An alt coin (alternative coin) is any cryptocurrency other than Bitcoin (though some consider Ethereum to be a core cryptocurrency as well). There are thousands of alt coins traded on crypto exchanges all across the world. The projects with little traction or promise are sometime call S-Coins, as many of these shit coins or scams coins are deemed unsafe gambles, or were created solely to enrich their founders.
Blockchain technology has enabled cryptocurrencies to perform many functions beyond Bitcoin uses. Most of us holding Bitcoin use it as a store of value; others, especially in countries that have experienced high inflation or even hyperinflation (like Venezuela), may hold Bitcoin as a way out of their unstable economy (in fact, even in developed countries, people hold Bitcoin as a hedge against inflation). As Bitcoin has proven itself over the years to satisfy these needs, other functions that can be performed on the blockchain are not well suited for the Bitcoin network. To accommodate those purposes, there are a plethora of options available each with its own promise and protocol. I apologize in advance if this offends any Bitcoin maximalists out there who believe otherwise.
Alt coins can be categorized into many different types. These categories often overlap with each other as some currencies have such diversity in their use cases, they fit in multiple categories listed below. For example, while you may hear some people talk of Litecoin (LTC) as digital silver for a store of value, others may refer to it as a privacy coin with the features like the mimblewimble protocol now built into the Litecoin protocol.
Platform coins act as a base layer for a broad range of functionality that the blockchain enables. The Ethereum network is the most well-know platform coin, which runs on the Ether (ETH) cryptocurrency, a coin that enables multiple functions throughout its network. With Ether you can bank in a decentralized way, generate smart contracts and run dapps (decentralized applications) on the network. Many blockchains have built on their tokens the Ethereum network platform for wide variety of use cases. These tokens are often referred to as ERC-20 tokens, meaning they are created to run on the Ethereum platform according to the ERC-20 protocol. Other platform coin examples would include Cardano (ADA) and Polkadot (DOT), each aiming to achieve diverse functionality across their network in a similar manner to Ethereum.
Stable coins, such as Tether (USDT) are another kind of alt coin; stable coins mimic the value of traditional currency (also known as fiat, or government backed currency). Because onboarding fiat currency through an exchange can cost upwards of 3%, instead of transacting in US dollars, you can transfer funds from one exchange to another using a stable coin to avoid the cost. This allows you to transfer from one exchange to another without an onboarding fee (though there may be a transaction fee for the transfer). Stable coins also are able to earn interest on certain wallets and platforms at a much greater rate than if they were held as fiat in a bank account. Another use case for stable coins are for traders of cryptocurrency who like to use a particular fiat to trade into and out of.
Privacy coins allow for greater anonymity when it comes to transacting on the blockchain. In Bitcoin, for example, though your name is not necessarily associated with a crypto address, any person can see on the blockchain the amount of Bitcoin transferred from one address to another. So, if you exchange your Bitcoin from a centralized exchange to a crypto wallet, the exchange will know who sent it (since you set up KYC data on the exchange) and the amount sent. With a privacy coin, such as Monero (XRM), there are protections built into the protocol that will not allow for the amount sent to be seen. Also, if you are sending a privacy coin from a source that does not have your KYC information, the coins can protect the identifiability of the address from which the coin is being sent from.
Exchanges tokens or coins are set up by exchanges such as Binance (BNB) or KuCoin (KYC). They are set up in such a way as to allow for trading discount, for example, on their sites. Note: This is only one of the use cases for Binance coin, as Binance coin is designed to be a platform coin too and can host other blockchains to enable smart contracts.
Rollup coins such as Polygon (MATIC) offer a layer 2 solution to blockchains. Due to the high demand of Ether, the Ethereum network has been plagued by congestion leading to high fees for users conducting a transaction. A layer 2 solution, like Polygon, enables transactions to take place off-chain in a decentralized way thus reducing congestion on the blockchain. Such layer 2 solutions have been integrated into tokens built on the Ethereum blockchain (aka ERC-20 tokens) and other blockchains as well. By taking the transactions off-chain to be verified at a later time, these layer 2 solutions help speed up transactions on the blockchains they assist, and also reduce fees for users.
NFT Coins are set up to allow smart contracts specializing in NFTs. NFT are many forms of digital art, expressions such as a tweet, or even trading cards that are trademarked through the blockchain. Coins like Flow (FLOW) are set up to specialize in NFT transactions on any given NFT marketplace, such as Rarible.com or OpenSea.com.
Defi Coins (Decentralized Finance Coins) are coins that unlock the potential of decentralized finance through the blockchain. Such coins allow for different aspects of decentralization such as exchanging coins in a peer-to-peer way without third parties, or lending and borrowing without a bank or broker facilitating the exchange. Uniswap (UNI) is an example of such a coin that supports a blockchain where users can sync their crypto wallet with the chain, and swap coins without the need for a centralized exchange such as Binance or Coinbase.