Altcoins, Utility, Governance and Hype

Altcoin is a broad label commonly applied to crypto assets other than Bitcoin. It says little about quality, purpose or rights. Some assets support networks or applications; others mainly attract attention. This lesson helps you test the connection between a product's usefulness and the specific token you are being asked to value.

Education only. Crypto assets can lose substantial value or become worthless. No lesson requires buying an asset, depositing money or sharing real passwords, private keys or recovery words.

Why are there thousands of crypto assets not one

Walk through a large shopping centre in Sydney and count the ways you can pay. There is the national currency in your wallet, plus gift cards for single shops, supermarket loyalty points and tokens for the arcade. Each was created by someone who hoped you would want it.

Crypto grew in a similar way. Bitcoin came first in 2009. Within a few years, other people copied its code, changed some rules and launched their own coins. After Ethereum went live on 30 July 2015, anyone who could write a smart contract could create a new token in an afternoon.

Most of these assets will never be widely used and many are already abandoned, so a new name on a price list tells you nothing on its own. To start sorting them, you need the most basic split of all: coins and tokens.

Tell a coin from a token

Think of a country's money and an arcade token. The rand is part of South Africa's monetary system and works almost anywhere in the country. An arcade token is created by one business and works only in its machines, and the arcade still pays its rent in rand.

In Level 4 you met the ERC-20 standard, proposed by Fabian Vogelsteller in November 2015. It gives every fungible Ethereum token the same basic functions, such as reporting total supply and balances and moving tokens between accounts. Because of that shared standard, wallets and exchanges can support a new token without custom work.

Here the analogy stops working. An arcade token is usually worth a fixed amount of money, while a crypto token has no fixed value unless its design aims for one, as stablecoins do. The same token name can also exist on several blockchains through bridges, as you saw in Level 4. With this split clear, you can meet the biggest families of coins.

Meet payment coins and smart contract platforms

Some coins were built mainly to be sent and spent, like digital cash. Others were built mainly to run programs, like a shared computer anyone can rent.

Payment coins focus on transfers. Bitcoin is the original, and several coins later copied or forked its design, such as Litecoin and Bitcoin Cash, usually changing block time or size to make payments faster or cheaper. The key question is whether people actually pay with them, and whether the network stays secure.

Smart-contract platforms are blockchains that run programs. Ethereum is the best known. Others, such as Solana, Cardano or Avalanche, take different approaches to speed, fees and decentralisation, and each has a native coin that pays fees and rewards validators. If people want to run applications there, they need the coin.

Stablecoins aim to hold a steady value against a currency such as the US dollar. You studied them, including how they can lose their peg, in Level 3.

None of these names is a recommendation. A faster network may rely on fewer, more powerful computers; a more decentralised one may be slower or dearer. Benefit and risk usually arrive together. Coins are only half the story, though, because most crypto-assets are tokens, sorted by what they claim to do.

Sort tokens by what they claim to do

A cinema ticket, a club card and a shareholder voting form are all paper, but they give very different rights. Tokens work the same way: two tokens can share the ERC-20 standard and do completely different jobs.

Utility tokens are meant to give access to a product or service, such as paying for storage or unlocking features in an app. Governance tokens are meant to let holders vote on how a protocol changes, such as its fee settings. You will study voting and governance attacks in Level 6.

A well-known example is UNI. On 16 September 2020, Uniswap introduced UNI as a governance token, creating 1 billion tokens at the start. Most were set aside for the community, and the rest went to team members, investors and advisers over four years, an allocation you will return to in the next lesson.

So judge a token by its rights, its rules and how it is promoted, not by its label. Some tokens do not even claim a use, and that is where memecoins come in.

Understand memecoins

Think of a viral joke in a group chat. Nobody planned it, it has no purpose beyond being funny, and its fame depends on how many people share it. Memecoins are crypto-assets built around that kind of joke or internet culture.

According to CoinGecko, Dogecoin started the category. Billy Markus and Jackson Palmer created it in 2013, partly as a joke, and it later became widely known after celebrity attention. Thousands of memecoins have followed, because creating one needs very little coding knowledge.

Unlike a joke, a memecoin costs real money. Its price depends almost entirely on attention, and when attention moves on there is often nothing else to support it. CoinGecko notes that memecoins are vulnerable to pump-and-dump schemes, which the token research lesson in Level 5 covers. At the other end of the family sit tokens issued by exchanges.

Look at exchange tokens and the rest of the family

A department store in Toronto may offer a store card with discounts. The card is only as useful as the store; if the store closes, the benefits go with it.

Exchange tokens are similar. Some centralised exchanges issue a token that gives holders perks such as lower trading fees or access to new token sales. BNB, linked to Binance, is a widely known example. The key risk is that the token's fortunes are tied to its exchange.

The collapse of FTX in November 2022, from Level 3, showed this. In its complaint against FTX's founder, the US Securities and Exchange Commission (SEC) said FTX was exposed to Alameda Research's large holdings of overvalued, illiquid assets, including FTX-affiliated tokens. When trust broke, token and exchange fell together.

Two more branches complete the picture: wrapped tokens, which represent a coin from one chain on another, and NFTs, which record ownership of a unique item. Both appeared in Level 4.

A category does not tell you whether anyone actually needs the token. That is the next question.

Utility tokens may claim a role in access or payment. Governance tokens may enable participation in decisions. Meme tokens often depend heavily on community attention and cultural narratives. Begin with a concrete question: what can this holder do with this token today under verified rules? A promise of future utility depends on development, adoption and permissions that may be uncertain. Do not assume a category is inherently safe or inherently valuable.

A useful product does not ensure token value

Imagine a bus company in Jakarta with its own travel tokens. If the bus accepts only those tokens, riders need them. If it also takes cards and cash, the token is optional and fewer people hold it. A token's use depends on whether something real requires it.

You can test this with plain questions. Does the network or app refuse to work without the token? Is it needed to pay fees, to secure the network through staking, or as collateral? Would the service work as well if users paid in a stablecoin? And who decides the token's role: a contract that is hard to change, or a team that can rewrite the rules?

A real use promises nothing about price: a token can be essential to a service few people want, or be created in far greater numbers than its use needs, as the supply and allocation lessons in Level 5 explains. Still, a token with no clear use relies only on attention. Next, look at how tokens reach the market.

An application can be useful while its token has no necessary role in the service or no claim on its revenue. A fee paid to an operator is not automatically paid to token holders. A buyback policy may be discretionary rather than an enforceable right. Treat future value-capture claims as hypotheses requiring documentation and assumptions.

Governance influence and outside legal rights

Governance may allow proposals, votes, delegation or control of specified parameters. Delegation lets another participant exercise defined voting power without necessarily taking asset custody. The actual power depends on quorum, proposal requirements, execution rules and administrator permissions. A poll on a forum may be advisory rather than binding.

Inspect token distribution and participation. A small holder may have a nominal vote while a few large holders or delegates dominate outcomes. Some proposals also depend on a committee or multi-signature execution step. Record who can change the rules and whether emergency powers bypass ordinary voting. The word community does not establish equal influence. Governance can be a real right while still being concentrated and unsuitable as proof of investor protection.

A token described as representing a bond, property or commodity requires an outside legal arrangement. Identify the issuer, underlying asset, custodian, enforceable entitlement, transfer restrictions and redemption process. A ledger entry can track a claim while the actual property remains governed by local law and external records. The token's technical transfer may not be sufficient to transfer every legal right.

Ask what happens if the issuer fails, the custodian loses the asset or the holder is ineligible to redeem. Reports about backing must match the actual claim and current product. A tokenised asset may also include currency, liquidity and settlement risks familiar from ordinary finance, plus contract and custody risks. The next lesson introduces supply and valuation metrics without assuming that a token's low unit price makes it cheap.

Attention promotion and airdrop hazards

A free sample in a Lyon supermarket is pleasant. A stranger saying you have "won" a prize, if you first hand over your bank card, is a trick. Crypto airdrops can look like either.

Genuine airdrops exist: when Uniswap launched UNI in September 2020, it said 400 UNI could be claimed by each address that had ever used its earlier contracts. Scammers exploit the idea that free tokens are normal.

Binance Academy describes the patterns. Fake websites copy a real project's name and design and push a "claim" page on social media. Unknown tokens appear in your wallet with a web address in their name, inviting you to "redeem" them. When you connect and sign, you may grant an approval that lets the scammer move your real tokens, the allowance mechanism from Level 4. The bluntest version asks for your seed phrase.

Every launch raises one more question: if people pay for a token hoping it grows in value, what have they bought?

Influencers may hold allocations, receive compensation or benefit from a referral link. An apparently independent review may therefore have a conflict of interest. A disclaimer does not turn weak evidence into strong evidence; it helps identify the incentive behind the claim. The contract has a verified mint limit is a testable technical claim. A screenshot of rising prices does not establish future demand or an exit route for your order size. Use dated primary evidence rather than the number of times a claim is repeated.

How launches developed

Trace how tokens launch the ICO boom

A small business raising money might sell shares, take a loan or run crowdfunding, where backers often get a product rather than a share. Early token launches mixed these ideas, often without the rules that protect buyers.

An initial coin offering (ICO) is a sale in which a project creates tokens and sells them directly to the public, usually for bitcoin or ether, to fund a platform that is often not yet built. Unlike crowdfunding, buyers often hoped to resell the tokens later at a higher price.

2017 brought an ICO boom, as cheap token creation met rising prices and buyers worldwide. Binance Academy notes that the 2017–2018 wave exposed scams, abandoned projects and offerings that may have broken securities rules.

The turning point came on 25 July 2017, when the SEC published its report on The DAO, the 2016 Ethereum project you met in Level 4. It concluded that DAO tokens were securities under US law, whether the issuer was a company or a decentralised organisation, and whether buyers paid in dollars or crypto.

The problems of the ICO era pushed the industry towards new launch formats, each changing who checks the project.

Compare IEOs IDOs fair launches and airdrops

Picture three ways to sell a new snack in Mexico City: from the maker's own van, on a supermarket shelf after the store checks the label, or at an open street market with no checks. Token launches follow the same patterns, plus a fourth: free samples.

An initial exchange offering (IEO) is a token sale run through a centralised exchange. According to Binance Academy, the exchange handles the sale and some due diligence, and usually lists the token soon after. An initial DEX offering (IDO) runs on a decentralised exchange, so anyone can join, but there is usually less vetting. A fair launch is a marketing term for a launch with no presale and no special insider allocation; always check the actual distribution rather than trusting the term.

Any method can be honest or dishonest, but scammers imitate airdrops most of all.

Try the following questions aloud or on paper before opening the worked answers. Compare your reasoning as well as your final answer.

References and further reading