Don't invest unless you're prepared to lose all the money you invest. This is a high-risk investment and you should not expect to be protected if something goes wrong. Take 2 mins to learn more.
Estimated reading time: 2 min
Due to the potential for losses, the Financial Conduct Authority (FCA) considers this investment to be high risk.
What are the key risks?
1. You could lose all the money you invest
The performance of most cryptoassets can be highly volatile, with their value dropping as quickly as it can rise. You should be prepared to lose all the money you invest in cryptoassets.
The cryptoasset market is largely unregulated. There is a risk of losing money or any cryptoassets you purchase due to risks such as cyber-attacks, financial crime and firm failure.
2. You should not expect to be protected if something goes wrong
The Financial Services Compensation Scheme (FSCS) doesn't protect this type of investment because it's not a 'specified investment' under the UK regulatory regime – in other words, this type of investment isn't recognised as the sort of investment that the FSCS can protect. Learn more by using the FSCS investment protection checker.
The Financial Ombudsman Service (FOS) will not be able to consider complaints related to this firm or Protection from the Financial Ombudsman Service (FOS) does not cover poor investment performance. If you have a complaint against an FCA regulated firm, FOS may be able to consider it. Learn more about FOS protection here.
3. You may not be able to sell your investment when you want to
There is no guarantee that investments in cryptoassets can be easily sold at any given time. The ability to sell a cryptoasset depends on various factors, including the supply and demand in the market at that time.
Operational failings such as technology outages, cyber-attacks and comingling of funds could cause unwanted delay and you may be unable to sell your cryptoassets at the time you want.
4. Cryptoasset investments can be complex
Investments in cryptoassets can be complex, making it difficult to understand the risks associated with the investment.
You should do your own research before investing. If something sounds too good to be true, it probably is.
5. Don't put all your eggs in one basket
Putting all your money into a single type of investment is risky. Spreading your money across different investments makes you less dependent on any one to do well.
A good rule of thumb is not to invest more than 10% of your money in high-risk investments.
If you are interested in learning more about how to protect yourself, visit the FCA's website here.
For further information about cryptoassets, visit the FCA's website here.
While Bitcoin is slowly gaining a foothold in mainstream finance, an entire industry of cryptocurrency beyond Bitcoin is waiting for you to explore. Here’s what you need to know.
What is an altcoin?
The term “altcoin” describes any cryptocurrency other than Bitcoin. Over 1 million altcoin transactions happen every day, and some of the biggest household names, such as Nike and Starbucks, use altcoin-powered blockchains.
That said, not all altcoins are created equal. While some altcoins power billion-dollar brands’ Web3 ventures, many turn out to be shady cash grabs from anonymous developers.
There are over 100 new altcoins released daily, with most never amounting to anything. So how can you tell the good from the bad and ugly?
What are the different types of altcoins?
Before we break down the types of altcoins, let’s cover the difference between a coin and a token. You might hear the 2 terms thrown around interchangeably, but there’s an important distinction between them.
A coin is any cryptocurrency native to a blockchain. In contrast, a token refers to a cryptocurrency that’s not the underlying blockchain protocol’s native coin. For example, Ethereum (ETH) is a coin, whereas Uniswap (UNI) or Shiba Inu (SHIB) are tokens.
That said, the term “altcoin” doesn’t distinguish between coins or tokens. As mentioned before, the term altcoin covers all cryptocurrencies except Bitcoin.
Payment tokens
Payment tokens are cryptocurrencies whose primary use is a means of payment. These tokens are usually layer one chains’ native coins like Bitcoin. Some other examples include Litecoin, zCash and Dogecoin.
Meme coins
Meme coins are cryptocurrencies whose focus is memes and humourous content, often including a playful name and logo and active communities on Twitter and Discord. Many new meme coins could more accurately be described as meme tokens (besides Dogecoin, which has its own chain).
The key characteristic of meme coins is the engaged communities. It’s these communities which can cause prices to surge quickly. Unlike utility coins like ETH, or governance tokens like ARB, meme coins do not provide users with any value outside of the coin itself.
Utility tokens
Utility tokens play a key part in a cryptocurrency use case, giving them inherent demand and value. Ethereum’s ETH is the most popular utility token. Users need ETH to pay gas fees on the network, so as more people use the network, the coin will grow in demand.
Gas fees are the transaction fees which you pay for making a transaction on a blockchain network.
Security tokens
A security token is a cryptocurrency representing a share in another asset. For example, a company could divide its ownership into shares and distribute them as cryptocurrency tokens.
Governance tokens
A governance token is a cryptocurrency that provides the holder with a say on the direction of a blockchain network or protocol. Since voting is generally done on-chain, governance tokens offer a more transparent alternative to traditional voting methods.
Mining coins
Mining coins are coins native to proof-of-work blockchain networks. Network participants can earn mining coins by recording and validating network transactions, also known as mining.
What is the future of altcoins?
Historically, meme coins have seen massive rallies. In the 2021 bull market, top meme coins like Dogecoin and Shiba Inu went from relatively unknown to top 10 cryptocurrencies by market cap. While we could see more meme coins heading to the top 10 cryptos in the future, meme coins are volatile, and many turn out to be scams.
That said, plenty of other coins provide users with real value and have long-proven track records. For example, applications built on top of the Ethereum chain enable everything from tokenising real-world assets to managing identities on the blockchain.
However, one of the things holding Ethereum down is its long–standing issues with high transaction fees. Still, layer two projects like Arbitrum, Polygon and Optimism are solving the scalability issue, enabling users to benefit from Ethereum’s security while executing transactions at a fraction of the cost.
Altcoins vs Bitcoin: which is better?
The table below compares some of the key features of Bitcoin and altcoins.
Bitcoin
Altcoins
Use cases
Peer-to-peer transaction system
Lots of different use cases
Risk level
Low
Medium – high
Is price utility-driven?
Yes. Bitcoin already works as it should.
Most altcoins remain speculative. Even many Ethereum use cases are still theoretical and are yet to come to fruition.
Is it a good idea to invest in altcoins?
Altcoinshave provided life-changing returns in the past . However, altcoins come with risk; while some altcoins can be profitable, most never get off the ground.
When deciding what altcoins to buy, it is crucial to first due your due diligence. Ensure the cryptocurrency has a solid use case, real demand and relatively high liquidity.
Pros and cons of altcoins
Pros
Higher potential for growth than Bitcoin.
Wide range of use cases.
Unique advantages to users.
Companies like Nike, Starbucks, Tesla and Microsoft have adopted altcoin-powered networks to pursue their blockchain interests.
Cons
Higher risk than Bitcoin.
The use cases can be challenging to implement.
Complicated user experience is preventing mainstream adoption.
Thin liquidity.
Bottom line
Altcoins can get a bad reputation, but they’re innovating and revolutionising the world as we know it. They’re making it possible to reward, secure and verify all participants on the internet.
Finding the “best” altcoins can be a painstaking task, not to mention the risk associated with investing in the wrong ones. For the average user, the best option is to look at well-known, high market cap coins with a track record.
The A-Z list of altcoins
Read more about some of the most popular altcoins in one of our comprehensive guides below.
Table: shows partner brands and other brands, sorted by popularity
Compare exchanges to find one with the right mix of altcoins for you.
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Finder Score for crypto exchanges
To make comparing even easier we came up with the Finder Score. Fees, features and asset-support across the most popular platforms are all weighted and scaled to produce a score out of 10. The higher the score the better the exchange – simple.
Frequently asked questions
There are currently 8,685 altcoins on the market. However, each day another 100 altcoins go live across all blockchains, with this number likely to increase further in the future.
Yes, Ethereum is the highest market cap altcoin.
The 3 highest market cap altcoins are Ethereum, Tether and BNB. That said, much of this liquidity could be due have institutional investment and not necessarily popularity among retail investors.
*Cryptocurrencies aren't regulated in the UK and there's no protection from the Financial Ombudsman or the Financial Services Compensation Scheme. Your capital is at risk. Capital gains tax on profits may apply.
Cryptocurrencies are speculative and investing in them involves significant risks - they're highly volatile, vulnerable to hacking and sensitive to secondary activity. The value of investments can fall as well as rise and you may get back less than you invested. Past performance is no guarantee of future results. This content shouldn't be interpreted as a recommendation to invest. Before you invest, you should get advice and decide whether the potential return outweighs the risks. Finder, or the author, may have holdings in the cryptocurrencies discussed.
Elliott Lee is a freelance writer specialising in cryptocurrency and fintech. He's been involved in the crypto industry since early 2020, and his work has been published on a range of sites. His particular interests are DeFi and exploring how cryptocurrency can solve real-world issues. Elliott also loves to travel and learn about different cultures and languages, and he's always trying new sports and activities. See full bio
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