollar, to stabilize its price.
"Most altcoins, derive their value from market demand and the preferences of traders," said James Royal, Bankrate's principal investing and wealth management analyst, in an interview with CNBC Make It. However, this can make them especially vulnerable to rapid and unexpected changes in price.
"If demand dries up, you'll be left with only worthless digital assets and a good story," he tells CNBC Make It.
With so many altcoins out there, it's also important to watch out for potential scams. One of the most common types of crypto investment scams involves being encouraged to purchase a large amount of a given coin and then transfer it to the scammer's wallet.
"Before you invest in crypto, search online for the name of the company or person and the cryptocurrency name, plus words like 'review,' 'scam,' or 'complaint,'" the Federal Trade Commission says on its website.
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